The petition for a writ of certiorari is granted [G]. The judgment is vacated [V], and the case is remanded [R] to the United States Court of Appeals for the Federal Circuit for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012).

Last fall, the Federal Circuit, per Chief Judge Rader, ruled that the claimed method of monetizing and distributing copyrighted products over the Internet is a patent eligible process.  Given the Supreme Court’s convoluted reasoning in Mayo v. Prometheus, there are many patents that may now be at risk.

The attack on patent eligibility continues . . .

Baxter International is the owner of U.S. Patent No. 5,247,434, which relates to a hemodialysis machine.  In 2003, a Baxter competitor, Frenesius, filed a declaratory judgment action arguing that the patent’s claims were invalid.  The case was tried to a jury, which agreed that the claims were obvious at the time of the invention.  The district court disagreed, granting Baxter’s motion for judgment as a matter of law.  Several means-plus-function limitations were held to be absent from the cited prior art. 

In 2009, the Federal Circuit affirmed the district cout’s judgment, holding that there was not sufficient, much less clear and convincing, evidence that the claim limitation “means for delivering dialysate” was found in the cited prior art.  Interestingly, Judge Dyk filed a concurring opinion where he advocated a stay of the litigation pending the reexamination proceeding.  He seemed to foreshadow this case.

It is entirely possible that the U.S. Patent and Trademark Office will finally conclude that [the] claims . . . of the ’434 patent are also invalid.

Judge Newman also filed a concurring opinion where she argued that stays of litigation are within the court’s discretion.  Given that reexamination proceedings are now taking over 3 years to be finally resolved by the PTO, if litigation stays were mandatory, they could be used as a delay tactic by infringers.  She did respond to Judge Dyk’s assertion in a footnote.

Our colleague in concurrence appears to believe that a PTO decision on reexamination will override a judicial decision reached after trial and appeal. That is incorrect. All that can be accomplished is delay.

Little did she know . . .

Reexamination

Simultaneously with the litigation, the PTO began reexamination proceedings on the ’434 patent in 2006.  The examiner rejected the claims as obvious based on the same primary prior art reference combined with some secondary references.  While the reexamination was pending at the Board of Appeals, the Federal Circuit issued its 2009 opinion affirming the validity of the claims in the Frenesius litigation. 

The BPAI affirmed the examiner’s rejection.  Specifically, the Board held that due to the lower standard of proof required to prove invalidity in a reexamination proceeding than in litigation, and that the PTO must use the broadest reasonable claim interpretation, the Board was not board by the Federal Circuit’s decision.  Baxter appealed the Board’s reexamination decision to the Federal Circuit.

Federal Circuit, Part II

The Federal Circuit affirmed the Board’s rejection of the claims, specifically agreeing with the Board’s analysis of the different burdens of proof.

More fundamentally, the PTO in reexamination proceedings and the court system in patent infringement actions “take different approaches in determining validity and on the same evidence could quite correctly come to different conclusions.”

Thus, because the two proceedings necessarily applied different burdens of proof and relied on different records, the PTO did not err in failing to provide the detailed explanation now sought by Baxter as to why the PTO came to a different determination than the court system in the Fresenius litigation.

One wonders what was the point of the first litigation if it can simply be overruled by the PTO in a proceeding that largely relies on the same evidence presented to a district court whose decision was affirmed by the Federal Circuit.  It seems like a waste of judicial and PTO resources to be able to relitigate the same or nearly the same issue again at the PTO.  Due to res judicata (law of the case, claim preclusion, issue preclusion, etc.), this cannot be done in successive court proceedings.  The Federal Circuit blames Congress.

[T]he fact is that Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost in prior judicial proceedings.

Only Judge Newman returned to the panel from the litigation appeal.  In the reexamination appeal, she provides a vigorous dissent.  She seems incredulous that the court should permit an administrative agency to nullify a decision of a federal court.  She is not aware of any counterpart in other areas of the law where an agency can override a court decision.  She supports reexamination as an efficient and economical alternative to litigation, but does not believe it was intended to negate the results of litigation.

