Concept of “Ongoing Royalty” (as in Compulsory License) in Lieu of Injunction Affirmed
Contact Paul Devinsky
The U.S. Court of Appeals for Federal Circuit affirmed a district court’s authority to set an “ongoing royalty” in lieu of an injunction, but remanded the case to the district court for additional fact finding on the proper amount of the “ongoing royalty.” Paice LLC v. Toyota Motor Corporation, et. al., Case No. 07-1610, -1631 (Fed. Cir., Oct. 18, 2007) (Prost, J.; Rader J., concurring).
After a successful infringement trial, Paice sought an injunction. In light of the Supreme Court’s eBay decision, the district court denied the injunction. Sua sponte, the district court entered an order requiring that Toyota pay a $25 per vehicle royalty for future acts of infringement. The $25 per vehicle figure matched the jury award for past infringement damages.
Paice appealed the post-verdict royalty rate set by the district court. Paice argued that the district court did not have the statutory authority to set a royalty rate between the parties and, if it did have such authority, Paice had a Seventh Amendment right to have a jury set the rate for the ongoing royalty.
In affirming the district court, the panel first turned to the language of 35 U.S.C. § 283, noting that the statute allows a district court to enter injunctions “to prevent the violation of any right secured by a patent.” Thus, the question turned on whether a court-imposed royalty payment prevents the violation of rights secured in the patent. Relying upon past precedent that allowed the imposition of ongoing royalty payments in antitrust settings and others, the panel determined that a district court had the power to set an ongoing royalty rate in lieu of an injunction.
The panel then turned to and rejected Paice’s argument that it was entitled to have a jury set the ongoing royalty. First, the panel reviewed § 283 to determine if Congress granted a right to have a jury set a royalty award. Finding it did not, the panel applied a traditional Seventh Amendment analysis that asks whether the cause of action was one that would have been tried at law or equity upon the enactment of the Constitution. Noting that equity courts often required accounting for profits, the panel determined the monetary award sought by Paice standing alone was insufficient to trigger rights under the Seventh Amendment. Thus, Paice failed to show the district court erred in not having a jury determine the royalty rate.
Although the panel rejected Paice’s arguments, it vacated the amount set for the “ongoing royalty” because the record was insufficient for the panel to review the district court’s rate determination. The panel remanded for further proceedings on the proper “ongoing royalty,” with a suggestion that the district court have the parties negotiate an amount. The district court could hold further hearings and determine the rate if the parties could not agree.
Judge Rader wrote separately to take issue with the majority’s characterization of the order as an “ongoing royalty,” as opposed to a “compulsory licenses.”; and with the majority “suggesting” that the district court have the parties negotiate the royalty rate. Judge Rader noted that any order by a court that allows the continued infringement of a patent for a royalty payment is a compulsory license. In Judge Rader’s view, any ongoing payment would not be a compulsory license if the parties agree to the amount. Therefore, Judge Rader would require the district court to have the parties hold negotiations concerning the proper amount; only upon the failure of these negotiations, should the district court step in to set the amount of the future royalty.
PTO Obviousness Ruling Sustained Based on Post-KSR Application of Common Sense and Flexible Analysis
By Paul Devinsky
In a merged re-examination proceeding that proceeded in parallel with district court infringement litigation, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (the Board), ruling that the subject patent is invalid for obviousness, notwithstanding an earlier jury verdict to the contrary. In re Translogic Technology, Inc., Case No. 06-1192 (Fed. Cir., Oct. 12, 2007) (Rader, J.).
In a consolidated re-examination proceeding (stemming from a series of five third-party requests filed by Hitachi, the defendant in an infringement litigation), the U.S. Patent and Trademark Office (USPTO) ultimately found the claims obvious in light of two different combinations of prior art references. Translogic appealed.
Meanwhile, the district court infringement case proceeded in parallel. After a jury upheld the patent as valid, the district court granted summary judgment of infringement with respect to some of the accused products. Another jury later found induced infringement and awarded damages. After the district court entered a permanent injunction (which the Federal Circuit stayed), the district court entered final judgment against Hitachi. Hitachi appealed.
The Federal Circuit assigned Translogic’s appeal from the Board decision to the same panel that was considering Hitachi’s district court appeal. In the appeal from the Board, there were two main issues—claim construction and obviousness.
During the re-examination proceedings, the USPTO interpreted the term “coupled to receive” in the claim phase “control input terminal coupled to receive a control signal” as a “[t]erminal capable of receiving a control signal. The control signal itself is not part of the claimed structure.” Reviewing the Board’s claim construction de novo, under the “broadest reasonable interpretation” standard, the Court affirmed the Board’s construction. Translogic argued that the Board should have followed the district court’s claim construction of the term “coupled to receive,” i.e., “connected to receive an input variable, directly or through one or more intervening inverters or buffers.” Under the district court’s construction, the prior art would not disclose each input and control input terminal receiving a variable signal from a different source. The Court, citing Phillips and noting that the claim terms do not specify any structural connection for the input terminals, agreed that the Board’s construction was consistent with the broadest reasonable construction, the district court’s construction notwithstanding.
Reviewing the Board’s fact finding underlying its obviousness determination under the “substantial evidence” standard, the Court also affirmed the Board’s decision on obviousness. Translogic contended that a prior art multiplexer reference (Gorai) was not relevant prior art with respect to the patent, and that another prior art reference (Weste) did not disclose the use of the claimed “transmission gate multiplexers” (TGMs) connected in series.
After citing KSR for the proposition that “obvious variants of prior art references are themselves part of the public domain” and that “common sense extends the use of customary knowledge in the obviousness equation” (or, in the words of KSR, “[a] person of ordinary skill is also a person of ordinary creativity, not an automaton”), the Court analyzed the Board’s application of Gorai in view of Weste. The Court concluded that Gorai (who described multiplexer logic as opposed to circuitry) was within the scope of the relevant prior art based on its finding and that a person of ordinary skill in the art would have a thorough understanding of electrical switching systems, as well as knowledge of actual electrical implementations of multiplexers. The Court rejected Translogic’s argument that Gorai was not relevant because it does not specifically disclose the claimed series multiplexer as “overlook[ing] the fundamental proposition that the series circuits in Gorai are prior art within the public domain and the common knowledge of a person of ordinary skill in the art.”
