Supreme Court Grants Certiorari in Patent Case

Today the U.S. Supreme Court granted a writ of certiorari in a patent case, a rare occurrence. The Court announced that it will hear an appeal from the Court of Appeals for the Federal Circuit in Global-Tech Appliances, Inc. v. SEB S.A. The Global-Tech case concerns the level of intent that a patentee must prove to establish infringement by inducement, a very important legal issue. The Court's decision will have significant ramifications across many industries, including the computer and software industries in particular.

"False Marking" Revisited by the Federal Circuit

On June 10, 2010, the United States Court of Appeals for the Federal Circuit issued a widely anticipated decision in Pequignot v. Solo Cup Co., No. 2009-1547 (Fed. Cir. June 10, 2010). The Solo court held that marking a product with the number of an expired U.S. patent can create liability for false patent marking. The court also held that knowingly marking a product with an expired patent number creates a presumption of intent to deceive the public. Along with the Federal Circuit’s recent decision in Forest Group, Inc. v. Bon Tool Co., the Solo decision highlights the need for care in marking products with a patent number.

The false marking statute, 35 U.S.C. § 292, provides a penalty for marking an unpatented product with a patent number. The statute allows any person to sue for the penalty, with half of any recovery going to the government. In the recent Forest Group case, the Federal Circuit clarified that this statute provides a potential penalty of up to $500 for each item marked with a false patent number.

The Forest Group decision led to a spate of false marking lawsuits, the most closely watched of which has been the Solo case. In Solo, the product at issue was a disposable cup lid for beverages—a mass-produced item. The defendant, Solo, had sold the lids for years, and had marked the lids with a patent number. After the relevant patents expired Solo continued to mark the lids as patented, eventually selling billions of the lids so marked.

The plaintiff, Pequignot, sued for false marking under Section 292 and, under the Forest Group case, claimed damages of $500 for every lid that Solo had marked after expiration of the patent. As the Federal Circuit noted, based on the billions of lids that Solo had sold, the total damages provided under the statute theoretically could have run into the trillions of dollars.

The Federal Circuit reviewed several issues on appeal. First, the court considered whether Solo’s marking of the lids with an expired patent number in fact could constitute false marking. The Federal Circuit answered this question in the affirmative, reasoning that products that are no longer patented are "unpatented" and within the purview of Section 292: "Solo's products that were once covered by now-expired patents are therefore 'unpatented' within the meaning of the statute."

Second, the court held that where the manufacturer marks a product with a patent that the manufacturer knows has expired, there arises a presumption of an intent to deceive. Specifically, the court held that "the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public." Because Solo had known that the patents were expired, the court held that Solo was presumed to have acted with intent to deceive.

Solo had obtained an opinion of counsel, however, that stated the acceptability of continuing to mark the patent number. Solo also had instituted a policy of replacing its lid molds having expired patent numbers with lid molds without patent numbers as the molds needed replacement. Based on these factors, the court found that Solo had rebutted the presumption of intent to deceive.

Third, Solo had included the following marking on packages for both patented and non-patented products: "This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup.com." The court found that this notice helped to rebut the presumption of intent to deceive. Some of Solo's products indeed were covered by patents, and some were not. "Thus," reasoned the court, "it is highly questionable whether such a statement could be made 'for the purpose of deceiving the public,' when the public would not reasonably be deceived into believing the products were definitely covered by a patent." With respect to the link to Solo's website, the court noted: "Solo did not state on its packaging that any product was definitely covered by a patent, and it provided the consumer with an easy way to verify whether a specific product was covered; the consumer could 'contact www.solocup.com' for details."

Solo emphasizes the need for caution when marking products with a patent number. If the patent in question has expired, under Solo this may constitute actionable "false marking." Companies that engage in patent marking are encouraged to contact a Fitch Even attorney for further guidance in this area.

American Needle v. NFL—The Supreme Court Applies Antitrust Law to IP Licensing by Associations

The Supreme Court’s May 24, 2010 American Needle, Inc. v. National Football League et al., 560 U.S. ____ (2010), ruling has implications for associations that license intellectual property rights. The Court held that associations aggregating intellectual property are subject to antitrust scrutiny because they are not entitled per se to be treated as a single entity. American Needle emphasizes the need for careful consideration when forming joint licensing arrangements.

The Litigation Between American Needle And NFL

The NFL teams formed National Football League Properties (“NFLP”) in1963 to license their intellectual property, including trademarked team logos. Up until 2000, American Needle was one of several non-exclusive licensees manufacturing baseball style caps with NFL team logos. In December, 2000 the NFL teams authorized NFLP to grant exclusive licenses. NFLP subsequently granted an exclusive license to Reebok International, Ltd. and declined to renew American Needle’s non-exclusive license.

