Archive for September, 2009

BPAI Appeal Load Out of Control

September 28, 2009

As a follow up to my June post on the looming crisis at the BPAI, Chief Judge Michael Fleming has issued some new statistics on the Board of Patent Appeals and Interferences’ current workload.

The Board is now projecting that it will issue 7,000 decisions in ex parte appeals in FY2009 (which ends Wednesday).  This is a 41.7% increase over the number issued in FY2008.  The number of newly docketed appeals has been growing exponentially.  In FY2007, 4,639 appeals were docketed.  This number increased by 37.6% to 6,385 in FY2008 and is projected to increase by 143% to 15,500 in FY2009. 

During that same time, appeal pendency has increased from 5.4 months to about 8 months.  The Board is projecting a minimal increase in new appeals in FY2010 to 16,000, with pendency increasing to about 14 months.

Meanwhile, appeal inventory (appeals to be decided) has increased from about 2500 in FY2007 to about 12,500 in FY2009 and is projected to increase to 21,500 in FY2010.  This means that if no additional appeals are filed after the end of FY2010, it would take the Board about 37 months to clear its docket.

To address this situation, the BPAI has been hiring new judges and patent attorneys to assist the judges in deciding the appeals.  The Board plans to hire 21 more judges and 29 patent attorneys during FY2010 at a cost of nearly $6.5 million in an effort to reduce appeal pendency.  The Chief Judge’s presentation did not address attrition, so it is difficult to know by how much the size of the Board will actually increase.

The projected numbers are rightfully pessimistic in the short term and seem overly optimistic in the longer term.  The number of appeals filed should decrease, however, once it becomes absolutely clear that the PTO will not be implementing the dreaded rules package that would have limited the number of RCE and continuation filings.  If they don’t implement the onerous appeal brief rules, this should help too. 

Otherwise, the PTO could simply change the attitude of the examining corps to get them to work better with applicants, thereby reducing the need for many appeals.

HT:  Patently-O.

PTO’s Bilski Brief

September 28, 2009

Against the backdrop of the petitioner’s and nearly 45 amicus briefs calling for overturning the Federal Circuit’s newly crafted machine-or-transformation test, the PTO filed its brief in support of affirmance at the Supreme Court last week.

Unsurprisingly, the PTO argued that the machine-or-transformation test is dictated by the history of the Patent Act in the US and Supreme Court precedent.  The PTO read the cases supporting the petitioner’s position as supporting its own.

The PTO did argue that the machine-or-transformation test would not preclude the patenting of software as has worried some parties.  It did argue, however, that even if Bilski included a general purpose computer to implement his claimed method, it would still not be patentable because the computer tie would have been merely “insignificant extra-solution activity.”

Most of the amicus briefs have been filed in support of neither party, but advocate overturning the machine-or-transformation test.  Even those purportedly supporting the PTO argue for affirmance, but still suggest a different test from the machine-or-transformation test.

The case is scheduled to be argued on Monday, November 9, with a decision expected by Spring 2010.  Given the tidal wave of support for overturning the machine-or-transformation test, this seems likely.  It is not clear, however, what the Supreme Court will put in its place.

Patent Auctions

September 23, 2009

The New York Times ran a recent article on the advantages of patent auctions to inventors.  A patent auction is exactly as it sounds:  companies and investment groups get together to buy, sell, broker, license, and auction patents.

The article cites the vagaries of judges, juries, and defense attorneys as devaluing the hard earned patent of the inventor.  Court judgments are simply too unpredictable and litigation is too expensive when it comes to patents.  Auctions can permit patent experts and economists to create a vibrant marketplace for patents.  The author of the article believes that business-minded people can do a better job valuating patents than judges and juries.  Auctions are also much faster than litigation, accelerating the pace of innovation by getting ideas into the marketplace.

Several experts quoted in the article envision an auction system similar to eBay for auctioning patents, or a clearinghouse similar to that of ASCAP for copyrighted music.  This should minimize transaction costs while increasing the prospects of collecting fees and distributing payments to inventors.

