Northwest Business Litigation

Product marking – a word of caution to patentees

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.

Business method patents ride Bilski to the Supreme Court

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.

Effective invention disclosures save clients money and more

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.

Patent defense: properly document your inventive activities

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.

Egyptian Goddess and design patent infringement: The Federal Circuit quashes a judicial innovation

    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.

Business method patents redux: The Federal Circuit speaks

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.   

U.S. Supreme Court extends patent exhaustion to method patents

The U.S. Supreme Court on Monday addressed the scope of the patent exhaustion doctrine, holding that it applies to method patents. It has long been recognized that the holder of a patent in an apparatus cannot claim patent rights in an article embodying the patentee's invention once it has been sold by an authorized licensee.  But the Supreme Court in the past has not squarely articulated that method patents -- which describe an operation or process -- are also subject to the patent exhaustion doctrine.

In Quanta Computer v. LG Electronics, the method patents at issue are held by LG Electronics ("LGE").  Quanta makes and sells computers with purchased Intel chipsets inside.  The Intel chipsets embody many of the claimed method steps of patents licensed by LGE to Intel.  LGE's claims require "glue" elements such as memory devices and busses to make the chips work to certain advantage in a high-speed caching scheme.  LGE sued Quanta for infringement of its patents, and Quanta moved for summary judgment of non-infringement based on the patent exhaustion doctrine.  Quanta argued that LGE's patents were exhausted upon purchase by Quanta from Intel of chips covered by the patents.  The District Court granted the motion, but upon reconsideration, denied it because some of the claims were method claims.  The Federal Circuit affirmed in pertinent part that patent exhaustion does not apply to method patents.

A unanimous opinion authored by Justice Clarence Thomas reversed the Federal Circuit.  Its holding:  a method patent is subject to the patent exhaustion doctrine if the patented parts sold "substantially embody" the invention and include the novel elements thereof.  "Intel's microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods."

The Court did not decide whether a particular license agreement between a patentee and a licensee could expose a third-party purchaser to contract liability for using patented chipsets in certain ways.

See the SCOTUS blog's discussion of the case here.

Court permanently enjoins patent rule changes

Last fall, a federal district court in Virginia preliminarily enjoined the US Patent and Trademark Office from enacting a suite of new rules. The rules would have limited the number of claims and continuation applications an applicant could file, imposed a search requirement for excess claims, and imposed other limitations and requirements.

Today the court issued a permanent injunction in the case, Tafas v. Dudas, holding that the rule changes were substantive, not merely procedural, and therefore improperly exceeded the USPTO's rulemaking authority.  Further, portions of the rules are invalid because they would apply to already-filed applications, retroactively affecting applicants' rights.

For now the status quo reigns, at least pending an appeal by the USPTO to the Court of Appeals for the Federal Circuit.  But proposed patent legislation currently before Congress, if passed, could dramatically change the statutory landscape underlying this decision.

See our earlier coverage of the case here.

Will business method patents be put out of business?

"Business method patents" are those that that describe and claim a new method for conducting a business-related operation.  Until 1998, business methods were largely unpatentable.  But in that year, the Court of Appeals for the Federal Circuit (CAFC) declared business methods patentable in State Street Bank & Trust Co. v. Signature Financial Group, Inc., and the court later held that a patentable method need produce only a "useful, concrete, and tangible result" (AT&T Corp. v. Excel Communications, Inc., 1999).  State Street precipitated a flood of business method patent applications and substantial criticism, including from Supreme Court Justice Anthony Kennedy, who noted the patents' "potential vagueness and suspect validity" in eBay Inc. v. MercExchange, L.L.C. (2006).

Last week, the CAFC signaled an intent to review en banc the patentability of business method patents, including possibly reversing course and redefining patentability requirements.  The move highlights the still-evolving definition of patentable subject matter under 35 U.S.C. § 101, including whether the definition actually "include[s] anything under the sun that is made by man" (Diamond v. Chakrabarty, 1980).  The business community and patent practitioners will watch this one closely. Any tightening of patentability requirements will likely generate lawsuits seeking to invalidate existing business method patents.

The case, In re Bilski, is set for hearing in the CAFC on May 8, 2008.

U.S. District Court enjoins USPTO rule changes

U.S. District Court Judge James Cacheris in the Eastern District of Virginia yesterday enjoined the United States Patent & Trademark Office (USPTO) from putting into effect rules changes that would have mightily burdened inventors seeking to obtain U.S. patents.  While the preliminary injunction is not a final order, the District Court effectively held the proposed rule making to violate the Constitution, to exceed the USPTO's administrative authority, and to offend the Administrative Procedures Act.  You can view the opinion here.

The new rules were challenged by pharmaceutical company SmithKline Beecham Corporation, and yesterday's decision came just one day before their effective date.  The changes would have severely limited the number of claims presented in any patent application and also would have severely limited the number of related continuation applications an applicant could file, with retroactive effect.  Other onerous prior art search and reporting requirements, potentially harmful admissions, and attendant costs would have befallen patent applicants.

The preliminary injunction was received with a collective sigh of relief from individuals, companies and patent practitioners poised in some cases to file last-minute continuations or requests for continuing examination. 

Stay tuned, however, as this over-reaching attempt by the USPTO may be seen as a side-show to the real thing:  pending legislative patent reform that could have even broader implications for applicants for US patents as US patent law is dragged kicking and screaming into harmony with patent laws elsewhere in the world.