Next, in a post-KSR argument doomed by its suggestion that failure to meet the teaching, suggestion, or motivation test might somehow be termed a deficiency, Translogic also argued that Gorai did not teach or suggest the use of TGMs for each stage and that although Weste does disclose a TGM circuit, it had no specific teaching, suggestion or motivation to use TGMs in a series circuit such as that shown in Gorai. Sustaining the Board and quoting KSR, the Court noted that “an obviousness analysis ‘need not seek out precise teachings directed to the specific subject matter of the challenged claim, for a court can take account of the inferences and creative steps that a person of ordinary skill in the art would employ.’”
Practice Note: This case represents an example of tactical and strategic use of re-examination (by a district court infringement defendant) in order to gain advantage of the broadest reasonable claims construction (at the USPTO) and to obtain an obviousness determination without regard to the clear and convincing evidentiary burden imposed on a challenger to validity in the district court, a burden that springs from the statutory presumption of validity. Because the Federal Circuit sustained the Board, it vacated the result of the district court proceeding.
Means-Plus-Function Clause Covering Software Is Definite if the Corresponding Algorithmic Structure Is Understandable to One Skilled in the Art
By Thomas George
The U.S. Court of Appeals for the Federal Circuit overturned a summary judgment of indefiniteness of a claim containing means-plus-function (M+F) clauses covering software, holding that the specification of algorithms performing the claimed function “need only disclose adequate defining structure to render the bounds of the claim understandable to one of ordinary skill in the art.” Allvoice Computing PLC v. Nuance Communications, Inc., Case No. 06-1440 (Fed. Cir., Oct. 12, 2007) (Rader, J.).
Allvoice owns a patent that covers an interface between a speech recognition engine and various end-user application programs (e.g., word processing programs). Specifically, when a user speaks into a computer’s microphone, the speech recognition engine converts the speech to recognized words. The recognized words are then processed by the claimed interface to output the recognized words in a format understandable by multiple application programs. In addition, link data associating the original speech to the recognized words is maintained and this link data is updated if, for example, the position of the recognized word is changed using a word processor. The alleged infringer, Nuance Communications, markets voice recognition software under the name Dragon NaturallySpeaking.
The district court, on summary judgment, ruled that certain M+F clauses covering software were indefinite for failure to set forth sufficient algorithmic structure corresponding to the functions recited in the means clauses. Allvoice appealed.
The Federal Circuit reversed, noting that the record did not contain clear and convincing evidence that the computer algorithms disclosed in the specification were insufficient to render the bounds of the claim understandable to the ordinary skilled artisan. To the contrary, the Court found that specification disclosed enough details to constitute an actual algorithm (i.e., the algorithm is the corresponding structure) for carrying out the functions recited in the M+F clauses. The Court noted that the only record evidence regarding this issue was the statement by Allvoice’s expert that the algorithms described in the specification for performing the recited functions could be implemented by one skilled in the art using well-known features of the Windows operating system.
Practice Note: When using M+F clauses to claim a software-based invention, the patent practitioner should ensure that the algorithms described in the specification discloses adequate structure to render the bounds of the claim understandable to one skilled in the art. This is a specific application of the general rule that a M+F clause is definite if a person of ordinary skill in the art would be able to recognize the structure in the specification and associate it with the corresponding function in the claim.
Inventor “Raised from the Dead” Not Exceptional
By Todd Hales
Despite acknowledging “a unique case involving an unusual set of facts—a not-so-dead inventor, forged documents, no evidence of culpability, and a late discovery request,” the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s finding that the case is not exceptional under 35 U.S.C. § 285 and does not support a motion for attorneys’ fees. Digeo, Inc. v. Audible, Inc., Case No. 07-1133 (Fed. Cir., Nov. 1, 2007) (Michel, C.J.).
Digeo purchased U.S. Patent No. 5,734,823 (the ’823 patent) “as is” in 2002 at a bankruptcy estate sale. Prior to the sale, Digeo obtained the patent file history, in which a power of attorney (POA) was filed in 1996, allegedly signed by one of four inventors as the executor of the estate of his deceased brother, a second inventor. Also filed on the same day was a separate POA by the remaining three inventors. In assignments executed in 1996, but not recorded until 2002, the three inventors executed an assignment, and the one inventor executed the assignment on behalf of his supposedly deceased brother.
Digeo filed suit in 2005 against Audible for infringement of the ’823 patent. While deposing the inventors, Audible discovered that the supposedly deceased brother was, in fact, not dead and that the one inventor never signed the POA or assignment documents. Moreover, Audible secured a license from the supposedly deceased inventor retroactively to the date of issuance. Audible then moved for summary judgment and alternatively for dismissal on the grounds that Digeo lacked standing because it did not possess complete ownership of the ’823 patent and because Audible was a licensee of the patent. Audible also moved for attorneys’ fees under § 285 and for limited discovery to develop the § 285 claim.
The district court granted the summary judgment motion in part, concluding that because the assignments were forgeries (without opining whether anyone actually committed forgery), the assignments did not convey legal title in Digeo. The court denied the motion for attorneys’ fees, finding that there was no evidence that Digeo knew or should have known about the “forged” documents and further denied the request for extension of discovery. Audible appealed the court’s denial of attorneys’ fees and extension of discovery.
The Federal Circuit found, upon review, that the district court’s findings were not clearly erroneous in its denial of attorneys’ fees. The Court explained, in response to Audible’s arguments, the different burdens of proof under § 285 and Fed. R. Civ. P. 11 (under Ninth Circuit case law). According to the Court, when “a litigant moves based upon non-frivolous allegations for a Rule 11 sanction, the burden of proof shifts to the non-movant to show it made a reasonable pre-suit inquiry into its claim,” whereas “the burden of proof for § 285 motions remains with the movant to show by clear and convincing evidence that the case is exceptional.” Thus, while Audible argued that the burden for a showing had shifted to it as the movant, the Court explained that the burden was originally upon Audible under the § 285 claim. Because Audible was unable to establish with clear and convincing evidence that Digeo knew or should have known of the title defect in the patent, the district court’s findings were not clearly erroneous. In finding no abuse of discretion in the district court’s denial of the discovery motion, the Court stated that “Audible’s ‘unsubstantiated speculation’ about Digeo’s conduct does not demonstrate a ‘reasonable probability that the outcome of its § 285 motion would have been different had discovery been allowed.’”
Practice Note: The Court suggested that the result may have been different had Audible brought a Rule 11 motion against Digeo, which would have required Digeo to show that it conducted a reasonable pre-suit investigation. Failure of a plaintiff to establish such a showing can serve as a basis for a Rule 11 sanction and a separate § 285 motion.
Expert Testimony Dominates Claim Construction Issue
By Anish R. Desai
The U.S. Court of Appeals for the Federal Circuit reversed the claim construction ruling of the International Trade Commission (ITC), concluding that in light of the correct construction, the ITC’s determination of non-infringement and lack of domestic industry was in error. OSRAM GmbH v. International Trade Commission, Case No. 06-1282 (Fed. Cir., Oct. 31, 2007) (Newman, J.).
