Yesterday, the U.S. Supreme Court issued an 8-0 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC that should put an end to “patent trolls” filing lawsuits in “friendly” venues of their choosing.
Patent trolls are individuals and companies that profit from suing over patents, instead of using their patents to make products. Trolls consistently file lawsuits in the most plaintiff/troll-friendly courts they can find, such as the rural Eastern District of Texas. The Supreme Court’s decision could save the companies targeted by patent trolls millions of dollars per year in fees spent litigating patent disputes in jurisdictions that are far away from where those companies are headquartered or incorporated.
In rendering its decision, the Supreme Court construed the word “resides” in 28 U.S.C. § 1400(b), the venue statute for patent lawsuits, to require plaintiffs to file patent claims in the state where the defendant is incorporated. Before Kraft, patent trolls were able to file lawsuits wherever the defendant could be subject to personal jurisdiction, which effectively allowed trolls to subject companies to the jurisdiction of courts in states where they merely sold a minimal number of products.
Now that patent trolls are required to sue companies in less friendly jurisdictions, oftentimes where the companies are located and their employees live, they may think twice before filing a lawsuit.
Nearly 50 years ago, the United States Supreme Court held in Brulotte v. Thys Co. that a patent holder may not collect royalty payments from a licensee after the date on which the patent expires. Since that time, the so-called Brulotte rule has survived despite criticism and attacks by lower federal courts.
In 2013, the Ninth Circuit begrudgingly applied the Brulotte rule in Kimble v. Marvel Enterprises, Inc., to void an agreement between a patent holder and Marvel. In that case, the court held that the agreement was unlawful because it required Marvel to pay royalties for patents and other know-how without a reduction in price after expiration of the patent. According to the court, "a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate." However, at the same, the court complained that the Brulotte rule is "counterintuitive" and "its rationale is arguably unconvincing."
The Supreme Court then granted review, and on Tuesday the Court affirmed, declining to abrogate a half century of case law. Accordingly, Brulotte is alive and well, and patent holders may not receive royalties for patent rights that have expired. When licensing hybrid intellectual property rights, such as a combination of patent rights and trade secrets or know-how, the parties must agree to a reduction of royalty payments at the end of the patent term.
On September 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act (“AIA”), the most sweeping legislative patent reform in 59 years. While many provisions will not take effect until September 2012, the AIA mandates an immediate 15% surcharge (effective September 26, 2011) on most typical patent-related fees for all applicants. Further, patent applications filed via paper are subject to an additional $400 fee beginning sixty days after enactment -- November 15, 2011. As one bright spot, newly defined ‘micro-entities’ will soon enjoy a 75% reduction in most typical patent fees.
The AIA also changes the U.S. from a First-to-Invent to a First-to-File patent system, initiating a race to the patent office and moving the U.S. toward harmony with the patent systems of most other nations. The AIA also eliminates the one-year filing grace period for certain types of public disclosures, requiring greater pre-filing care by applicants. Along with the higher patent service fees, these changes seem to favor applicants with more resources at their disposal, e.g., corporations and institutions, that can afford to quickly convert concepts into filed applications.
The AIA grants fee-setting authority to the USPTO for a limited time, and we expect to see that authority exercised in the form of higher fees as soon as administratively allowed. Eliminating the currently onerous backlog of patent applications awaiting examination, and reducing throughput time for patent examination, are the stated reasons for increasing USPTO revenue.
The broad scope of the AIA includes other changes too numerous to list here, some of which will likely affect our recommendations not only for patent applications, but also for employee-employer agreements, mergers and acquisitions, and non-disclosure agreements. Ater Wynne is currently studying the scope of the AIA, and will prepare further information and guidance for our clients shortly.
The U.S. Supreme Court today issued its long-anticipated ruling in In re Bilski, a case raising a fundamental question: what is patentable? The Court agreed with the lower court's refusal to grant a patent, but refused to state a new test for patentability.
Patent practitioners and inventors have awaited the decision with bated breath since oral arguments last November. Particularly at stake were business method patent applications under the Federal Circuits' narrowed interpretation of patentable subject matter. The Federal Circuit had held that patentable subject matter involving processes must involve a machine or transformation of matter, concluding that the Bilski price-fluctuation-risk-hedging process and its more specific application to commodities and energy markets accomplished neither.