Even the differences in burdens of proof should not permit an agency to disregard or overturn a court’s final decision.  Obviousness is a question of law.  If the court erred in its earlier decision, the remedy is judicial reopening, not agency disregard.

America Invents Act Implications

This issue is going to arise more often in the future due to the America Invents Act.  Inter Partes Review and Post Grant Review proceedings may lead to more determinations of validity by the PTO.  When these are filed after or in conjunction with litigation, there may be more disparate validity determinations. 

In this really what Congress intended?  Infringers and competitors can get multiple attempts to invalidate patents?  If they lose in one venue, they can simply re-file the case in another venue?  What a waste of judicial and PTO resources.

In the early 1980s, Congress substantially raised many of the PTO fees associated with patent prosecution and introduced some new fees that had not previously been charged, such as issue fees and maintenance fees.  To help off-set the burden this would cause for smaller or non-profit parties, Congress also introduced the Small Entity Status.

PTO rules define a Small Entity as an individual inventor or inventors, a small business concern, or a nonprofit organization.  In order to qualify as one of these three types of entities, none of the rights associated with a patent or patent application may have been assigned or licensed to any party that would not qualify for Small Entity Status, nor must there be any obligation on the part of the small entity to make such an assignment or license.  All of the rights in the patent or patent application must be held by a small entity.

In other words, IBM cannot set up a small holding company for all of its patents in order to qualify for Small Entity Status if it wishes to retain any rights in the patents.  Nor can IBM pay Small Entity Fees and wait until the patent issues to assign it to the company if the inventor(s) had an obligation to assign the invention to the company at the time of filing.

An individual inventor is anyone who has not assigned his patent application to a business or other organization.  The rules define a Small Business Concern as a company having fewer than 500 employees.  The rules define a Nonprofit Organization as a university, 501(c)(3) organization, or a scientific or educational organization under any state law or in a foreign country.  If an individual inventor, small business concern, or nonprofit organization licenses the patent or patent application to a company that doesn’t qualify for Small Entity Status, the full price fees must be paid at the PTO.

Previously, the PTO required the applicant or assignee to sign a verification of Small Entity Status.  Now, the simple written assertion of such status or even the payment of Small Entity Fees is sufficient.  This puts more of the burden on the patent applicant and the patent attorney to verify Small Entity Status.

If a small entity pays large entity fees, the small entity may request a refund of the overpayment.  Conversely, if Small Entity Fees are paid by an entity that is actually a large entity, it can usually be corrected by simply paying the required deficiency, if the incorrect amount was paid in good faith.  The rules do warn, however, that fraudulently paying Small Entity Fees when the applicant is not entitled payment of such fees can result in the resulting patent being held unenforceable due to inequitable conduct.

The PTO notes applicants have a contiuing duty to conduct a thorough investigation of the facts surrounding a claim of Small Entity Status.  The facts should especially be revisited at the times of paying the issue fee and maintenance fees.  For example, a patent issued to a Small Entity may have been licensed to a non-small entity between the time of its issuance and the time to pay a maintenance fee, or the company itself might have grown to more than 500 employees, making Small Entity Status inappropriate.

Micro-Entity

The America Invents Act includes provisions for a new entity called a “micro-entity” that would pay certain fees at a 75% reduction of the normal amount.  To qualify as a micro-entity, certain conditions must be met.

For unassigned applications, the entity must not include any inventors that have been named on 5 or more patent applications.  Thus, “micro-entities” are newer inventors.  The application must not be licensed or the inventors must not be legally obligated to license or assign the application.  Each inventor must have an income of less than 2.5 times the average gross income reported by the Department of Labor for the previous calendar year.

For assigned applications, the inquiry is similar.  None of the inventors must be named on 5 or more patent applications.  The application can only be assigned to an entity with 5 or fewer employees.  And the assignee must have an income of less than 2.5 times the average gross income for the previous calendar year.

Thus, micro-entities will be a very small group of applicants, but it can result in significant savings on PTO fees.

When paying PTO fees, it is important to stay up-to-date on whether the applicant qualifies as a Small Entity.

