Is the ITC a fairy godmother?

The CAFC has established a precedent (InterDigital Communications v. ITC) by denying  a combined petition for panel rehearing and rehearing en banc. The court held InterDigital’s patent licensing program is sufficient to meet the domestic industry requirement of § 337 of the Tariff Act of 1930, 19 U.S.C. §§ 1337(a)(2) and 1337 (a)(3). 

Does this decision make the International Trade Commission (ITC) a fairy godmother for non-practicing entities (NPEs)?  

Probably not.

The threshold for filing a case in the ITC is that the patent owner must demonstrate existence of a domestic industry “relating to the articles protected by the patent . . . .” This requirement can be met by showing significant investment in plant and equipment or by showing significant employment of labor or capital or by showing substantial investment in exploitation of articles protected by the patent (e.g.  engineering, R&D, or licensing).

The CAFC was asked to decide whether InterDigital’s licensing activities fell within the scope of the domestic industry requirement § 337(a)(3)(C).

The defendant (Nokia) took the position that the ITC and the CAFC panel improperly interpreted the statutory language “relating to the articles protected by the patent” in § 337(a)(2) and “with respect to the articles protected by the patent” in § 337(a)(3).

According to Nokia, this statutory language means that the only licensing activity in the context of "establishing domestic industry" is activity “with respect to the articles protected by the patent.” Nokia suggested that the licensing activity must be linked to a tangible good and that the patented technology  must be put into practical use.

A split CAFC panel  in an August 1, 2012 opinion, ruled  against Nokia, explaining that § 337, as amended in 1988 gave InterDigital standing before the ITC based upon their domestic licensing activity.

According to the CAFC  it is not necessary that the party manufacture the product that is protected by the patent, nor is it necessary that any other domestic party manufacture the protected article. 

The court held that if the patent covers the article that is the subject of the exclusion proceeding and the party seeking relief shows that it has a sufficiently substantial investment to satisfy the domestic industry requirement, that patent owner is entitled to seek injunctive relief under § 337.

The case revolved around “substantial investment.”  InterDigital invested about $7.6 million in its licensing activities, held 24 revenue producing licenses yielding almost $1 billion in revenues  (not just the patents in suit). The court was satisfied that this was a “substantial investment.” 

However, the court did not elucidate an explicit rule for evaluating “substantial investment” (remember Bilski and the machine or transformation test?).

This is consistent with the ITC's flexible approach in evaluation of “substantial investment”. 

So can we expect a flurry of similar suits in the ITC from NPEs?

Probably not, because the ITC has attempted to deny injunctive relief to NPEs whose business model focuses mainly on purchasing and asserting patents.

The ITC has, at the same time strived to offer relief to: manufacturers whose products do not practice the asserted patent; inventors who do not make a product covered by their asserted patents; research institutions; and start-ups that possess IP rights but do not yet manufacture a product that practices the patent.

So what is behind the ITC's policy which says "If John Doe is trying to license his patent (without marketing a product) we will hear his case, but if Mr, Doe sells his patent to Terminator IP holdings LLC, we will not allow Terminator IP holdings access to this venue?

The answer is that until 1988, § 337 of the Tariff Act of 1930 required proof of the existence (or prospect) of a domestic industry manufacturing the articles protected by intellectual property before the ITC could bar the import of infringing products. This raised  objections that the statute “did not provide protection for innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license.” Congress responded by expanding the coverage of § 337 to protect American industries “that did not manufacture products but were engaged in engineering, research and development, or licensing of the technology that others used to make products.” That led to the current language of § 337(a)(3)(C), which makes relief in the ITC available to a patent owner based upon “substantial investment in its exploitation, including engineering, research and devel­opment, or licensing.”  even if the plaintiff is not producing goods relating to the patent.

The legislative history of the 1988 amendment to § 337(a)(3)(C) indicates that congress wanted to afford protection to foreign patent holders:  "Only those... who had made a substantial investment in facilities or activities including research and development, licensing, sales, and marketing ...". The legislative history does not directly mention the NPEs whose business model focuses  mainly on purchasing and asserting patents, but the current judicial environment equates them with those “foreign patent holders” specifically excluded from § 337(a)(3)(C) and that is the basis for the ITC’s application of § 337(a)(3)(C).