American Needle sued NFLP, alleging violations of § 1 of the Sherman antitrust act, which makes illegal "every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade." 15 U.S.C. § 1. The first inquiry in analyzing liability under § 1 is to determine whether there has been a "contract, combination . . . or, conspiracy." Slip op. at 1. The second inquiry, upon finding that the defendant formed a "contract, combination . . . or, conspiracy" is to determine whether the defendants improperly restrained trade.

A central issue in American Needle was whether the NFLP constituted a single entity incapable of "contract, combination, or conspiring." The NFL took the position that NFLP was a single entity, independent from its member teams. American Needle contended that the NFLP embodied concerted action of the individual NFL teams, through which each team acted in restraint of trade.

Both the district court and the court of appeals held that the NFLP constituted a single entity incapable of conspiring and thus not liable under § 1 of the Sherman act. Slip op. at 3. The Supreme Court reversed and remanded, holding that the decision to collectively license separately owned trademarks to a single vendor "depriv[es] the market place of independent centers of decision making" and therefore can be actionable under § 1 if found to improperly restrain trade. Slip op. at 12.

The Test For Improper Concerted Action

To prove liability under § 1, a plaintiff must first show that the defendants engaged in improper concerted activity rather than acting independently. In its holding on this point, the Court emphasized a focus on "competitive reality" when reviewing whether separate entities engage in improper concerted action. The Court held that the test for improper concerted action is "whether there is a 'contract, combination . . . , or conspiracy' amongst 'separate economic actors pursuing separate economic interests,' such that the agreement 'deprives the marketplace of independent centers of decision making,' and therefore of 'diversity of entrepreneurial interests.'" Slip op. at 10 (internal citations omitted).

Applied to the facts in American Needle, the Court noted that NFL teams compete in the market for intellectual property and that each team is a "substantial, independently owned, and independently managed business." Slip op. at 12. The Court discounted the notion that NFL teams have a common interest for purposes of trademark licensing, noting that their "interests in licensing team trademarks are not necessarily aligned." Slip op. at 13. The Court thus reversed and remanded for further consideration of whether the NFLP improperly restrained trade. Slip op. at 20.

American Needle Increases Uncertainty For IP Licensing Consortiums

The Court's decision makes it less certain whether licensing consortiums engage in illegal restraint of trade. The functional considerations emphasized by the Court provide an uncertain test of whether there has been a concerted action and will require careful handling. Parties to IP licensing consortiums may need to consider their liability in light of the Court’s decision.

For any questions relating to this decision or to the specifics of your circumstances, please contact David A. Gosse or the Fitch Even attorney with whom you regularly consult.

Federal District Judge Invalidates Gene Patents

Association for Molecular Pathology, et al. v. United States Patent and Trademark Office, et al., decided March 29, 2010, is a controversial decision that calls into question the patentability of isolated genes. The U.S. District Court for the Southern District of New York ruled that “isolated” or “purified” genes are not patentable subject matter because they are not “markedly different” from a product of nature. An appeal is expected to the U.S. Court of Appeals for the Federal Circuit.

According to patent law, products of nature cannot be patented because they are not “made by man.” The United States Patent and Trademark Office (USPTO) takes the position that an isolated and purified DNA molecule that has the same sequence as a naturally occurring gene is eligible for a patent because that DNA molecule does not occur in that purified or isolated form in nature. Natural substances constitute patentable subject matter, according to the USPTO, provided that they are “isolated and purified,” because they do not occur in that “isolated” or “purified” form in nature.

The USPTO’s policy was called into question in Association for Molecular Pathology, et al. This lawsuit involved two human genes, known as BRCA1 and BRCA2 genes. Mutations in these genes are responsible for about 40% of inherited *** cancers and about 80% of inherited *** and ovarian cancers. The availability of “isolated” or “purified” BRCA1 and BRCA2 genes now makes the diagnosis of inherited *** cancer a reality. Previously, the only available method to diagnose human *** cancer involved *** examination, e.g., mammogram, followed by biopsy in which cells are examined under a microscope. The diagnosis of inherited *** cancer now involves screening the BRCA1 and BRCA2 genes in a cancer test for the mutations responsible for inherited *** cancer.

The lawsuit was filed by the American Civil Liberties Union (ACLU) and other plaintiffs who challenged the validity of several claims in the patents at issue. The principal defendant, Myriad, is a company that developed and commercialized the cancer test. The dispute arose when a *** cancer patient took the Myriad cancer test to see if her genes had the mutations that are responsible for inherited *** cancer. The test came out positive, indicating that her genes have the mutations responsible for inherited *** cancer. The patient wanted a “second opinion.” No second opinion was available, however, because Myriad patented the isolated BRCA1 and BRCA2 genes and associated cancer test. The patient sought the assistance of the ACLU in bringing suit against Myriad and against the USPTO.