The article does note, but does not really address, the issue that patents are very difficult assets to value.  There is no set market for trading, as there is for stocks and bonds.  There will still be a lot of work for patent experts and economists to determine a patent’s value, which could change over time as the technology and market evolves.  A recently-issued patent may have a completely different value from one that issued 5 years ago and has withstood that time.

The other issue that is not addressed by the article is that in order to have an adequate market for patent auctions, non-practicing entities, such as investors and financial institutions, must be allowed to participate.  Such non-practicing entities are pejoratively known as “trolls” by patent infringers.  Recent patent reform efforts have sought to reduce or eliminate their influence in the marketplace.  Without their presence, however, buyers at an auction would be limited in number, often only competitors in the field.  Such buyers would have little incentive to pay a large sum of money for a patent if they are the only bidders.  By increasing the market of potential buyers, patent trolls can increase a patent’s value.  This seems to be basic economic theory:  increased demand equals higher prices and more incentive to increase the supply.

Upcoming Event: Patentable Subject Matter Debate

September 23, 2009

 The University of Richmond Law School’s Intellectual Property Institute will be hosting its third annual Evil Twins Debate series on Friday, October 9 at noon.

The debate is entitled:  Bilski and Patentable Subject Matter:  Method or Madness?

Professor John Duffy of George Washington Law School will be arguing against the Federal Circuit’s machine-or-transformation test developed in Bilski, while Professor Jay Thomas of Georgetown Law Center will be arguing in support of the test.

Professor Duffy is intimately familiar with Bilski.  In 2008, he argued the case at the Federal Circuit for one of the amici who favors continued patentability of software and business methods and has also written an amicus brief at the Supreme Court. 

Thomas

Thomas

Duffy

Duffy

Professor Thomas has long advocated against patenting business methods.

Companies Express Concerns with Post-Grant Opposition

September 22, 2009

Last week, a group of 59 tech companies wrote a letter to Commerce Secretary Gary Locke expressing serious concerns with the post-grant opposition procedures included in the patent reform bills currently pending in Congress.

The companies argue that the proposed post-grant review and inter partes reexamination procedures will have serious negative consequences at the Patent Office.  They argue that the PTO is already stretched too thin.  By adding post-grant review proceedings to the PTO’s docket, examination of applications will suffer and pendency will continue to rise.

The companies also expressed concern that the post-grant review proceedings could be abused by allowing infringers to subject valid patents to lengthy and repeated challenges.  The letter includes several examples of firms that encourage such abusive practices.

The companies praised the compromise that was reached on the damages issue and requested that Secretary Locke work with Congress to improve the post-grant opposition and inter partes reexamination provisions of the bills.

Federal Circuit Reverses Invalidity of Method of Calibrating Drug Dosages

September 17, 2009

Yesterday, in Prometheus Labs., Inc. v. Mayo Collaborative Services, the Federal Circuit reversed a district court determination that method claims directed to methods for calibrating the proper dosage of thiopurine drugs by measurement of two metabolites were invalid as not directed to patentable subject matter.

Specifically, claim 1 of U.S. Patent No. 6,355,623 reads as follows:

A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:

(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and

(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,

wherein the level of 6-thioguanine less than about 230 pmol per 8×108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and

wherein the level of 6-thioguanine greater than about 400 pmol per 8×108

red blood cells red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

The district court ruled that the claims had three steps: (1) administer the drug to a subject; (2) determine metabolite levels; and (3) be warned that an adjustment in dosage may be required. The court characterized the first two steps as data gathering steps and the third step as a mental step. The metabolite levels in the body “warn” the doctors to adjust the dosage; this is a natural phenomenon that occurs in the body and thus was not “invented” by the inventors.

The Federal Circuit reversed, holding that the claims meet the transformation prong of the Bilski test.

The transformation is of the human body following administration of a drug and the various chemical and physical changes of the drug’s metabolites that enable their concentrations to be determined.