OSRAM’s patents are directed to compositions, methods and uses wherein luminous pigment powders contain phosphors that produce a spectral shift in the light emitted by electroluminescent components such as LEDs. The administrative law judge in the case determined that the claim limitation “mean grain diameter d50 < 5 um” was invalid for indefiniteness since the symbol “d” is commonly defined as “median,” while the claim uses the term “mean.” The ITC disagreed, finding that the claim limitation meant “mean” or “mathematical average,” citing the general rule that words prevail over symbols. The ITC further held that the “mean” should be calculated based on the volume of grains rather than the number of grains. Based on this construction, the ITC held that the respondent’s products did not infringe and that OSRAM did not satisfy the domestic industry requirement of § 337. OSRAM appealed
The Federal Circuit reversed, ruling that the claim term “mean” should be calculated based on the number of grains, not the volume. The Court primarily relied on the testimony of the parties’ experts, who initially agreed that the number-based average was appropriate. Given that the specification did not provide any guidance on the method of measurement, the Court found it appropriate to rely on the testimony of those experienced in the field. The Court also noted that the number-based method was a more accurate method of measuring the existence of small particles that are beneficial to performance, while the volume-based method was a more accurate way of measuring the existence of large particles that are detrimental to performance. Thus, according to the Court, the number-based method was the correct choice, since the purpose of the claim limitation was to state the parameters of the products that work in the desired way, not those that may not. Using the number-based method of measuring, the Court found the claims were infringed and that OSRAM did meet the domestic industry requirement.
Practice Note: Where a patent specification is unclear as to the method of calculating a measurement required by a claim limitation, so long as the claim is not “insoluably ambiguous,” extrinsic evidence, such as expert testimony, will often determine the method that should be used.
No Waiver of Eleventh Amendment Immunity in Later Case
By Stephen J. Gaudet
Addressing the issue of whether a state is entitled to assert its sovereign immunity under the Eleventh Amendment when the state intervened in an earlier action that was dismissed for improper venue, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s holding that a state is entitled to assert its 11th Amendment immunity under such circumstances. Biomedical Patent Management Corp. v. State of California, Case No. 06-1515 (Fed. Cir., Oct. 23, 2007) (O’Malley, J., sitting by designation).
Biomedical Patent Management Corp. (BPMC) is the owner of a patent directed to methods for assessing placental dysfunction. BPMC alleges that the California Department of Health Services (DHS) infringed the patent.
Kaiser Foundation, a subcontractor of DHS, filed a declaratory judgment action against BPMC seeking a declaratory judgment of non-infringement and invalidity. DHS intervened in this action. Ultimately, this action was dismissed without prejudice. Soon thereafter BPMC initiated a new action, this time against DHS. DHS asserted the defense of sovereign immunity, but did not assert a counterclaim. The district court dismissed the case without prejudice.
Later, BPMC again filed suit against DHS, and DHS again moved to dismiss this case based on a sovereign immunity defense. Again, the district court dismissed the case. This time BPMC appealed.
BPMC argued that by intervening in the earlier lawsuit, DHS had effectively waived its immunity. The U.S. Supreme Court has indicated that there are two circumstances in which a state may be sued; when Congress validly authorizes such a suit and when a state has waived its sovereign immunity by consenting to a particular suit (Coll. Sav. Bank v. Fla. Prepaid). The Court went on to state, “we will find a waiver if the State voluntarily invokes our jurisdiction, or else if the State makes a clear declaration that it intends to submit itself to our jurisdiction.”
The Federal Circuit agreed that when DHS intervened against BPMC in the early lawsuit, it voluntarily invoked the district court’s jurisdiction and, thus, waived its immunity for the purposes of that particular action, citing the 2002 Supreme Court decision in Lapides v. Bd. of Regents of the Univ. Sys. of Georgia (a “State’s voluntary appearance in federal court as an intervenor avoids Eleventh Amendment inquiry.”).
However, BPMC argued that the earlier waiver went further, specifically that it carried over to the present suit as it involved the same subject matter and the same parties. BPMC also argued that DHS should be judicially stopped from asserting immunity because in the earlier case the district court accepted DHS’ jurisdictional arguments when allowing it to intervene. Finally, BPMC argued that the conduct of the State of California, as an active participant in the patent system, operates as a general waiver, citing the 2006 Supreme Court decision in Central Virginia Community Coll. v. Katz.
As to the “carry-over” waiver argument, the Court cited the Ninth Circuit case of S. Pasadena v. Mineta, finding that a waiver of immunity in an earlier action that was voluntarily dismissed does not carry over to a re-filed action involving the same dispute, noting that the voluntary dismissal left “the situation as if the action had never been filed” and that a case filed after a voluntary dismissal is an entirely new action.
The Federal Circuit also rejected the argument that the Supreme Court’s use of the term “matter” in Lapides signals the importance of subject matter (rather than the specific case) in considering whether waiver is carried over into a later action. The Court found little significance in the use of the term “matter” in Lapides, citing other passages in Lapides (indicating the Supreme Court was focusing on waiver in “the same case”) and suggesting that BPMC was playing a semantic word game. Rather, the Federal Circuit cited its own precedent for the proposition that in situations in which a waiver existed in an earlier dismissed action or in an entirely separate action, the waiver does not extend to a subsequent, separate lawsuit.
As for BPMC’s judicial estoppel argument, the Federal Circuit looked to the three factors articulated by the Supreme Court in the 2001 decision of New Hamp. v. Maine: whether a party’s later position is “clearly inconsistent” with its earlier position; whether the party succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create “the perception that either the first or second court was misled”; whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not stopped. The Federal Circuit agreed with the district court that the second and third factors favored the state here and that the first factor was applicable.
Finally, the Federal Circuit rejected the argument that California’s participation in the patent system effectively waived its immunity, citing Vas-Cath, (“it is established that a state’s participation in the federal patent system does not of itself waive immunity in federal court with respect to patent infringement by the state”)
Patent Entitlement Disputes in a “First‑to‑File” System
By Andrew Sharples
Clarifying the difference between patent entitlement and the “first-to-file” doctrine, the House of Lords recently ruled in a preliminary action in the United Kingdom that Yeda Research and Development Company Limited was entitled to continue with its action to establish their entitlement of the patent covering the anti‑cancer drug Erbitux. Yeda Research and Development Company Limited v. Rhone‑Poulenc Rorer International Holdings Inc & Others  UKHL 43.