The court’s ruling invalidated composition of matter claims directed to isolated BRCA1 and BRCA2 nucleic acid sequences. The court reasoned that the USPTO’s policy was incorrect, and that purification of these genes did not transform a product of nature into patentable subject matter. The court also invalidated claims directed to methods for analyzing a BRCA1 and BRCA2 sequence to assess mutations reflecting cancer risk. Applying the test of In re Bilski, which limits patentability to processes that are tied to a machine or apparatus or that transform a particular article into a different state or thing, the court held that the method claims do not satisfy the Bilski test because they covered only abstract mental processes.

This case is controversial, raises important policy issues, and could have a significant impact on the biotechnology industry.

Patents serve to stimulate innovation by rewarding research and development (R&D) in exchange for a limited right to exclude others from copying the patented invention during the term of the patent. Patentees argue that, without patent protection, companies could not recover the costs of R&D because the invention could be copied by all. The countervailing view is that the risk of infringement claims for gene patents may discourage use of those genes in research and clinical settings. The appeal of the Association for Molecular Pathology et al. decision is sure to be watched closely.

If you have questions about the subject of this IP Law Alert, please contact Nancy W. Vensko or the Fitch Even attorney with whom you regularly consult.

Ariad v. Eli Lilly—The Federal Circuit Confirms the Written Description Requirement

In Ariad Pharms, Inc., et. al. v. Eli Lilly and Co., the Federal Circuit has reaffirmed, en banc, the "written description" requirement of patent law.

The Ariad decision, rendered March 22, has many important ramifications, most evidently in the chemical and pharmaceutical arts, but more broadly in all technical fields. For patent prosecutors, the Ariad decision confirms the importance of careful planning and thorough communication with patent counsel when drafting a patent application. More generally, Ariad provides guidance for analysis of applications and patents for compliance with the written description requirement of law.

The Litigation Between Ariad And Lilly

In 2002, Ariad Pharmaceuticals sued Eli Lilly for patent infringement, and Lilly defended on various grounds, among them patent invalidity. On initial appeal, the Federal Circuit held that the asserted claims were invalid for lack of written description. Ariad Pharms., Inc. v. Eli Lilly & Co., 560 F.3d 1366, 1371 (Fed. Cir. 2009).

Ariad then petitioned the Federal Circuit for rehearing en banc, arguing that the law contains no written description requirement separate from the enablement requirement. In its en banc decision, the Federal Circuit rejected Ariad's argument, and confirmed that the law does indeed provide a "written description" requirement that is distinct from the other disclosure requirements provided by law, in particular the requirement that a patent enable one of skill in the art to practice the claimed invention. In other words, it is insufficient for a patent to teach only how to practice the invention; rather, the patent also must describe the invention.

The claims of the Ariad patent encompassed various methods for regulating "expression" of certain genes.¹ Ariad disclosed in its patent specification that several categories of compounds were suitable for use in regulating the gene expression, but Ariad did not describe the compounds in each category. Rather, Ariad only specified the desirability of regulating gene expression, and suggested that certain types of compounds might be operative.

The Federal Circuit held this description to be insufficient: "Such claims merely recite a description of the problem to be solved while claiming all solutions to it." It is impermissible, the court held, to "cover any compound later actually invented and determined to fall within the claim's functional boundaries—leaving it to the pharmaceutical industry to complete an unfinished invention." The Federal Circuit further explained that claims written in functional terms must find support via specific structures, formulas, chemicals or physical properties that achieve the claimed function:

The problem is especially acute with genus claims that use functional language to define the boundaries of a claimed genus. In such a case, the functional claim may simply claim a desired result, and may do so without describing species that achieve that result.

In summary, "an adequate written description . . . requires more than a generic statement of an invention’s boundaries."

Ariad argued that the specification enabled one of skill in the art to prepare suitable compounds, and that this disclosure was sufficient. The Federal Circuit rejected this argument:

If Congress had intended enablement to be the sole description requirement of § 112, first paragraph, the statute would have been written differently.

The court considered a disclosure of a chemical process involving a one-carbon molecule. These teachings might enable someone to practice the invention with three- or four-carbon molecules, but, explained the court, "such compounds have not been described and are not entitled to a patent." "Consider the case where the specification discusses only compound A and contains no broadening language of any kind. This might very well enable one skilled in the art to make and use compounds B and C; yet the class consisting of A, B and C has not been described."

Ruschig: The Flip Side of the Written Description Doctrine

The immediate holding of Ariad is that claims that cover a broad genus, or category, must find equally broad supporting disclosure in the specification. It often will be insufficient to disclose a single compound and subsequently to attempt to claim a class of compounds.

But Ariad also held that the converse is true. It may be insufficient to disclose a broad genus or category of compounds and later attempt to present a claim to a specific one of those compounds. The Ariad court cited In re Ruschig, 379 F.2d 990 (CCPA 1967), with approval. In Ruschig, the specification disclosed a general chemical formula, but did not disclose a specific compound (chlorpropamide). "[T]he specification provided no guides or 'blaze marks' to single out chlorpropamide from all the other compounds, and thus did not support the later-added claim."