The Federal Circuit's Bilski holding has caused concern for its potential negative impact on the patentability not only of business methods, but also of software programs themselves or even processes involving software-implemented or software-assisted components. And, as Judge Rader argued in his Federal Circuit concurring opinion, innovation in the Information Age is no less deserving of patent protection than innovation in the Industrial Age.
In the words of today's Supreme Court's majority opinion, "It is true that patents for inventions that did not satisfy the machine-or-transformation test were rarely granted in earlier eras, especially in the Industrial Age . . .. But times change."
While affirming the Federal Circuit's holding regarding the patentability of an energy price-hedging process--thus depriving petitioners Messers. Bilski and Warsaw of a patent--the Supreme Court roundly criticized the Federal Circuit's incorrect interpretation of 35 USC Sec. 101 and its too-narrow two-prong test.
Thus the Supreme Court unanimously agreed on the result while splitting on the reasons for affirming the Federal Circuit's holding of unpatentable subject matter.
All Supreme Court Justices agreed that the subject matter of the Bilski, et al. patent application was too abstract to merit patent protection. But a divided Supreme Court refused to dictate a particular patentability standard, relying instead on the patent statute and the Supreme Court's own precedents, and leaving to the Federal Circuit the development of future tests for patentability consistent therewith.
Marking a product as patented serves a beneficial purpose: it puts the public on notice of a patentee’s rights. However, "false marking," which generally involves marking or advertising an unpatented article as patented with an intent to deceive the public, can stifle competition and increase consumer costs. Section 292 of the Patent Act prohibits intentional false marking, provides penalties, and allows any person to sue for false marking on behalf of the federal government.
False marking occurs if a party continues to mark products as patented following expiration of a patent, or marks products that are not covered by the claims of an otherwise valid patent. False marking can also include marking products as "Patent Pending" after an application for patent is abandoned, or after all claims covering a product are cancelled during patent prosecution.
For one hundred years, courts have treated each decision to falsely mark products as a single offense, without regard for the actual quantity of articles produced. That changed last week when the U.S. Court of Appeals for the Federal Circuit, in The Forest Group, Inc. v. Bon Tool Co., held that the statutory penalty of "not more than $500" applies to each individual improperly-marked article. For example, if a defendant sells 100 articles, each improperly marked, he is liable for 100 individual offenses, and 100 times the per-article penalty determined at trial.
Although the statute allows courts to set the per-article penalty at a fraction of a penny in the case of inexpensive, mass-produced goods, the Forest decision nonetheless greatly increases the potential penalties for false marking of mass-produced products. Likewise, it potentially increases the incentives for opportunists, entitled by statute to 50% of any penalties awarded, to file lawsuits on behalf of the government. In this new environment, patentees should exercise ever more heightened diligence to ensure their goods are properly marked at all times.
In 1998, the Court of Appeals for the Federal Circuit (CAFC), affirmed the patentability of business methods in State Street Bank v. Signature Financial Group, prompting a flood of business method applications into the U.S. Patent and Trademark Office. However, in 2008, an en banc CAFC emphatically (9-3) proclaimed, 'Enough!' Bernard Bilski and Randall Warsaw's claimed method for hedging risks in commodities trading was found unpatentable. With certiorari recently granted, questions regarding the scope of patentable business methods now move to the Supreme Court.
In State Street, the CAFC required only that a claimed invention provide a ‘useful, concrete and tangible result’. True, "a...process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." In Bilski however, the CAFC for the first time stated these two alternatives not as indicators, but as the exclusive 'machine-or-transformation' requirements for business method patentability.
Almost immediately, the U.S. Patent and Trademark Office (USPTO) began rejecting, based on Bilski, numerous computer-implemented processes that are not 'business methods'. Why? Apparently, in the eyes of the USPTO, a 'particular machine or apparatus' does not include general purpose machines (e.g. computers and processors) if they are not specially configured for the claimed process.
Until the Supreme Court rules, business method patents remain vulnerable to invalidity challenges, and many pending process patents face a new and formidable obstacle to allowance. Key questions remain. How much 'transformation' is sufficient? What constitutes a 'particular machine'? For now, to avoid losing rights due to the holdings in Bilski and their implementation by the USPTO, applicants must pay to keep their applications alive pending Supreme Court action.