Unlike the United States, the United Kingdom’s patent system is based on a “first-to-file” system, which means that the first inventor to file a patent application will be awarded a patent, as opposed to the inventor who first invented it (in reality these are almost always the same person). However, this does not mean that a patent will be granted to anyone who has made a filing; the person must be entitled to file the application by virtue of being the inventor or a successor in title of the inventor. It is therefore possible for patent entitlement disputes to arise under a first-to-file system when different parties are both claiming to be the inventor of the same invention. A number of these disputes have come to trial in the UK courts in the last few years, almost always in relation to an invention arising out of a collaboration between the parties or in circumstances where employees involved in the invention have moved between the parties.
The 2005 case of Markem v. Zipher fell into this latter category. Zipher was a company founded by several individuals who had previously been employed by Markem. Zipher went on to file a patent application that Markem contended should have belonged to Markem as the information underpinning it was allegedly developed whilst the founders of Zipher were employed by Markem. Ultimately, the Court of Appeal dismissed this, finding that the invention was made after the employees had left Markem and therefore rightly belonged to Zipher and that any information used in the making of the invention, even if originating at Markem, was not confidential. In reaching this conclusion the Court of Appeal found that a person (A) who claims to be entitled to a patent which has been granted to someone else (B) could not succeed merely by showing that A had been the inventor and that B had not. In particular, “A must be able to show that in some way B was not entitled to apply for the patent, either at all or alone. It follows that A must invoke some other rule of law to establish his entitlement—that which gives him title, wholly or in part, to B’s application.”
Here, the House of Lords came to consider this ruling of the Court of Appeal, and in doing so, overturned it. The House of Lords found that the UK Patents Act provided an exhaustive code for determining who is entitled to the grant of a patent, the person entitled being the inventor or their successor in title, the inventor being the actual devisor of the invention. If such a person is that devisor then they will prima facie be entitled to the patent, and no other rule of law need be invoked to establish this. In reaching this conclusion, the House of Lords made clear that “first-to-file” is a rule about validity and should not be confused with issues of entitlement. The doctrine of “first to file” merely settles the question as to which patent will be valid when two inventors have independently devised and applied for patents for the same invention. Instead, issues of entitlement arise where multiple parties, all of whom will have had some link or relationship, are disputing who is ultimately responsible for a single instance of devising an invention.
Practice Note: Ultimately this case highlights that in determining entitlement to a patent it is important to establish the facts surrounding the creation of an invention, even in a first‑to‑file system. In proving entitlement, accurate records about who did what and when are invaluable. This needs to borne in mind particularly when an invention is devised as part of a collaborative effort or in any other circumstance in which divergent interests arise.
Bayh-Dole Funding Agreement Does Not Create a Substantial Question of Federal Patent Law
please contact Paul Devisnky
In a nonprecedential decision addressing the jurisdiction of the U.S. Court of Appeals for the Federal Circuit under 28 U.S.C. § 1295(a) to review questions of patent law under 28 U.S.C. § 1338, the Federal Circuit held that the mere appearance of the Bayh-Dole Act in Title 35 of the United States Code does not make it a statute under the patent law. Wisconsin Alumni Research Foundation v. Xenon Pharmaceuticals, Inc., Case Nos. 07-1026, -1033 (Fed. Cir., Oct. 24, 2007) (per curiam).
The appeal to Federal Circuit related to a patent licensing dispute between the Wisconsin Alumni Research Foundation (WARF) and Xenon, which was a licensee of WARF-owned patents. (WARFis the patent and licensing arm of the University of Wisconsin.) The licensed technology involved a compound relating to the control of cholesterol, obesity and diabetes. In its complaint, WARFasserted that Xenon breached its license agreement by not paying WARFits due license fees.
In 2006, a jury awarded WARF $1 million for its breach-of-contract case against Xenon. WARF’s original complaint had raised breach-of-contract issues under state law but also included technology-transfer issues under the Bayh-Dole Act. (35 U.S.C. §§ 200, et seq.), which concerns federal government funding agreements. Xenon appealed to the Federal Circuit, asserting the recitation of the Bayh-Dole Act technology-transfer issues in the complaint established Federal Circuit jurisdiction.
In stating that the Court lacked subject matter jurisdiction over the case, the Federal Circuit concluded that just because the Bayh-Dole Act is included in 35 U.S.C. does not mean this is a case arising under the patent laws. Only those contract or license disputes that require determination of an issue such as patent infringement or validity can give rise to Federal Circuit jurisdiction.
“[M]ere inclusion in Title 35 of the United States Code does not make a statute a patent law under which a claim may arise. At its heart, the Bayh-Dole Act concerns government funding agreements—contracts in the language of 35 U.S.C. § 201—an area that is outside our § 1295(a) jurisdiction.”
The court noted that just as 35 U.S.C. may include non-patent laws, other sections of the U.S. Code (other than Title 35) may include patent laws. The case was transferred to the Court of Appeals to the Seventh Circuit.
Practice Note: The mere citation of Bayh-Dole in a pleading for a breach of contract case for unpaid royalties is insufficient to establish jurisdiction before the Federal Circuit. The award of costs to WARF in this appeal is a clear indicator that counsel should carefully review jurisdictional issues prior to filing an appeal to the Federal Circuit.
No Second Opinion for D.C. Pharmaceutical Pricing Law
By Amanda E. Koenig
In a 12-1 vote, with Judge Gajarsa concurring and Judge Dyk dissenting, the U.S. Court of Appeals for the Federal Circuit denied petitions for rehearing and rehearing en banc in Biotechnology Industry Organization v. District of Columbia. Case No. 06-1593 (Fed. Cir., Oct. 30, 2007) (Gajarsa, J., concurring; Dyk, J., dissenting).
In the decision being challenged, the Federal Circuit this August had upheld the United States Court of Appeals for the District of Columbia’s judgment declaring the District’s Prescription Drug Excessive Pricing Act of 2005 (the D.C. Act), codified at D.C. Code § 28-4551 to 28-4555, was preempted by federal patent laws and enjoining its enforcement. According to the D.C. Act, “[a] prima facie case of excessive pricing shall be established where the wholesale price of a patented prescription drug in the District is over 30% than the comparable price in any high income country in which the product is protected by patents or other exclusive marketing rights.” Once a prima facie case of “excessive pricing” is shown, the burden shifts to the defendant to prove that the price is not excessive (see IP Update, Vol. 10, No. 8).