The Patent Office refused to allow Ruschig to present a claim to chlorpropamide, and Ruschig appealed to the C.C.P.A. (a predecessor court to the Federal Circuit). The Ruschig court affirmed, holding the chlorpropamide claim to be unpatentable:

Not having been specifically named or mentioned in any manner, one is left to select from the myriads of possibilities encompassed by the broad disclosure, with no guide indicating or directing that this particular selection should be made rather than any of the many others which could also be made.

379 F.2d at 995.

The Ruschig doctrine is applicable in other contexts. For instance, a patent disclosure of "an effective amount of chemical X" may be insufficient to support a claim that specifies "10-20% of chemical X." A disclosure of "a microprocessor" may be insufficient to support a claim to a particular processor architecture. A disclosure of "a supporting beam" may not support a claim to "a wooden support beam."

Satisfaction of the Written Description Requirement is a Factual Inquiry

The Ariad court reaffirmed many earlier cases that held that satisfaction of the written description requirement is a fact question. "We have recognized that determining whether a patent complies with the written description requirement will necessarily vary depending on the context." The level of skill in the art is one factor in this determination. Other factors include the nature and scope of the claims, the complexity and predictability of the relevant technology, the level of existing knowledge in the particular field, the extent and content of the prior art, the maturity of the science or technology, and the predictability of the aspect at issue.

According to the Ariad court, the written description law "must be applied to each invention at the time it enters the patent process, for each patented advance has a novel relationship with the state of the art from which it emerges."

Ariad Provides Guidance to Patent Prosecutors and to Courts and Litigators

Patent applicants should take steps to ensure that their patent applications satisfy the written description requirement. The more examples of the invention and its component parts that are disclosed in the specification, and the more specific those examples are, the more likely that the specification will meet the written description requirement. The patent applicant should include both broad and specific language in describing the invention, and should describe the invention in a manner specific to and appropriate for the application in question, keeping in mind the various factors enumerated by Ariad.

An applicant intending to claim the invention broadly (e.g., a class of compounds A, B, C), should disclose the invention broadly (should not disclose only A). Conversely, an applicant may provide a disclosure of a broad category of materials, but would be wise to supplement the broad disclosure with specific examples.

More broadly, Ariad also provides guidance as to how an applicant (or court litigant) should analyze patents for compliance with the written description requirement. Ariad provides several factors that a court will consider in addressing whether a patent claim finds adequate written description.

Planning and communication with skilled patent counsel will be key to any Ariad analysis. Fitch, Even attorneys are available to answer any questions relating to the Ariad case.

This IP Law Alert was authored by Alison Aubry Richards, who is a member of Fitch Even’s IP litigation Practice Group.

The Supreme Court's Bilski Decision

The United States Supreme Court issued its widely-anticipated decision in Bilski v. Kappos, 561 U.S. ___ (2010). The Bilski decision addressed whether so-called “business” methods can be eligible for patent protection. Bilski is of particular significance in the financial, software, and computer sciences fields, where many business method patents originate. The Court upheld the rejection of the Bilski application by the Patent Office and the Federal Circuit, but did so on grounds that differ significantly from those relied upon by the Patent Office or the Federal Circuit.
Bilski’s patent application sought protection for procedures for allowing energy suppliers and consumers to minimize risks resulting from demand and price fluctuations in energy markets. At issue was whether such techniques are eligible subject matter for patent protection as a “process” under Section 101 of the Patent Act, which restricts the categories of inventions eligible for protection to processes, machines, manufacturers and compositions of matter.
Below, the Federal Circuit had held in its en banc Bilski decision that the test for patent eligibility of a process or method was whether the process was "tied to a particular machine or apparatus" or whether it "transforms a particular article into a different state or thing." This was called the "machine-or-transformation test." On appeal from that decision, the Supreme Court addressed three arguments advanced for why the claimed invention does not fall within the scope of Section 101 patentable subject matter: (1) it does not satisfy the machine-or-transformation test; (2) it is directed to a business method; and (3) it is merely an abstract idea.
The Supreme Court found "reasons to doubt whether the [machine-or-transformation] test should be the sole criterion for determining the patentability of inventions in the Information Age." The Court held that the Federal Circuit's view was too limiting and that the "machine-or-transformation test" is not the exclusive test for patent eligibility. The Court noted that, while the machine-or-transformation test can be a useful tool in evaluating patent eligibility, the Patent Act is more expansive in scope, and offers the possibility of patent protection for a broader range of processes than those delimited by the "machine-or-transformation test." Noting that one provision of the Act explicitly contemplates the existence of business method patents, the Court also refused to categorically exclude business methods from the scope of patentable subject matter contemplated by Section 101. The Court, however, went on to conclude that the claims of the Bilski patent application are outside the scope of Section 101 because they are directed to an abstract idea in violation of established precedent holding that abstract ideas are unpatentable.