The court went on to make a much broader statement regarding methods of treatment claims:

The asserted claims are in effect claims to methods of treatment, which are always transformative when a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition.

This statement seems to indicate that all claims that recite steps that include administration of a drug contain patentable subject matter.

The court also held that the claims that did not include this step also contained patentable subject matter based on the “determining” step. Determining metabolite levels requires a transformation of the substance being analyzed.

The Federal Circuit continued by noting that the district court erred in holding that the first two steps are merely data gathering steps. The Federal Circuit held that these steps are central to the claimed method and are themselves transformative.

A claim that contains patentable subject matter does not become unpatentable simply by adding a mental step to the claim. As long as the claim as a whole is not simply directed to mental steps, the claim is still patentable.

Finally, the district court relied extensively on the reasoning of Justice Breyer in his now infamous dissent from the dismissal in Lab Corp. v. Metabolite Labs. The Federal Circuit dismissed this reliance in a single footnote, noting that “[t]hat dissent is not controlling law and also involved different claims from the ones at issue here.” Hopefully, this will finally put reliance on Lab Corp. to bed.

The Federal Circuit again noted the helpfulness of the various amicus briefs filed supporting each side in this case. They continue to signal a desire to the patent community to file such briefs.

Kappos Sets Goals for New PTO Administration

September 15, 2009

david_kapposNew PTO Director David Kappos was the keynote speaker at the Intellectual Property Owners (IPO) annual meeting in Chicago.  Kappos set forth a bold agenda for reform at the PTO.

Specifically, Kappos noted that although the Bush Administration had touted a 96% error free rate in examination quality, he believes that there is still a long way to go toward improving overall patent quality.

Next, he set forth the following pendency goals:

  • ten months from application to first office action, down from the current 25.6 months pendency;
  • twenty months from application to final action, down from 32.2 months;
  • backlog of 300,000 applications, from the current level of more than 1.2 million;
  • appeals pendency dropping from the current seven months to three months; and
  • reexamination pendency reduced from 25 to 12 months.

In an update on the PTO rules litigation, Kappos noted that the case is now captioned Tafas v. Kappos.  While at IBM, he had expressed opposition to the rules and noted how unpopular they are.  Given that they are currently involved in litigation at the Federal Circuit, he did not want to comment further.  There are larger issues involved than his personal opposition to their implementation.

He has created a taskforce of senior members of the PTO examiners’ union to determine if there is another way to monitor examiner productivity other than the current “count” system that would give examiners the time necessary to do a thorough examination.  He also has plans to create a nationwide workforce of patent examiners who work from their homes.

Kappos also spoke of making the PTO more transparent by making more of its workings public.  The PTO will hold a roundtable on this issue at a later date.

He and the Obama Administration are continuing to push for patent reform.  They believe that the time is now ripe for reform.

Finally, he noted that the biggest problem facing the PTO is the projected $200 million shortfall for fiscal year 2010 that begins next month.  Not only does the PTO need Congress to codify the end of fee diversion, it also needs to give the PTO the flexibility to set and adjust fees based on its workload.  The projected deficit could have a large impact on his plans an initiatives for the future.

It’s great to finally have a director who understands the importance of patents.  Kappos is certainly saying the right things so far.  Let’s hope he’s able to carry them out.

Federal Circuit Vacates Damage Award Against Microsoft

September 11, 2009

The Federal Circuit today vacated a damage award of $358 million against Microsoft in Lucent Technologies, Inc. v. Gateway, Inc.  The court ruled that the jury’s damages verdict lacked sufficient evidentiary support.

Many in the patent community had been watching this case closely due to its relevance to the damages issue on patent reform.  On appeal, Microsoft had argued that the jury should not have applied the entire market value rule to the value of its three software products found to be infringing.  The Federal Circuit rejected Microsoft’s argument, but nonetheless vacated the damages award as not supported by substantial evidence.