Our predictions? The Supreme Court will reject the rigid and exclusive new 'machine-or-transformation' rule, while reciting and renewing precedent already fat with patentability indicators. Bilski will be remanded to the CAFC, where the applicants will ultimately lose as they should have, for claiming an overly broad and abstract idea. Ultimately, we believe the validity of already granted business method patents will be left to case-by-case evaluation through litigation, with the apple cart remaining happily upright and rolling down a well trodden road.
The client rapidly dictates, draws, and gestures, the details of her invention haphazardly spilling forth in all their problem-solving glory. Across the table, her attorney scribbles furiously to capture every word. Later in the quiet of his office, the attorney labors to assemble his patchwork of notes into a robust, comprehensive, and technically correct patent application.
A lawyer's time is a hungry machine that consumes money as fuel. A tenth of an hour saved may be a dinner-out-for-two earned. Therefore, the savvy client simplifies her attorney's task. An effective first step: deliver a clear, complete, well organized tutorial of the invention. To this end, inventors can learn a cost saving trick from corporations, which frequently require their employee/inventors to fill out an Invention Disclosure Form.
Effective invention disclosures guide inventors to draft a thorough description, and prompt them to think about their invention in new and more structured ways, frequently squeezing out valuable new elements and embodiments in the process. Further, a completed invention disclosure may provide essential documentary evidence useful to defeat prior art asserted by the Patent Office during prosecution. Lastly, and significantly for nearly every client, a thorough and organized invention disclosure can dramatically reduce the time required to draft a patent application, saving money sorely needed for other endeavors.
After drafting numerous patent applications across widely varying technical fields, patent attorneys generally know what information, delivered in what form, is most helpful to them. Therefore, when engaging a patent attorney, a client should ask for an invention disclosure form preferred by that attorney. A blank stare in reply is a good clue that the client may want to take his business elsewhere.
Note: One of our patent attorneys developed the invention disclosure training used worldwide by one of the world's largest technology companies, a nearly perennial top-ten filer of U.S. patent applications. You'll find no blank stares at Ater Wynne.
The United States remains nearly unique in the world in following a ‘first to invent’ rule. An inventor can obtain priority over all ostensible prior art by proving an earlier date of invention, as well as diligent reduction to practice. Elsewhere, priority of invention is given to the first to file; it is quite literally a race to the patent office.
At Ater Wynne, we emphasize the importance of inventors diligently keeping signed, dated, and independently witnessed records of their inventive activities. The requirements are few and simple, but not just any written record will suffice. In an opinion issued last week, the Court of Appeals for the Federal Circuit highlighted this critical discipline.
In The Proctor and Gamble Company v. Teva Pharmaceuticals USA, Inc., P&G sought to prove the date of invention of risedronate - the active ingredient of P&G’s osteoporosis drug Actonel®. P&G offered into evidence an inventor’s notebook that appeared to document the invention of risedronate. Although signed and dated by the inventor, the pages containing critical entries were neither signed by independent witnesses, nor corroborated by other evidence.
The court refused to accept the self-vouching notebook as sufficient evidence of earlier invention, emphasizing that the inventor “must provide independent corroborating evidence in addition to his own statements and documents.”
Patent attorneys zealously go to bat for their clients. They can do no less. But for proving the all-important date of invention, no high-powered legal arguments can match the effectiveness of a stained and dog-eared, but diligently and properly kept inventor’s notebook.
For the past two decades, finding infringement of a design patent -- a patent protecting the ornamental rather than utilitarian features of an invention -- required satisfying two distinct tests. However, a recent en banc Federal Circuit opinion in Egyptian Goddess, Inc. v. Swisa, Inc. has streamlined the infringement inquiry, and ostensibly returned it to its earliest Supreme Court roots.
In 1871, the Supreme Court established what is known as the "Ordinary Observer" test for infringement in Gorham Mfg. Co. v. White. Under this test, a finding of infringement requires that the design of an accused infringer’s article be "substantially the same" as a patented design. A design is substantially the same if an ordinary observer, viewing either design as would a potential purchaser, would be led by their close similarities to mistakenly purchase one design believing it to be the other. This design-based confusion over the identity of the article itself is similar to, but distinct from, that encountered in trade dress analysis, where design-based similarity leads to confusion as to the source of a product or service.