The problem is immense, and getting worse.  The board seems to be handling its docket of contested cases and reexaminations.  Ex parte application appeals, however, are another matter.  As of March 2012 (half way through FY2012), the board had disposed of 4,310 ex parte appeals from patent applications.  That’s a pretty good pace of 718 per month.  Unfortunately, 6,722 appeals were filed during that same time frame, an average of 1,120 per month.  So, a net 402ex parte appeals from patent applications are being added to the board’s docket each month.  The backlog of 23,963 appeals at the end of FY2011 has grown to 26,375 as of March.  The pendency from filing to board decision for these applications is 83.8 months or nearly 7 years.

Some have argued that a large part of the problem is that many appeals are sent to the BPAI prematurely or unnecessarily.  Director Kappos notes that the PTO had the Office of Patent Quality Assurance review 1,300 pending appeals to see if this was the case.  He notes that a low percentage of cases contained deficiencies and were not ready for board disposition.  This seems to mean that the PTO was satisfied that there is not a high number of unnecessary appeals.

As noted, the BPAI has disposed of 4,310 ex parte patent application appeals as of March 2012.  Of that number, 2,029 (47.1%) were affirmed, 1,465 (34.0%) were reversed, 602 (14.0%) were “affirmed-in-part” (and presumably reversed-in-part), 121 (2.8%) were dismissed, and 93 (2.2%) were “administrative remands”.  Presumably, the dismissals were cases where the applicant failed to prosecute the appeal or respond to some request from the board.  The “administrative remands” were probably cases where some deficiency in the appeal caused it to be returned to the tech center or examiner. 

Reviewing the cases actually decided on the merits, 50.5% of the appeals (2,067 out of 4,096) were reversed, at least in part, while only 49.5% (2,029) were completely affirmed.  This percentage seems too high.  Applicants who have important inventions may want to take their chances on appeal when the percentage of reversals (at least in part) is over 50%.  A reversal-in-part means that applicants at least get another shot with the examiner on some of the claims, and may get an outright allowance.

Director Kappos does not seem to think this percentage too high.  He instead focuses on the emphasis on examiner interviews and the Ombudsman Program to help alleviate the need for appeals.

Once I’ve been through a round of written responses with a patent examiner, if I feel that the examiner is not being receptive to my position, I will conduct an interview with the examiner.  Often, the examiner will indicate that he or she had not fully grasped the position before and now better understands the distinctions between the claimed invention and the prior art.  Even in cases where I don’t get the examiner to agree with me, we usually understand each other’s position better which enables me to better advise my client on how to proceed with the case.

It is often easy for an examiner to cut-and-paste language from previous office actions when responding to an applicant’s amendment.  Sometimes this is because the examiner doesn’t fully appreciate the applicant’s position, sometimes this is because the applicant and examiner are talking past each other.  An interview can often resolve these issues as the examiner must listen and consider the applicant’s postion without resorting to cut-and-paste.

This isn’t to say that all interviews are successful.  Many examiners are not used to oral communication and will be non-committal.  This is especially true for junior examiners.  Junior examiners do not have authority to allow claims without review by a senior examiner or supervisor.  Thus, examiner interviews with junior examiners require a senior examiner with such authority to also be present.  The problem is that the senior examiner has his or her own docket and often is not familiar with the application and issues or is not prepared for the interview.  Such interviews can be frustrating and maybe even unhelpful.  And, many junior examiners are very reluctant to allow patents.

In any event, even if the interview does not result in allowance of the claims, I have more information about the application and the examiner’s position than I did prior to the interview.  I can advise my client that the examiner will not be persuaded.  Perhaps we are more likely to get a positive result through appeal rather than another round of responses.

Interviews are not a way to avoid making comments on the record that become part of the prosecution file.  If there is an outstanding office action, most examiners will require the applicant to send in a proposed amendment or set of arguments that will become a part of the record.  This can sometimes be avoided if the interview is conducted after a response has been filed.  After the interview, a written summary is prepared by both the examiner and the applicant that becomes part of the file. 