Revolution in the USPTO: New Order and Improved Policies for Fostering American Invention

With my colleague and co-author, May Lin Dehaan, I offer the following brief perspective on the New Order in the United States Patent and Trademark Office. Please feel free to offer your comments, or questions.

Intellectual property is one of the most important strategic resources of the United States today, wherein an increasing intellectual property portfolio, especially of high-tech patentable subject matter, forms a foundation on which individual businesses and, indeed, our economy can prosper. Without patent rights, a competitive edge in the global economy of the 21st century is lost and prosperity fades. Finally after several years of monkey-wrenches in the American patent machine, we have good news for American inventors and small businesses, in particular. Last year, President Barack Obama nominated David Kappos, an experienced patent professional with more than 20 years of experience, as the new Undersecretary of Commerce for Intellectual Property and Director of the U.S Patent and Trademark Office (USPTO). We hope leadership in Congress pays attention to at least some of what David Kappos had said and responds quickly. We are not just protecting our intellectual property; we are protecting our future, and our economic strategic advantage.

David Kappos attended University of California at Davis, receiving a Bachelor of Science degree in Electrical and Computer Engineering in 1983. He subsequently attended University of California at Berkeley, receiving a Juris Doctor degree in 1990. David Kappos’ professional experience includes work in the biotech, the life science, and the high-tech electronic areas. At the time of his nomination, he was serving as vice president and assistant general counsel for intellectual property at International Business Machines, Inc. (IBM), managing the company’s patent and trademark portfolios as well as globally licensing and enforcing its intellectual property. He is believed by many patent professionals as being a proponent of patent reform and in very much in favor of streamlining the examination process of patent applications.

In addition, David Kappos has served on the Board of Directors of the American Intellectual Property Law Association, the Intellectual Property Owners Association, and the International Intellectual Property Society. He has also served as the Vice President of the Intellectual Property Owners Association. He has held various previous leadership positions in intellectual property law associations in Asia as well as in the United States. He has spoken widely in Asia, Europe, and the United States on intellectual property topics.

Since being confirmed by the U.S. Senate, Director Kappos has been in control over the U.S. Patent and Trademark Office since late 2009 and has already begun implementing many internal changes. Director Kappos has signed a new Final Rule rescinding regulations proposed by former Director Dudas. The previously proposed regulations were believed by many patent practitioners and applications to unduly restrict American innovation, particularly that by small business. Those previous regulations, which limited the number of continuation applications as well as the number of claims in relation to each patent application, were published in the Federal Register in August 2007, but were enjoined in an extraordinary by a U.S. District Court in Virginia as exceeding the authority granted the Director under federal statute, and thus never came into effect.

From the outset, the new Director has shown himself to be much more patent-friendly than his predecessor. To wit, Director Kappos has been quoted as follows: “The USPTO should incentivize innovation, develop rules that are responsive to its applicants’ needs and help bring their products and services to market[.] …. These regulations have been highly unpopular from the outset and were not well received by the applicant community. In taking the actions we are announcing today, we hope to engage the applicant community more effectively on improvements that will help make the USPTO more efficient, responsive, and transparent to the public. …. We are grateful to GlaxoSmithKline for working with us to file this joint motion to both dismiss the appeal and vacate the district court’s decision. This course of action represents the most efficient way to formally and permanently move on from these regulations and work with the IP community on new ways to take on the challenges these regulations were originally designed to address.” Further, Director Kappos is dealing with a tremendous backlog of patent applications with long waiting periods for substantive examination, outdated information technology systems, and a long and protracted examination process.

Director Kappos has demonstrated a forward-thinking approach in his intent to expedite examination of patent applications that involve green technologies, to refashion the patent examination process, to reform the count system for motivating examiners toward more rapid disposal of the applications. A key focus, according to Director Kappos, the need to “refashion the fee system” in a manner that more accurately relates official fees with the work performed by the examiners in order to eliminate the backlog. Noteworthy is that he intends to eliminate fee diversion from USPTO to other federal agencies, fee diversion from the USPTO having been a policy of the former Bush Administration, wherein the USPTO did not operate in positive cash flow for the first time in its history. Director Kappos will be further dealing with the increasing use of reexamination as an alternative to litigation and the increasing backlog at the Board of Appeals.

Most significantly, the USPTO allowance rate has been rising in the half quarter of 2010 following the appointment of Director Kappos. This trend appears to indicate an increase in allowance rate from less than 50% to approximately 65% during this first quarter. This increase in allowance rate may be attributed to Director Kappos’ applicant-friendly approach to handling patent applications. Since his appointment, a series of initiatives have been presented, and some already implemented, that encourage communication between the examiner and the applicant which have contributed to the increase in allowance rate. Such initiatives include the First Action Interview Pilot Program, the Project Exchange, and the Patent Ombudsman Program.