The concurrence and dissent agreed that the outcome was correct, i.e., that the “the panel was correct to hold that the [D.C. Act] is preempted by federal patent laws.” Their points of disagreement, however, appear to reveal an undercurrent of disagreement on the appropriate balance between patent and antitrust laws.
Judge Dyk, in dissent, conceded that the D.C. Act was probably invalid, but attacked the panel opinion for going too far, noting that it “suggests that even legitimate price regulation is invalid.” According to the dissent, the benefits conferred to patent holders by patent law—i.e., limited exclusivity—do not extend so far as to guarantee patent holders prices unfettered by anything but market forces. Thus, argued the dissent, patent holders are still subject to state taxes, state regulations and antitrust laws. Similarly, the D.C. Act, which the dissent interpreted as addressing only price discrimination, could be a legitimate law, except for its artless drafting.
The concurring opinion by Judge Gajarsa reflects a broader reading of both patent law and the D.C. Act and a narrower reading of the panel’s opinion. According to the concurrence, patent law works to promote innovation via the right to “exclude others from making, using, or selling a claimed invention for a limited period of time.” Judge Gajarsa finds that the D.C. Act “is not simply about preventing ‘price discrimination.’” Rather, by imposing its own pricing scheme on patented drugs, Judge Gajarsa argues that the D.C. Act “directly targets and undermines this careful balance between innovation and drug costs.” Finally, Judge Gajarsa explains that the dissent overstated the breath of the panel opinion “to the extent that it suggests that the opinion would require the preemption of ‘any state law regulating the prices of patented pharmaceutical products.’ … Whether future efforts of states to regulate drug prices, which for example did not only target patent drugs or did not as significantly or directly undermine the balance of the federal patent right, would also be preempted is a question that remains for another day.”
Federal Courts Have Exclusive Jurisdiction in State Malpractice Cases Requiring Substantial Question of Federal Patent Law
By Cameron K. Weiffenbach
In a pair of malpractice cases, the U.S. Court of Appeals for the Federal Circuit expanded federal court jurisdiction over state law malpractice claims. Air Measurement Technologies Inc. v. Akin Gump Strauss Hauer and Feld LLP, Case No.07-1035 (Fed. Cir., Oct. 15, 2007) (Michel, C.J.); Immunocept v. Fulbright & Jaworski LLP, Case No. 06-1432 (Fed. Cir., Oct. 15, 2007) (Michel, C.J.).
Both decisions conclude that federal courts hold exclusive jurisdiction over cases involving state law malpractice claims that require resolution of a “substantial question of federal patent law” such as infringement, validity, enforceability or patent claim scope. This general concept is not new, rather, these case incrementally expand the type of patent malpractice claims that require federal court decision-making. The issue is whether the particular form of malpractice asserted requires a determination of a substantial question of federal patent law.
Air Measurement(AMT) had filed six infringement suits and settled them for a total of $10 million. After settlement, AMT sued its patent attorneys for malpractice, asserting that it would have collected more but for alleged attorney errors including filing after an on sale bar date, failing to submit two prior art references and failing to properly inform AMT of the mistakes. The malpractice case was subsequently removed to federal court. The attorneys filed an interlocutory motion to remand the action back to the state court on the ground that the federal district court lacked jurisdiction under 28 U.S.C. § 1338. The motion was denied. The Federal Circuit affirmed holding that patent infringement is a necessary element of AMT’s malpractice claim requires a determination of potential patent infringement and “federal resolution of the issue was intended by Congress.” Thus, jurisdiction “arises under” under § 1338.
In Immunocept, the patent holder attempted to license its patents to Johnson & Johnson (J&J) in 2002. However, J&J’s attorneys found that the patent was narrowly drafted (because of its use of “consisting of” claim language) and refused to take a license. In 2005, Immunocept sued Fulbright & Jaworski for malpractice under Texas law in the U.S. District Court for the Western District of Texas. The district court granted summary judgment for Fulbright; Immunocept appealed. The Federal Circuit agreed that federal courts hold exclusive jurisdiction over this case because it requires a determination of patent claim scope—a substantial patent law question. According to the Court, “[b]ecause patent claim scope defines the scope of patent protection, we surely consider claim scope to be a substantial question of patent law.” After finding jurisdiction, however, the Court affirmed the lower court’s finding that the claim was barred by a Texas two-year statute of limitations.
“The Last Best Place” Remains Montana, Not a Beef Joint in Nevada
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The U. S. Court of Appeals for the Fourth Circuit reversed a district court decision finding § 206 of the Science, State, Justice, Commerce, and Related Agencies Appropriations Act of 2006 (§ 206) invalid as contravening the Lanham Act. In so holding, the 4th Circuit reasoned that the law was valid and consistent with previous Congressional actions, and held that the U.S. Patent and Trademark Office (USPTO) had correctly complied with § 206 in canceling the applications and registrations of the Nevada-based company, Last Best Beef, for the phrase “The Last Best Place” in connection with a variety of goods and services. Last Best Beef, LLC v. Dudas, Case No. 06-2219 (4th Cir., Oct. 25, 2007) (Wilkinson, J.)
This case stemmed from Last Best Beef’s attempts to federally register the phrase “The Last Best Place” with the USPTO. Between 2001 and 2004, Last Best Beef filed approximately eight applications for “The Last Best Place.” In November 2005, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act of 2006 was signed into law. Section 206 prohibits the use of federal funds to “register, issue, transfer, or enforce any trademark of the phrase ‘The Last Best Place.’” When § 206 was signed into law, all eight of Last Best Beef’s trademark applications were in various stages of the examination process with the USPTO. Upon learning about § 206 in January 2006 the USPTO cancelled the four notices of allowance, suspended all action pertaining to the applications covered by the notices of allowance, suspended proceedings regarding the two applications being opposed by the State of Montana before the Trademark Trial and Appeal Board and cancelled the two registrations it had issued and returned those applications to pending status.
Almost immediately, Last Best Beef filed suit, arguing that § 206 improperly “circumvented the Lanham Act” and that, as a result, the USPTO’s actions were unlawful. The district court agreed, granting summary judgment in favor of Last Best Beef and declaring § 206 “invalid legislation.” The USPTO appealed.
The Fourth Circuit reversed, finding that “[i]n fashioning § 206, Congress simply set forth an exception to the Lanham Act’s general rule that trademark registration may not be refused on the basis of the nature of the trademark.” In support of its decision, the court noted that “Congress has often removed specific trademarks from the general trademark application process,” such as “Smokey Bear,” “Little League” and trademarks associated with the Girls Scouts of America. The court further stated that to “declare § 206 ‘invalid’ is to adopt a per se rule that Congress cannot amend or suspend prior legislation through appropriations riders.” The court declined to take such a step.
