IP News & Transactions

IP Assets – Centerpiece of M&A Strategy?

Traditionally, the acquisition of IP assets in the context of M&A transactions was more of an after-thought than anything else – M&A has often been thought of more as a vehicle to increase earnings per share, to capture new market channels, or to add new tangible products to existing product lines.  If any useful IP came along with the deal, it was usually more of a happenstance than the result of strategic planning.  However, as IP assets increase in value from both a defensive and assertive standpoint, a growing trend in M&A activity is to focus more on analyzing and capturing the value that such assets may provide as part of an overall deal – or even perhaps, to do a deal just for the purpose of acquiring IP assets.

An interesting note on The Deal (www.thedeal.com) points out that Research in Motion Ltd. (famous for its patent infringement litigation with NTP) recently announced in its periodic financial filings that in the first quarter of 2008, it had acquired $310M worth of “intangible assets.”  What these assets are (or were) is unclear; but the article suggests that as RIMM is “so intellectual-property driven,” these assets may be indeed of the IP ilk.  The note may be found at http://www.thedeal.com/corporatedealmaker/2008/04/rim_310_million_purchase_of_in.php.

IP Development Strategies for Startups/SMEs

Playing off my last post on the subject of trademark and brand strategy, I started to consider the value of patents as part of a branding strategy – the idea that a company can create greater brand value by publicizing its patents and innovation efforts.  Some great companies – like IBM as an example – have done well by this strategy, creating for itself a market perception that their products and services offer greater value partly because of the IP assets that underlie them.  This strategy may have become a bit long-in-the-tooth for other large companies, but it does seem that smaller companies – particularly start-ups and SMEs – may find some value in utilizing a branding strategy that emphasizes their IP development activities.  In fact, one could argue that such a strategy should be THE strategy for emerging companies, insofar as these companies usually cannot compete well on price with larger companies.  They must bring something else other than low prices to the “table” of competition – and perhaps the best way to create perceived value is to emphasize the quality of their innovation and IP assets.

That being said, small companies must think thoughtfully as to how to implement an IP development strategy that is cost-effective and a real value generator for the firm.  On this note, an excellent article by Guy Kawasaki provides some excellent pointers on how emerging companies can implement an effective IP strategy.  His article may be found at

http://blog.guykawasaki.com/2006/11/counterpoint_pa.html

Considerations in Branding and Trademark Development

To date, this blog has focused primarily on issues relating to patent development and licensing.  Of course, the world of intellectual property consists of more than patents – for an enterprise, attention must be paid to all sorts of intellectual property, including a company’s trademarks and associated branding strategy.

Undoubtedly, there is value in thoughtful trademark and brand management – Nike and Coca-Cola are but just two examples of firms whose core value rests primarily on the strength of their branding efforts.  And it is probably accurate to say that trademark and brand management has historically created more enterprise value than patents. (I hope my friends in the patent community don’t count this comment against me…)

For IP professionals who are interested in learning more about trademark and brand management, the Branding Strategy Blog (http://www.brandingstrategyinsider.com/) – is an excellent resource.  Within the blog, there is a very useful article regarding the legal aspects of trademark and brand management (found at http://www.brandingstrategyinsider.com/2008/03/branding-and-tr.html).  It’s definitely worth the read.

In Re Comiskey/In Re Nuijten – The Problem with Thoughts and Signals

For IP professionals who are responsible for overseeing development of their enterprise’s IP assets, in the realm of patent development the question often arises as to whether a particular idea or innovation is worthy of a patent application.  Aside from the basic prosecution questions of prior art and non-obviousness, a more fundamental question must be addressed: does the subject matter qualify under the relevant patent laws as a subject of patentability? 

One might conclude that the answer to this question is a fairly straightforward exercise; after all, the United States Patent Act provides patent protection for any “…process, machine, manufacture, or composition of matter…”  35 USC Section 101.   Patent case law within the United States (until recently) espoused a relatively broad view of what these words were intended to mean, with one court going so far as saying that “...anything under the sun that is made by man…”  is the subject of patentability.  (Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (citing S. Rep. No. 1979, 82d Cong., 2d Sess., 5 (1952))).