With respect to the First Action Interview Pilot Program, this procedure provides for conducting an interview with the Examiner before issuance of a first office action. The policy behind this procedure is fostering more open communication between the examiner and the applicant in order to arrive at a better and earlier understanding of the invention in order to streamline the examination process. With respect to the Project Exchange, this procedure provides for allowing an applicant, having a plurality of pending applications to withdraw a given application in exchange for an expedited examination of another application. This procedure permits an applicant to “triage,” expedite, and prosecute the best pending applications. With respect to the Patent Ombudsman Program, this procedure provides for generally encouraging cooperation between the USPTO and the applicant.

Another change instituted by Director Kappos is the revision of the merit system for examiners, also called the the count system, which, under former Director Dudas, promoted churning of patent applications by examiners resulting often in the need to file a number of Requests for Continued Examination and a series of Amendments before a meritorious patent application would be allowed. Director Kappos also intends to promote work-sharing projects, such as the Patent Prosecution Highway, in order to accelerate the prosecution of applications that have already passed muster in other countries, and to promote patent reform discussions in Congress.

Some other patent reform ideas promoted by Kappos include a procedure for post-issuance review, to challenge improperly granted patents without the needs for judicial proceedings, a pre-issuance submission of information by third parties to challenge whether a patent should be issued after publication but before issuance, an enhanced inter partes (multiple party) reexamination, procedure greater restrictions on potential patent suit damages, an encouragement of green innovation, and a facilitation of patent procedures in favor of independent inventors.

Further, Director Kappos described funding as the largest challenge to the operations of the USPTO. Following the economic downturn, the Patent and Trademark Office experienced a $200M shortfall due to a decrease in filings, issuances and maintenance payments. Consequently, the USPTO has suspended hiring for fiscal year 2010. Director Kappos has stated, “Addressing our financial challenges so that the Agency can function effectively is my highest priority. I remain dedicated to working with our stakeholders, the Department of Commerce and members of Congress to ensure that we are able to perform our mission properly in the short-term – and to develop and adopt a sustainable funding model that will allow us to serve this country’s innovators in the future.” In order to implement improvements to the funding process, the USPTO has established certain objectives, including: a first action pendency to ten months and overall pendency to twenty months; decreasing the backlog of cases; reducing the pendency of appeals to three months; and reducing the pendency of reexaminations to one year.

Director Kappos will need to address the problems associated with the large number of examiners that are working remotely from home. This situation unfortunately eliminates the ability of examiners to confer with each other on a daily basis regarding issues, such as guidance in searching for prior art, in the technical understanding of the claimed subject matter and of the prior art, in the state of the patent law, in the manner in which the prior art is to be applied, and in the current USPTO procedures that are applicable to a particular patent application. In addition, both the USPTO and the Department of Justice announced that they do not intend to seek further review of the Federal Circuit's decision in Wyeth v. Kappos, No. 2009-1120 (Jan. 7, 2010), a case which provided greater patent term adjustment that was decided prior to Director taking Office.

All in all, the consensus in the IP community is that Director Kappos’ “good karma” will grace the USPTO, American inventors, and small business vital to our economic recovery.

Recent Explosion of False Patent Marking Lawsuit

A recent Federal Circuit decision, Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009), has invoked new interest in the “false marking” statute, 35 U.S.C. § 292. The Bon Tool decision has led to dozens of new lawsuits, and we expect this trend to continue. We encourage our patent-owning clients to contact us to discuss the potential ramifications of, and our recommended responses to, the Bon Tool decision.

The false marking statute allows recovery of “not more than $500 for every such offense” for false marking. Under the statute, anyone with knowledge of false patent marking may bring a lawsuit against the manufacturer or seller of a falsely marked product. The statute is a qui tam statute, whereby the party who brings the lawsuit keeps half of any recovery, with the other half going to the government.

False marking allegations are not limited to cases of outright fraud. For example, in some cases a plaintiff may allege “false marking” where the product in question was covered by a patent, but where the patent has expired.

Before the Bon Tool decision, there were few reported false marking cases. Some of those cases held that the plaintiff’s recovery was limited to $500 per “decision to mark” – essentially, $500 per product line. Thus, a manufacturer who had applied a false patent mark to tens of thousands of units would be liable only for a single $500 penalty. But in Bon Tool, the Federal Circuit held that the statute permits a penalty of up to $500 for each item that is falsely marked. Now, it may be that a manufacturer who has applied a false patent mark is potentially liable for up to $500 per unit. Especially for mass-produced consumer products, the Bon Tool decision may create vastly larger potential liability for the manufacturer. Likewise, the decision creates significantly greater incentives for opportunistic plaintiffs to bring suit.