In its opinion, the Federal Circuit notes that Microsoft did not object to the introduction of any of the evidence relevant to the damage award.  Yet, on appeal, it argues that the district judge “abdicated” her role as gatekeeper for such evidence.  The Federal Circuit disagreed, noting that “[t]he responsibility for objecting to evidence [] remains firmly with the parties.”  Thus, any argument Microsoft makes on appeal against the introduction of such evidence is waived.

The court reviewed the evidence relating to the Georgia-Pacific factors relating to a hypothetical negotiation in excruciating detail.  They noted that the infringing feature of Outlook, a date-picker feature, is a very small feature in an extremely large and complex program.  There was no evidence as to how often the infringing feature was used by consumers, so it is not certain how often infringement even occurs.

For this same reason, the infringing feature is a small part of the entire product, application of the entire market value rule is inapposite in this case.  The court noted that

For the entire market value rule to apply, the patentee must prove that “the patent-related feature is the ‘basis for customer demand.’”

On the other hand, the court rejected the view of several commentators that the entire market value rule should not ever be used to calculate patent damages.  The court noted that the entire market value may be used to calculate a royalty when it is used with an appropriate multiplier to take into account the portion of the product represented by the infringing component or feature.

Conclusion

The takeaway from the case is that damages calculations are extremely complex and fact intensive.  The court spent approximately half of its 66 page opinion reviewing the evidence and the parties’ arguments and ultimately remanded the case for a new trial on damages.  Juries and district courts really do need more guidance on patent damages calculations.

The court provided little guidance on the entire market value rule and really did not change anything with respect to the law of damage calculation.  The court did note that an amicus brief had argued against the jury instructions on the entire market value rule, but disregarded the arguments because neither party had objected to the instructions.

I don’t think this opinion will be persuasive to either side’s position on the issue of patent damage reform.

Accelerated Examination

September 10, 2009

BNA (subscription service) reported on a webinar presented by CPA Global that touted the benefits of the PTO’s accelarated examination option for patent applications. 

Accelerated examination is an option available to patent applicants who follow a fairly rigorous set of requirements when filing their patent application.  These requirements include that the applicant perform a thorough prior art search where the prior art is searched for each limitation presented, or that may later be presented, in the claims.  The applicant must also include an examination support document (ESD) where he details the differences between the prior art found in the search and the claimed invention.  Applicants are limited to filing applications with 3 independent and 20 total claims.  In return, the PTO advances such applications out of turn and attempts to issue patents in about a year.

According to the most recent PTO statistics on accelerated examination, the PTO is doing a pretty decent job, issuing patents in about 296 days from filing.  The PTO grants about 50% of petitions for accelerated examination, with many other petitions being correctable for lacking formal requirements.  Of those granted, the allowance rate by the PTO for FY2009 was 80.3%, compared to an overall allowance rate of about 42%.

The attorneys who presented at the webinar cited the difference in allowance rate, as well as the difference in pendency time, about 296 days compared to 3.5 years, as benefits of accelerated examination.  Given the 20 year patent term from filing date, this time can be significant. 

The presenters believe that one reason for the differences in allowance rate is that the examiners have a different attitude in an accelerated case.  Instead of the prevailing attitude among examiners that they need to find a way to reject an application, during accelerated examination they seek to work with the applicant to find a way to craft the claims in such a way as to make them allowable.  Early interviews are another way of encouraging give and take between the applicant and the examiner.  Since less of the back and forth is conducted in writing, the presenters believe that the patent will be more litigation friendly, having less potential for arguments and amendments that create estoppel.

The presenters did acknowledge that the pre-filing search can be onerous.  The applicant must provide search results that include U.S. patents and patent applications, foreign patent publications, and non-patent literature.  The search must include all of the features or limitations of the claims.  If a claim is amended or added later that includes a feature that was not included in the search, the applicant will not be permitted to make the amendment or add the new claim.