More recently -- in 1984-- the Court of Appeals for the Federal Circuit introduced the so-called "Point of Novelty" test in Litton Systems v. Whirlpool Corp. To satisfy this test, an infringing design must “appropriate the novelty in the patented device which distinguishes it from the prior art”. This test prohibits finding infringement based solely on a combination of prior art elements incorporated into each of the patented design and the accused infringing design, unless the combination itself constitutes the "point of novelty" that distinguishes the patented design over the prior art. The Supreme Court has never clearly endorsed the Point of Novelty test.
In August of 2007, a panel majority of the Federal Circuit held in Egyptian Goddess that a finding of infringement requires applying both the Ordinary Observer and Point of Novelty tests. Over a strongly-worded dissent, the majority then took the inquiry a new step farther, holding that a "point of novelty" must represent a "non-trivial advance" over the prior art. The Federal Circuit swiftly granted en banc review of that decision.
On September 22, 2008, the en banc Federal Circuit reversed the earlier panel decision. In doing so, the Federal Circuit discarded not only the nascent "non-trivial advance" requirement, but also the old Point of Novelty as an independent test, calling it inconsistent with established precedent. Instead, the court returned to the Ordinary Observer test established in Gorham. In the court’s view, the hypothetical ordinary observer is deemed to compare and contrast the patented and accused infringing designs while utilizing the prior art as a "frame of reference" for the analysis.
While not quite a "reset" to the pre-Litton days, we expect design patent infringement determinations will turn more on an "as a whole" evaluation following Egyptian Goddess, rather than focusing on small differences divorced from the overall design. This may broaden the scope of design patent protection somewhat, but to what extent is still unclear. The opinion also signaled the survival of key elements of the Point of Novelty test, as integrated into the Ordinary Observer test. “If the accused design has copied a particular feature of the claimed design that departs conspicuously from the prior art, the accused design is naturally more likely to be regarded as…infringing." Thus, an accused infringer will remain strongly motivated to locate and produce relevant prior art to refute the existence of such "conspicuous departures." A point of novelty, by another name, may still remain.
Messers. Bilski and Warsaw and their patent attorneys are scratching their heads now that the Court of Appeals for the Federal Circuit (CAFC) has tossed out their business method patent applications. Bilski and Warsaw are inventors of a commodities trading risk hedging process requiring three distinct steps including "initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions." Last week the CAFC, sitting en banc, affirmed the decision of the Board of Patent Appeals and Interferences (BPAI) to reject the patent applications as failing to be directed to patent-eligible subject matter under 35 USC 101. (See our earlier post about case, In re Bilski, here.)
The 12-judge panel was split: Nine judges affirmed the BPAI decision, two of them filing concurring opinions, and three judges filed strongly-worded dissents. The end result of the 130-plus page ruling seems to be that business method patents are not per se invalid (although dissenting judge Mayer would so hold), but the majority opinion certainly changes the decisional framework for allowing business method patents - and thus throws into doubt the validity of many existing patents.
The upshot in this blogger's view is that the CAFC judges are trying to find a way to reduce the number, and increase the strength, of patents in this area. But they are uncertain whether the so-called "problem patents" are better rooted out by ruling certain things unpatentable or by applying the tried-and-tested novelty, non-obviousness, and definiteness rules of 35 USC 102, 103 and 112.
Cautious patent practitioners in this area already have been minimizing their risk by drafting business method and software patents to ensure that the differently articulated tests for patentability most likely will be met. For now, Bilsky and Warsaw, your claims must first meet the statutory subject matter test by tying a method step to an apparatus or by reciting an article-transformative or -reductive step. In short, do not define your invention so abstractly.
There is nothing wrong with business method or software patents that, in accordance with statute, fall within the intentionally broad statutory subject matter category and meet other patentability requirements of novelty, non-obviousness, and definiteness.
The U.S. Supreme Court should now weigh in on the CAFC's unjustified and unprecedented narrowing of the statutory process patent subject matter, not to mention the court's tortuous logic, re-interpretation of precedent, and donning of industrial age blinders in the information age.