The Patent Office May Have Under-Calculated the Adjustment of Your Patent Term

Under Wyeth v. Kappos, decided January 7, 2010 by the Court of Appeals for the Federal Circuit (Federal Circuit), if your U.S. patent failed to issue within three years from the filing date, the Patent & Trademark Office (PTO) may have under-calculated the adjustment of the term of your patent due to examination delays. If you have an allowed application, an application for which you recently paid the issue fee, or a patent that issued within the last six months, you are encouraged to review the Wyeth decision to verify that the PTO has determined the proper adjustment to your patent term. You should act quickly, because the right to contest the PTO's term calculations otherwise might expire.

Essentially, the Federal Circuit ruled that the Patent Office misinterpreted the law by "overlapping" certain examination delays that are required by the law to be "added together" when determining the adjustment of the term of a patent. Accordingly, under the Wyeth decision, many allowed applications and soon to issue and issued patents are entitled to a patent term adjustment beyond that calculated by the Patent Office.

Background
By way of background, the term of a patent filed on or after June 8, 1995 begins on the date the patent issues and ends 20 years from the filing date. It follows that the longer the Patent Office takes to examine a patent application, the shorter the effective life of the patent. To account for delays in the examination process, the law provides for "patent term adjustment" (PTA). The PTA laws provide for an extension of patent term for certain PTO delays.

There are two types of delay at issue in the Wyeth case - Type A and Type B delays. Type A delays accumulate if: 1) the PTO does not issue a substantive examination within 14 months from the filing date, 2) the PTO fails to respond to a reply or appeal within four months from the date the reply was filed or appeal was taken, 3) the PTO fails to take action within four months from the date of a decision by the Patent Board or a Federal court, or 4) the PTO does not issue the patent within four months from payment of the issue fee.

Type B delay accumulates if the patent fails to issue within three years from the filing date, not counting time consumed by a request for continued examination and/or during certain activities such as interference proceedings, secrecy orders, and appellate reviews.

Any available extension is limited by applicant delays and terminal disclaimers¹. Additionally, the law provides that Type A delays may not overlap with Type B delays. The Wyeth decision centered on what was meant by delay overlaps.

The PTO took the position that the Type A and Type B delays ran concurrently and determined PTA as the larger of the Type A and B delays. In contrast, Wyeth countered that the Patent Act requires the Type A and Type B delays to be added together, except when the delays actually occur on the very same day, when the delays run concurrently. The Federal Circuit sided with Wyeth.

Example
Whether the Type A and Type B delays overlap or add together is significant. Take, for example², an application in which a substantive examination (First Action) is mailed at 25 months, a reply is received at the PTO at 28 months, a Second Action is mailed at 31 months, a reply is received at the PTO at 34 months, a Notice of Allowance is mailed at 37 months, the issue fee is paid at 40 months, and the patent issues at 44 months.

Patent Office Determination of PTA = 11 months
Wyeth Determination of PTA = 19 months
Patent Owner is entitled to an additional 8 months of PTA!

For this application, the Type A delay is 11 months, because a substantive examination was not issued within 14 months from the filing date. The Type B delay is eight months, because the patent failed to issue within three years from the filing date.

Under the PTO's calculation, the delays run concurrently, thus the PTA is the larger of the Type A delay (11 months) and the Type B delay (8 months), that is, 11 months. Under Wyeth's calculation, the delays are added together. Thus the PTA is the sum of the Type A delay (11 months) and the Type B delay (8 months), that is, 19 months.

This makes a difference of eight months!

What Can You Do?
What can you do to get more PTA under Wyeth? Audit and act by the proper time. Audit your allowed applications and patents issued within the last six months for Type B delays, i.e., patents pending for longer than three years. If you have Type B delays and the right Type A delays, you may be entitled to a longer patent term than indicated by the PTO.

To act, you may file a petition with the Patent Office for reconsideration of the PTA on or before payment of the issue fee, or, if your patent has issued, within two months from the issue date.

If dissatisfied with a determination made by the Patent Office, you may seek judicial review in the U.S. District Court for the District of Columbia within 180 days from issuance.

If you missed these deadlines, the law is not clear as to whether the PTO's term calculations are binding. In other words, you may be entitled to a longer patent term irrespective of whether the PTO calculated the term correctly.

Alternatively, you may wish to investigate the mechanisms under Chapter 25 of the Patent Act for correcting a patent. A certificate of correction fixes a mistake incurred through the fault of the Patent Office or the patentee. A reissue corrects a defect in a patent resulting from an error, including, for example, not only an error of fact but also an error of law. One or both of these mechanisms may be available to amend PTA, because the Patent Office under-calculated the term of your patent. Beware of timeliness. Under Ex Parte Anthony, 230 U.S.P.Q. 467 (Bd. Pat. App. & Interferences 1982), substitution of a later expiration date would necessarily vertically or temporally broaden the scope of the patented claims, therefore such activity would be considered to be statutorily time barred unless reissue were filed within two years from the issuance of the patent.