And, of course, examination support documents are frought with ways that an applicant could be accused of inequitable conduct when later seeking to enforce the patent.  Potential defendants may argue that the search was insufficient, that the applicant did not submit all relevant prior art, that the applicant mischaracterized certain prior art, and many other statements based on the search.

The allowance rate difference is a bit disingenuous.  The PTO is not allowing accelerated applications at a rate nearly twice that of all applications.  The allowance rate figure the PTO uses is misleading.   The PTO credits an application as being abandoned when a request for continued examination (RCE) is filed.  The rate of RCE filings is increasing rapidly.  Thus, the overall allowance rate is not really that low.  Given the speed of an accelerated examination case and the examiner’s willingness to work with the applicant, RCE filings are far less likely, resulting in a higher allowance rate.

Should You Use Accelerated Examination?

The presenters sing the praises of accelerated examination.  They suggest that it would be useful when a specific target is in mind for litigation, when the application has an existing portfolio that the application is building on, when the invention is an incremental advance over existing technology, and for start-up companies that want patents in hand to woo investors.

Accelerated examination sounds great.  You can get a patent in less than a year and the examiner will work with you to craft the best claims to cover the invention and avoid the prior art.  It sounds like an extremely underutilized way to get a patent quickly.  It would be great if this aura of cooperation existed throughout the PTO. 

Unfortunately, in an era where defendants are inequitable conduct happy, the requirements for accelerated examination are a bit too stringent.  Perhaps this is an area where new Director Kappos can work to reduce pendency and work with applicants to improve patent quality.

Amicus Briefs Supporting Plaintiffs in Gene Patent Case

September 3, 2009

As a follow up to yesterday’s post on the ACLU’s gene patent case, several organizations have filed amicus briefs in support of the plaintiffs’ position.

March of Dimes Brief

The March of Dimes and several other organizations filed a brief where they argue that the patents improperly remove natural phenomena and laws of nature from the public domain, and that the patents upset the balance struck by Congress and the courts as to what constitutes patentable subject matter.  They also argue that the patents harm research and innovation, as well as patients who require genetic testing.   Although it is difficult to tell from the brief, it appears that this argument is that the patents are invalid under § 101 of the Patent Act and Supreme Court precedent intrepreting this section.

American Medical Association Brief

The American Medical Assocation (AMA) and several other organizations filed a brief where they argue that gene sequences and correlation claims are not patentable subject matter under the Intellectual Property Clause of the Constitution and § 101 of the Patent Act.  They also argue that such patents violate medical and scientific ethical tenets and are not necessary to encourage innovation in the field of genetics.  The AMA is opposed to patents and trade secrets on medical and surgical techniques generally.

National Women’s Health Network Brief

The National Women’s Health Network (NWHN) and several other organizations filed a brief where they argue that genes, genetic sequences, and their correlations to various diseases are exceptions to patentable subject matter under the Patent Act.  They are products of nature or scientific truths or principles.  They also argue that the patents harm patients, particularly women, by stifling access to health care, innovation, and competition.

Finally, they argue that genes are part of the common heritage of humanity.  International treaties and the Public Trust Doctrine prohibit their removal from the public domain.  The NWHN argues that the human genome is a part of the common heritage of humanity, similar to agreements regarding deep sea beds, Antarctica, the moon, and other celestial bodies.  They cannot be exploited by a particular private entity or nation because they belong to all of humanity.  Interestingly, despite the argument, the brief does not point to any international treaty that would prohibit the patents at issue in this case.

Conclusion

Many of the plaintiffs’ arguments are policy arguments that are better resolved on the legislative level than by unelected judges.  Since they are unlikely to get the resolution they desire from Congress, they fight in the judicial battlefield.

Whatever the outcome, the case has, and will continue to, gain a great deal of press.  It may take several years to resolve at the district court and it is unlikely to end there.  The Federal Circuit and perhaps the Supreme Court will weigh in before it is resolved.


Follow

Get every new post delivered to your Inbox.

Join 60 other followers