Nonetheless, if I determine during an interview that a particular argument is clearly not going to persuade the examiner, and I don’t think the argument is vital to the case, I may omit it from my next response, thereby keeping it out of the record.

By Dr. Kalyan C. Kankanala

http://www.sinapseblog.com/p/ip-shop.html

Dr. Kankanala is an author and contributor to the SiNApSE blog that covers intellectual property news with a particular emphasis on developments in India.

Fun IP is a concise, albeit rather comprehensive, book that provides an introduction to the various aspects of intellectual property law.  It covers the basics of patents, copyrights, trademarks, geographical indications, industrial designs, trade secrets, and traditional knowledge.  For each regime of protection, the book lays out the requirements for obtaining the protection, what would constitute infringement, and various defenses and remedies available.

While the book is applicable to intellectual property generally, its specific focus is on intellectual property in India.  It is interesting to note the differences between the relatively young system of IP in India compared to more mature systems in the US and Europe.  For example, he notes how much more restrictive India is with respect to patentable subject matter and how brand name pharmaceutical companies are not winning infringement suits in India very often.

Trade secrets would seem to provide a particular problem to companies in India.  Dr. Kankanala notes that non-compete agreements that extend beyond the term of employment are invalid and cannot be enforced.  Further, the doctrine of inevitable disclosure permits the former employee to take his knowledge and skill to work for a competitor.  Thus, it would seem to be very difficult to protect trade secrets in India.

There are several aspects of Indian IP law for which there is no counterpart in the US or the counterpart is not of significance.  India includes a type of patent called a petty patent.  Such a patent protects incremental changes or improvements in a product or process that would otherwise be deemed obvious over the existing art.  The improvement need only meet the novelty requirement for approval.

The book includes a chapter on “Traditional Knowlege.”  Traditional knowledge is knowledge or information that is in the possession of indigenous communities and has been passed down from ancestors.  It is understood that this information is often not well documented.  The purpose of protecting the knowledge is to prevent its misuse by other parties, but also to keep others from obtaining IP protection for this information.  The book includes examples where the submission of traditional knowledge was used to oppose patent protection.

The book also includes a brief overview of the business value of IP and how businesses can educate and provide incentives to employees to protect and value IP.  It notes that Indian companies do not yet understand how to value and monetize their IP.  They also need to understand the risks associated with potential infringement of the IP of third parties.

Finally, the book concludes with a look at open source and the creative commons.  It covers various theories and licensing arrangements associated with the free use of intellectual property.

Overall, the book is a good introduction to the various aspects of intellectual property for the uninformed.  It is also a good resource for some of the nuances and variations that are specific to Indian IP law and practice.  Dr. Kankanala is a native of India and there are some awkward and non-traditional phrases in the book.  It could also use a bit more editing for spelling and grammar.  Overall, however, the book is a very good value and is priced very reasonably.  I would recommend the book.

In March, the Supreme Court decided Mayo Collaborative Services, Inc. v. Prometheus Labs., Inc.  where the Court again confused patentable subject matter to patentability.

Earlier this week, the Court decided Caraco Pharm. Labs. Ltd. v. Novo Nordisk A/S.  In a unanimous decision, the Court held that in an infringement action brought under the Hatch-Waxman Act, the generic pharmaceutical company accused of infringement can bring a counterclaim against the patent owner that the use code for the patent listed in the FDA’s Orange Book is incorrect and must be corrected.  Overly broad descriptions of the patent claim scope are problematic for getting cheaper pharmaceuticals to market more quickly.

Yesterday, the Court issued its opinion in Kappos v. Hyatt.  In another unanimous opinion, the Court held that where an applicant has had a patent application rejected by the PTO at the Board of Appeals and Interferences and has filed a civil action in district court to obtain his patent, the court must permit the applicant to present new evidence not previously submitted to the PTO and must review the evidence de novo without giving deference to the final PTO decision.  Whether the applicant had the opportunity to present the evidence to the PTO may still be considered by the court when weighing the evidence.