In Bayer AG v. Carlsbad Technology Inc., 64 U.S.P.Q.2d 1045 (Fed. Cir. 2002), the patentee used a petition to have the Patent Office correct its records substituting a later expiration date for a prior expiration date of a patent set forth in a terminal disclaimer. On the reasoning that a new law altered the patent term from seventeen years from the date of issuance to twenty years from the date of filing, the expiration date changed by operation of law. By way of comparison, for an analogous new law, that of the decision in Wyeth altering PTA, the expiration date changes, thus requiring the Patent Office to correct its records.

Many allowed applications, applications where issue fees have been recently paid, and recently issued patents are entitled to additional PTA beyond that calculated by the PTO under Wyeth. You can take steps now to preserve your ability to obtain additional PTA. Actions taken now can be tailored to your specific needs. In Bayer, the patentee used a petition to have the Patent Office correct its records, filing the petition within one month of the adoption of the new law. If the Patent Office under-calculated the term of your patent, you may be able to get more PTA if you audit and act by the proper time.

¹Applicant delays reduce the adjusted term of the patent. In general, an applicant who fails to conclude processing within three months is charged with delay; shortened statutory periods have no effect. Terminal disclaimers prohibit the patent term from extending beyond the full patent term of the patent or application to which the disclaimer is filed.

²For simplicity, "months" are used in this example although patent term adjustments are determined as a number of "days."

International Seaway Trading Corp. v. Walgreens Corp

In a recent opinion, the Court of Appeals for the Federal Circuit has clarified the standard for determining validity of a design patent. In International Seaway Trading Corp. v. Walgreens Corp., the court eliminated the “point of novelty” test in the validity analysis of a design patent.

Until recently, courts applied two distinct tests in determining design patent infringement. The first test, dating back to the nineteenth century, required courts to determine, through the eyes of an “ordinary observer,” whether the patented design and the accused design were substantially the same. The second test, the “point of novelty” test, required courts to first identify the novel features of the patented design, and then determine whether the accused design appropriates those novel features. The “point of novelty” test was deemed to be a separate and distinct inquiry from the “ordinary observer” test.

In last year’s landmark decision in Egyptian Goddess v. Swisa, Inc., 543 F. 3d 665 (Fed. Cir. 2008), the Federal Circuit discarded the “point of novelty” test for infringement analyses, holding that this test is inconsistent with the “ordinary observer” test. In doing so, the court left the “ordinary observer” test as the sole test for determining whether a design patent has been infringed. Nonetheless, although this decision clarified the standard for infringement analysis, the court left open the issue of whether the same standard applies to a patentability analysis.

This question was answered in the International Seaway case. The three patents at issue were directed towards designs for casual footwear. The defendants contended that International Seaway’s patents were invalid over a prior art patent to Crocs, Inc.

Relying on Egyptian Goddess, the U.S. District Court for the Southern District of Florida held that the ordinary observer test was the sole test for design patent validity. The district court held that International Seaway’s patents were anticipated by the Crocs patent, and granted summary judgment to the defendants.

On appeal, the Federal Circuit agreed that the “ordinary observer” test used by the district court was the sole test to be applied. For purposes of analyzing anticipation, the court reasoned that the abandonment of the point of novelty test logically followed from its earlier Egyptian Goddess decision:

"In light of Supreme Court precedent and our precedent holding that the same tests must be applied to infringement and anticipation, and our holding in Egyptian Goddess that the ordinary observer test is the sole test for infringement, we now conclude that the ordinary observer test must logically be the sole test for anticipation as well."

The court further held that this rule also applies when analyzing obviousness:

"For design patents, the role of one skilled in the art in the obviousness context lies only in determining whether to combine earlier references to arrive a single piece of art for comparison with the potential design or to modify a single prior art reference. Once that piece of prior art has been constructed, obviousness, like anticipation, requires application of the ordinary observer test, not the view of one skilled in the art."

The Federal Circuit affirmed the validity test applied by the district court, and remanded for the district court to apply the proper test.

The International Seaway decision left some questions open. For instance, the court stated that it’s holding “does not prevent the district court on summary judgment from determining that individual features of the design are insignificant from the point of view of the ordinary observer and should not be considered as part of the overall comparison.” The Federal Circuit then reiterated that only “significant differences,” not minor differences, should be taken into account when comparing two designs in assessing validity. The court did not, however, elaborate on how one might distinguish minor differences from significant differences.

Nevertheless, the International Seaway decision has clarified the law in one significant respect. Through its extension of Egyptian Goddess, the court has unequivocally discarded the “point of novelty” test in favor of the ordinary observer test as the sole test of design patent validity.