Such exuberance put aside, the reality is that the courts have attempted – with questionable success – to maintain a consistent watchfulness over the metes and bounds of what constitutes patentable subject matter.  And one of the key limits that the courts have tried to maintain is the notion that a patent should not issue unless the innovation has some colorable connection to a tangible product or process.  Put another way, the idea cannot be a description of an abstract concept; it must be reduced to some sort of embodiment in a physically-tangible item.  There really is no rhyme or reason as to why this requirement must be followed under United States patent law, except for the fact that the PTO and courts must find some place to “draw the line” when it comes to granting patent applications – without this “tangibility” requirement, the PTO would arguably have to issue patents for abstract ideas of every kind and sort.

As noted above, for a period of time the Federal courts did seem to broadly construe these subject matter requirements – but most observers have concluded that this trend seems to be coming to a close for the time being.  The Bilski case (discussed in prior posts) reflects this apparently-emerging trend; but this is not the only recent case that reflects this trend.  Two CAFC cases decided in late 2007 speak to this trend.

In In Re Comiskey (499 F.3d 1365, 2007), the CAFC concurred that Comiskey’s proposed patent – a “method for mandatory arbitration” between parties – did not constitute proper subject matter for a patent, as it was purely a mental process without connection to any tangible process or machine. 

In In Re Nuijten (500 F.3d 1346, 2007), the CAFC rejected a patent application for an innovation that would allow a party to “watermark” a radio signal with an additional signal that was imperceptible to the recipient of the signal, but which could be analyzed by appropriate receiving software.  The CAFC found that the signal on its own was not suitable as a subject for patent, as the signal by itself did not have a sufficient connection to a tangible item.

There remains a great deal of controversy over these two cases - not so much that the cases as decided were right or wrong, but that the cases have contributed to greater inconsistency among existing CAFC decisions on the topic of subject matter patentability.  It seems more and more likely that at some point, the Supreme Court will need to weigh in to resolve the existing contradictions in case law on the “subject” of subject matter patentability.

For an excellent overview of the the Comiskey and Nuijten cases, take a look at http://www.mofo.com/news/updates/files/13227.html. 

“Worksharing” Versus Patent Reform – Are We Missing the Point?

Clearly, one of the most significant current topics within the United States IP community is the subject of “patent reform” – that is, proposed changes to the existing patent laws and regulations, intending to address a number of real – or imagined – flaws in the existing patent system.  Of the sundry ills called out by those in favor of broad patent reform, the increasing volume of patent filings with the USPTO is often cited as a key reason why reform is needed.  And certainly there are reforms being proposed that ostensibly try to address the increase in patent applications by more or less culling the number of applications – limitations on the number of patent claims, as well as the filing of “applicant quality submissions” (which I believe is code for “certification of disclosure of all prior art”) are both among the ideas that are under consideration as part of comprehensive patent reform.  The gist behind these 2 proposals seems to be that by reducing the number of patent applications, we will see improved “quality” in remaining patent applications.

To be sure, the IP community does face a challenge created by the increase in patent applications.  But do the two proposals described above really improve our patent filing system, or do they actually staunch disclosure of innovation?

An interesting series of articles by IP Frontline contributing author Harold Wegner suggests that patent reform currently under consideration within the United States misses the point when it comes to addressing the workload issues for the PTO caused by the current increase in patent applications.  Mr. Wegner discusses the idea of “worksharing” among patent granting authorities throughout the world as a way to alleviate the work burden that now exists at the USPTO.  In simplest terms, “worksharing” would involve the various patent offices of countries throughout the world working as a unified body to review patent applications, with the result being the granting of patent rights that would be valid on a worldwide basis.  Mr. Wegner’s articles discuss in excellent detail the existing challenges that a “worksharing” solution would have to solve – and he provides compelling ideas on how to solve these challenges to make “worksharing” viable.

Mr. Wegner’s ideas on “worksharing” to improve the patent filing system are compelling and creative – and perhaps a better approach to the problem of “patent reform” than those currently under consideration.

Mr. Wenger’s articles may be found at http://www.ipfrontline.com/depts/article.asp?id=16559&deptid=4 and http://www.ipfrontline.com/depts/article.asp?id=17966&deptid=5.

Why Does the ACLU Care About Patents?