As a result the ITC holds that revenue-driven licensing activities “which takes advantage of the patent right solely to derive revenue by targeting existing production” should be given less weight in the “substantial investment” analysis than production-driven licensing activity “which encourages adoption and use of the patented technology to create new products and/or industries”  This has come to be known as the “production/revenue dichotomy.”

It is suggested that  “production/revenue enigma” is a more appropriate term. The enigma is that revenue-driven licensing activities which are "targeting existing production” can only be targeting production that came into existence after the priority date of the asserted patent. If the production were "existing" prior to the priority date of the asserted patent, the patent would be invalid.

Congress has recently devoted great effort to revamping the US Patent laws to reflect a "first inventor to file" (FITF) position more consistent with Europe and other jurisdictions.

Certainly under FITF there is a “production/revenue enigma”. The new statutes may have established a "prior use defense" which would allow those entities that were actually producing prior to the priority date some rights. However, there is nothing in AIA which suggests that sale of a patent from the original applicant to another entity should diminish the enforceability of the patent in the hands of its new owner.

Of course, all of this may be moot in many cases. NPEs whose business model focuses  mainly on purchasing and asserting patents are looking primarily for licensing revenue. The ITC cannot make monetary awards, only issue injunctions. In many cases, getting an ITC injunction is not the shortest path to licensing revenue. However, in some cases an ITC injunction might be attractive to an NPE whose business model focuses  mainly on purchasing and asserting patents.

Is it just to deny this type of NPE access to the ITC as a matter of course? Aren't we opposed to overly rigid application of "bright line" rules? Shouldn't each case be judged on its own merits?

In the meantime, Interdigital has a fairy godmother at the ITC. It remains to be seen who else will be blessed with similar judicial magic.

Whalen Watching

Inventors like to believe that if they define their invention specifically enough they are entitled to a patent. Specificity of the definition often resides in numerical values of a parameter like temperature, specific gravity, viscosity, molecular weight, resistance or concentration.

This belief is seductive, but may not be legally correct.

Although I am a big fan of the all elements test (discussed in an earlier post) every rule has an exception.

Examiner's like to say  in an office  action "Although Smith does not specifically teach value X for variable Y, the Y variable is recognized in the art as a result effective variable so that optimization to X would have been obvious".

This seems like circular reasoning, but it can be legally correct if the assertion that "the Y variable is recognized in the art as a result effective variable" is true. 

Of course, if ""the Y variable is NOT recognized in the art as a result effective variable" then the assertion is not legally correct.

This type of reasoning is consistent with USPTO policy as reflected in  the BPAI decision in  Ex parte Whalen II (Appeal 2007-4423).

The Board in Whalen clarified that:
While “the discovery of an optimum value of a variable
in a known process is normally obvious,” In re Antonie, 559 F.2d 618, 620 (CCPA 1977), this is not always the case.  One exception to the rule is where the parameter optimized was not recognized in the prior art as one that would affect the results.  Id.

Although Examiners often say "result effective variable" in an office action, they rarely refer to the Whalen decision by name.  

Perhaps that is because Whalen makes it clear that the suggestion to optimize the parameter in question must be in the cited art, and not in the specification of the application being examined. 

The board in Whalen reversed the Examiner's section 103 rejection saying:
"Here, the Examiner has not pointed to any teaching in the cited
references, or provided any explanation based on scientific reasoning, that would support the conclusion that those skilled in the art would have considered it obvious to “optimize” the prior art compositions by increasing their viscosity to the level recited in the claims."

In plain English, the claim must be obvious based on the art, not based on how reasonable the invention looks after the Applicant has provided an enabling disclosure.

Does the subject matter?

Does the subject matter?

Scotus has recently taken a lot of interest in section 101's definition of patent eligible subject matter. It all started with Bilski. Many of didn't really care about Bilski. Nobody ever thought his claims were patentable. The Examiner, the BPAI, the CAFC and Scotus all agreed the Bilski claims were well outside the scope of section 101.

However, the CAFC, in deciding the Bilski case gave us the machine or transformation test [MOT] for determining patent eligibility.

A lot was said about MOT, but SCOTUS had the final word:
The machine-or-transformation test is not the sole test for patent eligibility under §101.  The Court’s precedents establish  that although that test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101.