First Amendment Rights Trump Publicity Rights
By Jorge Arciniega
Addressing whether commercial fantasy games violate baseball players’ rights of publicity, the U.S. Court of Appeals for the Eighth Circuit held that first amendment rights prevail over players’ publicity rights. C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, Case Nos. 06-3357, -3358 (8th Cir., Oct. 16, 2007) (Arnold, J.; Colloton, J., dissenting).
C.B.C. Distribution brought a declaratory relief action to establish its right to use, without license, the names of and game information about, baseball players to offer fantasy baseball games. Major League Baseball Advanced Media (MLBAM), as exclusive licensee of the Major League Baseball Players Association, counterclaimed alleging violation of the players’ rights of publicity under Missouri law. In Missouri the tort (of violation of right of publicity) requires that defendant used plaintiff’s name as a symbol of his identity without consent and with the intent to obtain commercial advantage. The district court granted summary judgment, ruling that C.B.C. did not violate the players’ rights and that even if C.B.C. did do so, the first amendment preempted those rights. MLBAM appealed.
The Eighth Circuit found that CBC had violated the players’ rights. The court criticized the district court for not understanding that “when a name alone is sufficient to establish identity, the defendant’s use of that name satisfies the plaintiff’s burden to show that a name was used as a symbol of identity.” Because C.B.C. used the players’ identities for profit, their identities were being used for commercial advantage.
The court ruled, however, that C.B.C.’s first amendment right to use the information trumped the players’ rights. Applying the Zacchini v. Scripps-Howard Broadcasting balancing test, the court found that the rights of publicity must give way to First Amendment considerations. The court based its conclusion in part on the fact that all of the information used by C.B.C. was “readily available in the public domain,” as well as on the fact that fantasy games, unlike product endorsements, include all players, rather than focusing on any one star player. The court found that recitation of baseball information commands substantial public interest and therefore is a form of expression due substantial constitutional protection. It also found that this case did not “implicate the interests states typically intend to vindicate by providing right of publicity to individuals.” For example, fantasy games do not prevent players from pursuing their own endorsement deals.
Practice Note: The advent of the internet as a major medium of entertainment has caused a dramatic rise in the popularity of fantasy games. The court’s decision brings long-awaited guidance on rights of publicity in this context, but it will be interesting to see how long this precedent stands. It is unlikely that the major leagues and their players will sit passively and let this significant source of licensing revenue slip through their fingers.
Adoption of Company Name Tantamount to Use of Mark in Relation to Goods and Services
By Clare Sellars
The European Court of Justice (ECJ) issued its judgment on a reference for a preliminary ruling by a French court in a case concerning Articles 5(1)(a) and 6(1)(a) of Directive 89/104/EEC (Directive) to approximate the laws of the member states relating to trademarks. The issues presented were whether a registered trademark proprietor had the right to oppose third-party use of a sign identical to his registered mark; use of the sign as a company, trade or shop name; and the third party’s right to use his name. Céline SARL v. Céline SA, Case No. C-17/06 (ECJ), (Sept. 11, 2007).
Céline SA (SA) was incorporated under the name “Céline” in 1928. Its principal activities involved creating and marketing clothes and fashion accessories. SA’s trademark CÉLINE dates back to 1948.
Céline SARL (SARL) argued that its right to trade as “Céline” began with an individual who was registered in 1950 in the Nancy Commercial and Companies Register regarding the operation of a clothing business trading as “Céline” and had been transferred by successive operators of the business. SARL was registered in the same Register in 1992 to operate a business trading in ready-to-wear garments and other clothing under that name.
SA sought to prevent SARL from infringing the CÉLINE trademark and engaging in acts of unfair competition by appropriating the company and shop name “Céline.” SA also sought damages. In June 2005, the national court granted all SA’s applications, forbidding SARL from using “Céline” in any way, ordering it to change its company name to one incapable of causing confusion with the CÉLINE trademark and Céline shop name and granting damages. SARL appealed, arguing that use of a sign identical to the earlier word mark as a company or shop name was not infringing conduct, as a company or shop name does not distinguish goods or services, and that, in any event, there would be no public confusion as to the relevant goods’ origin as SA operates exclusively in the luxury market.
The ECJ held that unauthorised third party use of a company, trade, or shop name identical to an earlier mark in connection with the marketing of goods identical to those for which the mark was registered constitutes use which the proprietor may prevent under Article 5(1)(a) where the use is in relation to goods so as to affect or be liable to affect the mark’s functions. As articulated by the court "[s]hould that [affect] be the case, Article 6(1)(a) ... can operate as a bar to such use being prevented only if the use by the third party of his company name or trade name is in accordance with honest practices in industrial or commercial matters."
Copyright / Damages
Sampling Without A License Results In Damages – But How Punitive Should They Be?
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In a decision that could have few-reaching implications in future copyright infringement cases, the U.S. Court of Appeals for the Sixth Circuit affirmed in part and reversed in part a district court judgment awarding $370,000 in compensatory damages, $3.5 million in punitive damages and $150,000 in statutory damages, holding that the verdict was “improper to the extent that it included prejudgment and compound interest, included a calculation of interest from an incorrect date, and included unconstitutionally excessive punitive damages.” Bridgeport Music, Inc. et al. v. Justin Combs Publishing et al., Case No. 06-6294 (6th Cir., Oct. 17, 2007) (Rogers, J.).
The plaintiffs, Bridgeport Music and Westbound Records, owned the copyright to the Ohio Players’ song “Singing in the Morning.” The plaintiffs brought suit for copyright infringement against the music publishers behind the Notorious B.I.G. album Ready to Die, the title song of which contained an unlicensed sample of “Singing in the Morning.” At trial, a jury found in favor of plaintiffs and awarded compensatory and punitive damages, finding defendants’ conduct willful. Bridgeport Music elected statutory damages under the Copyright Act, receiving the maximum award of $150,000. Westbound received approximately $370,000 (or its one-half share of compensatory damages) and punitive damages in the amount of $3.5 million.
On appeal, Combs Publishing raised 10 issues going to liability and damages calculation. The Sixth Circuit affirmed the district court’s judgment with respect to all liability issues.
With respect to compensatory damages, the court dissed Combs publishing, trashing its challenge to compensatory damages and holding that the “district court did not err by entering judgment on a verdict where, according to defendants, the amount of damages failed to allocate profits to account for the fact that the damage award included profits from non-infringing material.” However, the Sixth Circuit did find the verdict “improper to the extent that it included prejudgment and compound interest, included a calculation of interest from an incorrect date, and included unconstitutionally excessive punitive damages.”