As part of the Bilski case now pending before the CAFC, numerous parties have provided amicus briefs to the court relating to the questions posed in the case.  Most of these briefs have been submitted by the “usual suspects” – industry groups, the AIPLA, and the like.  However, one of the more interesting amicus briefs has been submitted by the American Civil Liberties Union (ACLU). The ACLU’s entry into the Bilski fray is predicated on the idea that Bilski involves “fundamental issues under the First Amendment” – that is, that granting the patent sought by Bilski would in effect be a violation of the freedom of speech as guaranteed by the First Amendment.  The ACLU’s rationale for this argument rests in the nature of the idea that Bilski intends to patent, which is a method of transaction between at least two parties relating to commodities pricing.  The ACLU argues that since the Bilski method is at its core a conversation between two parties to a transaction, that granting of the patent would be a restraint on free speech between the parties.

To be sure, current U.S. constitutional law makes fairly clear that the “freedom of speech” as posited by the First Amendment is not an absolute right – case law generally recognizes that “commercial” speech, as opposed to “political” speech, can be subject to any number of restrictions that are deemed reasonable by the government.  So it may well be that the ACLU’s argument in Bilski ends up being more of a quixotic adventure than anything else.  But the argument is nonetheless interesting, and perhaps demonstrates the broadening of interest in intellectual property matters for even those groups who would seem to have no obvious interest.  The brief may be found at http://www.aclu.org/pdfs/freespeech/in_re_bilski_aclu_amicus.pdf.

Markman Hearings – Current Procedural and Venue Considerations

In the context of affirmative assertion of patents as part of any licensing program, resort to litigation is not uncommon (and perhaps inevitable).  Within the more narrow scope of patent litigation rests the important process of “patent claims construction.” More simply put, “patent claims construction” is the process a court goes through to determine how the exact words of a patent’s claims should be interpreted by a jury to determine if the patent has been infringed.

Within the United States, this process is referred to a “Markman hearing,” named after the case Markman v. Westview (517 U.S. 370 (1996)).  The Markman case established the rule that judges, not juries, are to determine how a patent’s claims are to be interpreted by a jury. It is then left to a jury to apply the facts of an infringement case to the patent claims provided by the judge.

Probably just as important is what the Markman case did NOT establish – that is, specific procedures for how Markman hearings are to be done by any particular Federal court.  It turns out that there is no set procedure for all Federal courts to follow in regard to holding Markman hearings; indeed, there is a great variety of approaches taken by different Federal district courts regarding Markman procedure.  To a licensing professional without legal background, this may seem a bit arcane – but the reality is that such procedural differences may be very important as to the success or failure of a patent infringement claim.

A short note at IP Frontline discusses some current trends in Markman procedure (found at http://www.ipfrontline.com/depts/article.asp?id=18378&deptid=4).  This note is worth the read, particularly for those who may be new to understanding how Markman hearings work.  Markman hearings are typically the most important part of patent infringement litigation – so all IP professionals are well-served by having a good knowledge of the procedures underlying them.

Banking & Financial Services - New Venues for IP Licensing, or Death by Bilski?

Traditionally, intellectual property development and management has been considered the bastion of “high-tech” companies – examples abound of firms in the semiconductor, telecom and pharmaceutical industries that maintain robust IP development and licensing programs.  While this remains more or less true today, increasingly firms outside of the traditional high-tech rubric are developing IP development and management programs of their own.  This is most apparent in the fields of banking and financial services.

Patent filings related to banking and financial services are nothing new; indeed, the CAFC’s opinion in State Street Bank v. Signature Financial Group (149 F.3d 1368 (Fed. Cir. 1998), which heralded the beginnings of business method patents, was based upon a patent filing disclosing a method to monitor and record financial information flows.  However, even with State Street, patent filings related to banking and financial management have remained at relatively low levels.  To some extent, this can be attributed to financial institutions’ traditional reliance on trade secret laws to protect their proprietary business processes.  But with the growing importance of intellectual property to all companies, financial institutions are becoming more and more attuned to the importance of patent filings, as well as other forms of registered IP rights.  An interesting article found at http://www.banktech.com/feed/showArticle.jhtml?articleID=206904966 discusses this trend.

The irony of this development is that just as financial institutions are gearing up to be more active in regard to patent filings, business method patents are at risk due to the Bilski case, now pending before the CAFC.  (For more information on the Bilski case, please refer to the prior post on this blog regarding Bilski.)  As such, Bilski may indeed be one of the most far-reaching CAFC rulings in some time, and certainly will be of interest to not just patent attorneys and agents, but also to a wide swath of industries looking to develop their own IP development and management programs.