The CAFC focused on useful and important and found themselves at odds with their brethren on the bench at SCOTUS over cases like Mayo v Prometheus and  Ultramercial v Hulu. 

In the midst of all this uncertainty the CAFC decided two seemingly similar cases: Bancorp v Sun Life Assurance and CLS Bank v Alice corporation. The court found the claims in the first case non-patentable and in the second case patentable.

In CLS bank the court decided "... when-after taking all of the claim recitations into consideration -it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101."

This offended Judge Proust, who wrote an opinion in dissent, but seemed perfectly reasonable to many of us.

Both Bancorp and CLS were the subject of petitions for en-banc re-hearing. CLS is being reviewed en-banc and the oral arguments were presented recently.
 
At issue is whether a claim directed towards a system with concrete and tangible parts can be patent ineligible according to section 101 because it is actually a method which covers an abstract idea.
 
For those of you who worried about fallout from Mayo v Prometheus, it has arrived.
 
In contrast to Bilski, all of these cases revolve around granted patents that are becoming "patent ineligible subject matter" duriung enforcement proceedings.
 
All of this give new meaning to the phrase "presumption of validity".

Winds of Change

Winds of Change

Those of us involved in US practice all know and love the "all elements test" for obviousness which says that:

 To establish prima facie obviousness of a claimed invention, all the claim features must be taught or suggested by the prior art. 
[In re Royka, 490 F.2d 981, 180 USPQ 580 (CCPA 1974)]

Frequent readers of the MPEP noticed that reference to In re Royka was removed from section 2143.03 and replaced with:

"All words in a claim must be considered in judging the patentability of that claim against the prior art."

[In re Wilson 424F2d 1382.1385,165 USPG 494,496 (CCPA 1970)]

It is interesting that the Wilson decision predates the Royka decision by four years, is less instructive and was still selected by the editors of the MPEP to replace the Royka citation. 

Of course, the MPEP is not the law, but it does influence the attitude of Examiners during prosecution and it is usually the first place we look when trying to steer prosecution in the desired direction.

The relevant question is:

 "Does the switch from Royka to Wilson in MPEP 2143.03 represent an effort on the part of the USPTO to aliggn policy with judicial trends?"

That question is difficult to answer.

In its precedential decision in Unigene V Apotex (CAFC 2010-1006) the court ruled: "Obviousness requires more than a mere showing that the prior art includes separate references covering each separate limitation in a claim under examination."  citing the SCOTUS decision in KSR V Teleflex.

Unigene V Apotex suggests that the CAFC feels the standards for obviousness are even more stringent than what we would understand from In re Royka.

So we can relax, right?

Not necessarily.

In another precedential decision in Tokai V Easton (2010-1057, -1116) the CAFC ruled :
“...nature of the mechanical arts is such that identified, predictable solutions to known problems may be within the technical grasp of a skilled artisan.”  and concluded  “It would have been obvious to one of ordinary skill and creativity to adapt the safety mechanisms of the prior art cigarette lighters, as disclosed in Floriot and/or Morris, to fit a utility lighter as disclosed by Shike, even if it required some variation in the selection or arrangement of particular components.”

All of this with a nod to KSR v Teleflex:

"One of ordinary skill in the art would 

not have viewed the subject matter of the asserted claims 

as unpredictable.  As the Supreme Court recognized in 

KSR, the nature of the mechanical arts is such that 

“identified, predictable solutions” to known problems may 

be within the technical grasp of a skilled artisan."

Of course the Unigene decision is after the Tokai decision so it must control, right?

Is there anybody out there besides me that misses the "bright line rules" that were easy to understand but disparaged by SCOTUS in KSR and in Bilski.

On the bright side, there is a precedential decision for every occasion here.

About Wilbur's Corner

About Wilbur's Corner:
Doing business in the third millennium challenges all of our late twentieth century attitudes about communication. Prior to starting this blog a  select group of friends and colleagues received periodic analyses of recent developments in the world of patent litigation by e-mail under the nom de plume of Wilbur Snoxburden.

In an effort to reach a  wider audience, Wilbur is taking off the mask and blasting off into the blogosphere.

This blog will attempt to be entertaining as well as informative (at least for patent geeks) as the e-mail postings were,