Reviewing the punitive damages award de novo, the court concluded that the award to plaintiff Westport was “excessive in light of the Supreme Court’s three ‘guideposts’ for evaluating the constitutionality of a punitive damages award—the reprehensibility of defendants’ conduct, the disparity between plaintiffs’ harm and the award, and a comparison of the award and civil penalties in comparable cases.” In remanding the case to the district court to determine an appropriate punitive damages award, the court instructed that in a case “where only one of the reprehensibility factors is present, a ratio in the range of 1:1 to 2:1 is all that due process will allow.”
A “Reconstruction” Does Not Fulfill Copyright Application Deposit Requirement
By Sarah Brown
In a case of first impression, the U.S. Court of Appeals for the First Circuit joined the Sixth and Ninth Circuits in finding that a reconstruction is not a “copy” for purposes of a copyright application deposit. Torres-Negron v. J & N Records, LLC, Case Nos. 06-2058, 06-2059 (1st Cir., Oct. 2, 2007) (Laffitte, J.).
Plaintiff Fernando Torres-Negron wrote a song and gave his friend the only copy of the lyrics and the tape of Torres-Negron performing the song. Years later, after the friend’s band recorded the song and it appeared on several albums, Torres-Negron registered the song with the U.S. Copyright Office. To fulfill the deposit requirement, Torres-Negron typed out the lyrics and made a new recording of himself performing the song. He then filed suit against J&N. After the jury found for Torres-Negron, the district court granted defendant judgment as a matter of law on the grounds, inter alia, that Torres-Negron’s copyright registration was invalid and thus the court did not have subject matter jurisdiction. Torres-Negron appealed.
The court affirmed, finding that Torres-Negron’s deposit was a “reconstruction,” not a copy. The court explained that a reconstruction is created without the original (for example, from memory), while a copy is made from the original. Based on the plain language of 17 U.S.C. § 408, the court held that only a copy may be used to fulfill the deposit requirement for a copyright application. Without a proper deposit, the application was not complete, the resulting registration was void and the court did not have jurisdiction. The court found that deposit of a reconstruction did not fall within the “immaterial mistake” doctrine it established in Data General, because failure to provide a proper deposit would have affected the Copyright Office’s issuance of a registration. The court distinguished this situation from cases in which an incomplete (but genuine) copy or one with minor discrepancies is deposited. In the latter cases, the registration might still be valid but would only cover the material deposited.
The only other circuits to address this issue, the Sixth Circuit in Coles v. Wonder and the Ninth Circuit in Kodadek, have reached the same conclusion.
The First Circuit also discussed the proper procedure for evaluating a challenge to jurisdiction based on the appropriateness of the deposit copy. The court instructed the district court to first determine whether a question had been raised about a deposit that implicates the merits of the case. If not, the district court should weigh the evidence regarding the deposit and determine whether it was an impermissible reconstruction. On the other hand, if the facts related to the challenge are intertwined with the merits of the case, the district court should treat the challenge as a summary judgment motion and resolve it accordingly.
Statute of Limitations for Trade Secret Misappropriation Begins Accruing on Date Injury Occurs
By Amol Parikh
Affirming a district court’s grant of summary judgment, the United States Court of Appeals for the Fifth Circuit held that Texas’s two-year statute of limitations barred the plaintiffs’ trade secret misappropriation claim. General Universal Sys. Inc. v. HAL Inc., 500 F.3d 444 (5th Cir., 2007) (Garza, J.).
In 1979, plaintiff General Universal Systems, Inc. (GUS) developed a software program called CHAMPION PACKER for co-plaintiff Jose Lopez. Later, Lopez created a derivative program called LOPEZ COBOL. LOPEZ COBOL was based on CHAMPION PACKER, but written in a different computer language. Lopez began selling and leasing the derivative program to clients through his own company. One of those clients was Superior Packing, Inc., a company owned by defendant Herrin. In 1992, defendants Herrin and Parkin and plaintiff Lopez formed a company named HAL Inc. (HAL) and agreed to develop and market a new software program to succeed LOPEZ COBOL. The new program was to be based in large part on LOPEZ COBOL. Herrin, Parkin and Lopez began working on the new program—called MEPAW—in the summer of 1992. Beginning in December of 1992, Lopez spent seven months in a Mexican prison. In a letter dated March 22, 1993, Herrin notified Lopez that he and Parkin agreed to oust Lopez from their agreement because Lopez’s incarceration prevented him from fulfilling his duties. Through HAL, Herrin and Parkin continued the development of MEPAW until approximately August 1993, when they began marketing MEPAW to potential clients.
Although HAL began demonstrating MEPAW in the fall of 1993, it did not license the software to any customers until October 1994. By then, Lopez had assigned all his rights in LOPEZ COBOL to GUS. In November 1994, GUS began placing customers of HAL on notice that MEPAW had been improperly derived from LOPEZ COBOL. Subsequently, in May 1995, GUS filed suit against the HAL defendants and customer defendants alleging, among other things, trade secret misappropriation. The district court held that GUS was time-barred from raising its trade secret misappropriation claim on May 23, 1995, because the claim was subject to a two-year statute of limitations and the trade secret misappropriation accrued prior to May 23, 1993. GUS appealed.
On appeal, the Court held that “a cause of action accrues when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred.” Under Texas law, to establish an injury of trade secret misappropriation, the plaintiff must establish “(1) a trade secret exists; (2) Defendants acquired the trade secret by breach of a confidential relationship; and (3) Defendants used the trade secret without authorization.” The district court applied the ousting of Lopez from HAL as the date on which the relevant confidential relationship would have been dissolved, therefore, any “use” by LOPEZ COBEL would have occurred after the ousting date: March 22, 1993. The 5th Circuit agreed and found that GUS was barred from asserting a claim of trade secret misappropriation because GUS filed the complaint more than two years after the accrual of the claim.
GUS also argued that its claim of trade secret misappropriation should not be barred by the two-year statute of limitations because trade secret misappropriation is a continuing tort. For a continuing tort, “the cause of action is not complete and does not accrue until the tortuous acts have ceased.” The Court rejected this argument and held that trade secret misappropriation should not be treated as a continuing tort under Texas law. Specifically, the Court found that the basis for a trade secret case is a breach of a contract or wrongful disregard of confidential relationships, thus the controlling date is the date that the contract is breached or the confidential relationship wrongfully disregarded. Accordingly, the date Herrin and Parkin wrongfully disregarded their confidential relationship with Lopez was the date the tort occurred. Therefore, the Court affirmed the district court’s grant of summary judgment.