The report recognizes that the entire US economy relies to some extent on IP.  It concludes that direct employment in the most IP intensive fields accounted for 27.1 million jobs in 2010, while indirect activities associated with those jobs provided an additional 12.9 million jobs.  The total of 40 million jobs or 27.7% of the US economy.  IP intensive industries accounted for $5.06 trillion in value added in 2010 or 34.8% of US GDP.

Employment in IP intensive fields has lagged behind other fields due to the historic loss of manufacturing jobs during the last two decades.  Between 2010 and 2011, copyright and patent-intensive industries have increased by over 2% in leading the economic recovery.  IP intensive jobs command a 42% premium over jobs in non-IP intensive fields.  In 1990, this premium was only 22%.

The report specifically does not provide any policy suggestions or recommendations.  It does, however, appear to be a political document noting that Pres. Obama has emphasized innovation in a number of speeches in the last few years.

It is interesting, as Hal Wegner notes, that this report emphasizes the importance of IP and patents to the economy.  It is co-authored by the PTO’s Chief Economist Stuart Graham.  Graham also co-authored a 2008 study that appeared in the Berkeley Technology Law Journal that argued that patents are not important and provide weak incentives for innovation, and a 2010 Commerce Department White Paper that argued that patent reform would provide incredible benefits for the economy.

The examiner will then review the Amendment and issue a Notice of Allowance or a Final Office Action.  A Final Office Action would include the examiner’s response to the claim amendments and arguments.  It would indicate which rejections are still applicable and which have been overcome.

After a Final Office Action, an applicants options are more limited.  He can always file a Notice of Appeal, file a continuing application, or file a Request for Continued Examination (RCE).  The first option is very expensive and time-consuming given the backlog at the Board of Appeals, while the latter options abandon the application (in the PTO’s view) in favor of the continued prosecution.  It can mean that the application is sent back into the examination queue meaning that it could be a year or more before the examiner considers the case again.

There are limited prosecution options available to an applicant after a Final Office Action.  He could cancel any rejected claims and permit allowed claims to issue.  He can usually amend an independent claim to add limitations from allowable dependent claims.  Examiners, however, have broad latitude to refuse to consider most amendments made after a Final Office Action on the grounds that the amendment “raises new issues” or “requires additional search.”  As in all aspects of patent prosecution, some examiners are reasonable about this and others are not.

Thus, applicants are sometimes forced into filing RCEs, which creates the current problem of a huge RCE backlog.

Examiners are not all to blame for these problems.  The system provides them with incentives to not consider amendments made after a Final Office Action.  Examiners get credit for initially examining an application, for issuing a Final Office Action, and for a Notice of Allowance or an abandonment by the applicant.  As noted above, a continuation or RCE filing are considered abandonments by the PTO.  Thus, requiring applicants to file RCEs gives the examiner more credit toward examination goals.

Further, patent applications and claims are sometimes not ready or in good shape at the time of the initial Office Action.  This means that only after filing an Amendment are the claims placed in good shape by the applicant.  In that case, the first Office Action is not helpful to advancing the case and can cause the delay in prosecution.  Sometimes applicants are a bit intransigent until after receiving a Final Office Action.  Applicants are sometimes to blame for delays in prosecution.

The PTO is now proposing an After Final Consideration Pilot program during the third quarter of FY2012 (April-June).  After a Final Office Action, the PTO will give examiners up to 3 hours of non-production time to consider issues and perform searches for utility and plant applications and up to 1 hour for design applications.  Examiners are encouraged to use their professional judgment to determine whether the nature and extent of amendments and arguments can be fully considered within this time period.  This should encourage a bit more flexibility and negotiation between examiners and applicants after a Final Office Action. 

The goal is to provide more compact prosecution and to reduce the number of RCE filings.  This seems to be a good way to attempt to solve this issue.

HT:  IP Watchdog.

It seems that Taranto should sail through a confirmation vote from the entire Senate.  The question is simply a matter of when that body will get around to it.  The Federal Circuit has not had its full complement of 12 judges since October 2009 when Judge Schall took Senior Status.