Tafas v. Dudas: PTO’s Proposed Rules on Patent Continuations and Claims Are Struck Down

In a closely-watched decision that strikes at the heart of current efforts to “reform” current patent prosecution rules, the Federal District Court for the Eastern District of Virginia has ruled that the PTO’s proposed rules limiting the ability of patent applicants to file patent claims, RCEs (“Request for Continued Examination”) and continuations are invalid.  The gist of the court’s opinion was that since the PTO’s proposed rule changes were “substantive” in nature, the PTO as an administrative agency has no authority under its enabling statute to enact rules which are anything more than “procedural.”

The PTO’s proposed rules were prompted by the dramatic increase in patent filings over the last several years.  Had the PTO’s proposed rules become operative, the PTO’s workload would have arguably decreased because of the reduction of claims, continuations and RCEs that the PTO would need to review. (An obvious response to this view is that perhaps the PTO needs to be more fully funded by Congress…)

Numerous interested parties in the IP community – particularly companies engaged in drug and biotech patent activities – chafed at the proposed new rules, as the rules would have severely limited the ability of patentees to fully and accurately disclose new inventions. 

For better or for worse, the fight over the PTO’s proposed rules may not be over – the district court’s decision did not say that the proposed rules were invalid per se, but rather stated that the PTO as an administrative agency lacks the requisite authority to issue substantive rules such as those at issue.  It remains to be seen whether Congress will enter the fray on the specific issue of the proposed rules, particularly since patent reform legislation is now pending on Capitol Hill.

Readers can access the district court’s opinion at http://www.filewrapper.com/PDFs/20071031opiniongrantinginjunction.pdf. For those new to the world of patent prosecution, the beginning of the opinion provides a useful overview of the patent filing process.

The Concept of Obviousness in Patent Law

In what was hailed as a landmark case in U.S. patent law, the U.S. Supreme Court released the decision in KSR International Co v Teleflex Inc (KSR) in April 2007. This decision is considered to be one that could have a significant impact on patent prosecution and infringement in the U.S., particularly in relation to the concept of “obviousness.”

For those readers who may not be familiar with the concept of “obviousness,” the concept is central to the patent system.  Section 103(a) of the United States Patent Act provides that a patent should be denied or found invalid “…if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”  In very, very, very simplistic terms, this means that if a proposed patent does not reflect a true inventive step in the development of the subject matter, the patent should not issue (or be found valid). 

The “non-obviousness” requirement is crucial to how the patent system works.   Via this requirement, the PTO or the courts have the ability to deny or invalidate a patent even when it claims a product that has never been previously made, or a process that has never been previously performed.  In short, “non-obviousness” means that just because an idea is new or novel, it does NOT mean it is worthy of a patent. 

There are differing policy justifications for the existence of the “non-obviousness” requirement, including the need for skilled technicians and others to make routine adjustments and marginal improvements on products without fear of patent infringement; the difficulty of proving the invalidity of a patent by reference to a single piece of prior art that matches all the elements of a patent’s claims; and from an economic standpoint, to make patent issuance sufficiently challenging to cause an inventor to “stretch” to disclose a truly innovative idea.

The concept of “non-obviousness” is for most an inherently esoteric idea to begin with; its practical application by the courts has been made all the more ethereal by the panoply of factors and tests the courts have historically applied to determine whether a patent suffered from the malaria of “obviousness.”  The intended brevity of this note thus cannot provide the reader with a thorough review of the history of all the factors and tests that have been used in determining “obviousness.”  (Those interested in a very brief history of obviousness tests may refer to http://www.ipfrontline.com/depts/article.asp?id=16772&deptid=4, which provides a good overview of the subject.)

As noted above, KSR represents the latest word in how to determine the “non-obviousness” requirement of the Patent Act.  There remains a great deal of debate as to the scope of impact that KSR will have on the process of patent issuance, as well as on the success of invalidity challenges to issued patents.  As such, IP professionals are well-advised to understand some practical ideas on how to manage patent prosecution and existing patent assets in light of the uncertainty created by KSR.  An excellent presentation by Georgann Grunebach of Fox Group Legal provides some very useful information on some of the practical aspects of managing patent assets in the post-KSR era.  Her presentation may be found at the California State Bar website at http://www.calbar.ca.gov/calbar/pdfs/sections/ipsection/2007-11-10_ksr-v-teleflex_grunebach.pdf.