USPTO Rules Changes Stopped by Injunction
By Paul Devinsky
As reported in the September issue of IP Update (Vol. 10, No. 9) the rule changes that were set to come into effect on November 1, 2007, were introduced by the U.S. Patent and Trademark Office (USPTO) in the face of a growing backlog of applications. A September 2007 General Accounting Office (GAO) report to Congress quantifies the current backlog at 730,000 applications. The USPTO also reported that in fiscal year 2007, its almost 5,000 patent examiners examined approximately 360,000 applications.
The rule changes were drastic—the previously unlimited numbers of claims in an application were effectively limited to five independent and 25 total claims. In addition, the new rules allowed for only two continuing applications and one request for continuing examination during prosecution of a patent application. (IP Update, Vol. 10, No. 9). The intent, said the USPTO, was to make the patenting process more effective and more efficient.
The public response was immediate. The day after the USPTO announcement, individual inventor Tafas filed suit against the USPTO, seeking to enjoin implementation of the new rules. A few weeks later, this initial attack was strongly reinforced when pharmaceutical giant Glaxo SmithKline (GSK) joined the suit. In the meantime, under an air of uncertainty following the initial USPTO announcement, firms scrambled to understand the rule changes and to prepare their clients to deal with their effects.
However, on October 31, 2007—just one day before the rules were to take effect—a dramatic turn of events occurred. Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia, at the conclusion of a long, tense and packed hearing, issued an order preliminarily enjoining the proposed rule changes from coming into force. The USPTO hurriedly informed its personnel of the injunction.
In reaching its decision, the court analyzed the four factors relevant necessary to provide preliminary injunctive relief: the likelihood of success on the merits of Tafas’ and GSK’s claims; whether irreparable harm would occur if the injunction were not granted; the balance of hardships between parties; weighing of the public interest.
Regarding likelihood of success on the merits, the plaintiffs successfully argued that Congress never granted the USPTO authority to make substantive rule changes, which effectively truncated a statutory entitlement to file continuation applications, as well as that the rule changes were indeed substantive. Furthermore, the plaintiffs argued (apparently persuasively) that the rule changes were unfairly retroactive since many pending applications that would be subject to the new rules had long since been published, effectively extinguishing any trade secrets they contained, even though the new rules effectively limited the applicant’s ability to exhaustively claim the subject matter they disclosed and vague.
As for irreparable harm, the court agreed that GSK had shown it was likely to suffer irreparable harm if the injunction was not granted due to a loss of patent rights in their over 2,000 pending patent applications. GSK convinced the court that the new rules would truncate the number of available claims and that therefore the full patent protection of the inventions developed and applied for under the old rules would not be granted.
On the balance the hardships, the USPTO alleged that because of the millions of dollars spent in training staff and retooling computers, they would endure the hardship of stopping and reversing course in the midst of massive changes to their organization. However, GSK argued that the harm suffered by the USPTO is in the form of sunk costs already incurred for actions taken to implement rules that they knew might not go into effect. As such, any costs incurred by a preliminary injunction would be merely to maintain the status quo. Although the court agreed that the USPTO would have some hardship, it found that the uncertainty and loss of investment that would be suffered immediately by GSK tipped the balance in its favor.
As to the public interest factor, the USPTO argued that the rule changes would promote efficiency and timeliness and were needed immediately to lessen the harm inventors suffer due to the untenable delays under the current rules. The USPTO also argued that an injunction would only serve to spread further uncertainty as how to proceed with prosecution. However, GSK asserted that preserving the status quo would best serve patent holders. The three amicus briefs (filed in support of the motion for preliminary injunction) served to demonstrate to Judge Cacheris the depth of the opposition to the new rule changes, as well as how prevalent that opposition was in many diverse organizations. In weighing this factor, Judge Cacheris concluded that the public interest factor was weighed in favor of preserving the status quo.
Considering all the factors, Judge Cacheris granted the motion and enjoined the USPTO. As a result the patent community can take a (very short) deep breath and return to business as usual—for now. A trial on the merits is scheduled in early 2008 and it is expected that the case will be decided later next year. Meanwhile, the parties are engaged in public bickering over the plaintiffs’ discovery requests to the USPTO (which include notices to depose high ranking USPTO officials). While all this is going on, the USPTO is reportedly busy working on more rule changes.
Patent Reform Legislation Stalled
By Paul Devinsky and Rita W. Siamas
On November 7, six consumer groups sent a letter to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell urging them to bring S.1145 (see IP Update, Vol. 10, No. 9) to the floor for a vote. However, there was no Senate action on the bill in the run up to the Thanksgiving recess. At this point, no action seems likely until at least early 2008, when Congress returns from its holiday recess. Based on the recent swirl of controversy, it would not be surprising if the Senate bill experienced significant amendment before any vote is taken.
In an effort to bolster support for the legislation, the consumer groups, including the Consumer Federation of America, Consumers Union, the Electronic Frontier Foundation, Knowledge Ecology International, Public Knowledge and the United States Public Interest Research Group sent their letter of support, telling lawmakers that S. 1145 “takes a significant first step towards improving patent quality and reducing costs and uncertainties of litigation.” The patent reform initiative also has the support of the Business Software Alliance and from the Coalition for Patent Fairness.
The consumer groups focused favorably on four provisions: permitting third parties to submit relevant documents to examiners before the issuance of a patent; introducing a new administrative process allowing third parties to challenge issued patents within a year of the patent’s grant or when they can show a risk of substantial harm; requiring courts to apportion damages to reflect the actual value of the damage to the patent owner, rather than on the entire value of the infringing product; and that clarify willful infringement and hold defendants free from willful infringement liability based on mere knowledge of the existence of a patent.
The consumer groups’ support is likely a reaction to an October 23 letter to the Senate leaders, sponsored by Innovation Alliance and endorsed by over 400 organizations and businesses, arguing that the Senate bill “contains provisions that will create uncertainty and weaken the validity of issued patents.” This letter faulted various parts of the Senate bill, including the provision that provide for apportionment of damages, that provide an “indefinite” post-grant opposition provision, that would impose “excessive” venue restrictions, that would impose “burdensome” mandatory search requirements and that would establish “unworkable” interlocutory appeals.
The legislation in its current form has also been attacked by the Coalition for 21st Century Patent Reform, whose members include the American Intellectual Property Law Association.
The patent reform initiative has been stalled since September 7, 2007, when the House counterpart bill (H.R. 1908) was passed by the House of Representatives (see IP Update, Vol. 10, No. 9). The Senate Judiciary Committee approved S. 1145 on July 19, 2007.