IP News & Transactions

Update on United States Patent Litigation Trends

An interesting article at Filewrapper (www.filewrapper.com) discusses a recently-released report by PricewaterouseCoopers regarding current trends in U.S. patent litigation.  Of particular interest:

 

1)      Median damages awarded for all industries totaled approximately $3.9M, with the highest average awards being in the area of telecommunications ($31.3M), and the lowest being in the area of automotive equipment ($34,108 – your author wonders ‘why bother?’);

2)      Jury trials are increasingly favored over bench trials, as significant growth in the magnitude of infringement awards granted by juries has occurred since 2000; and

3)      Considering time-to-trial and general favoritism towards plaintiff awards, the leading venue is now the Eastern District of Virginia – the well-known (and somewhat revered) Eastern District of Texas has fallen to sixth place overall under these metrics.

The article, as well as a link to the PWC study, may be found at http://www.filewrapper.com/index.cfm/2008/6/11/Patent-litigation-by-the-numbers.

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.

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.

Patent Claim Construction – A Note for Non-Legal Licensing Professionals

Within the field of licensing, there is often comment on the difference between “carrot” and “stick” approaches to procuring a license from a potential user (or infringer) of intellectual property.  The “carrot” approach suggests that a licensor more or less convince a licensee, by reference to patent claims and industry standards, that it is wise for the user of the licensor’s technology to simply agree to a royalty-bearing license.  The “stick” approach involves more direct action against a user of technology, including the use of legal process (i.e., filing a lawsuit for patent infringement).  There is great diversity of opinion on which method is best; quite often, both methods are employed against a potential infringer in a phased approach.

If the “stick” approach is used, it is not uncommon for the parties to resort to patent infringement litigation.  Within the United States, the Constitution provides that Federal courts have exclusive jurisdiction over such cases.  Under current patent law, a licensor may file an infringement lawsuit in any Federal district court throughout the United States, provided that there is evidence that an infringing activity occurred in the venue and jurisdiction of that court.  (Historically, proving that infringing activity occurred in the venue of a particular Federal district court has not been difficult.)

While there are many, many “bells and whistles” associated with patent infringement litigation, one key procedure that licensing professionals should be familiar with is the “Markman,” or patent claim construction process.  (The process is named “Markman” because of the Supreme Court case Markman v. Westview Instruments, Inc., which established the procedure.) In a Markman hearing, the parties propose to the court judge alternative ways to construe the claims of the patent (or patents) being sued on.  The judge then considers the alternative arguments, and then rules on how the patent claims should be construed by the jury hearing the evidence in an infringement trial.  As you may expect, the judge’s Markman instructions are crucial to an infringement claim, as they are essentially instructions to the jury on how to interpret the evidence of the case.  Quite often, the parties at suit will settle an infringement case before trial, simply on the basis of the results of the Markman hearing.

Nonetheless, it can be that the district court’s construction of claims via the Markman process are taken up to the Court of Appeals for the Federal Circuit (CAFC) for appeal and review.  What is crucial about CAFC review is that CAFC does NOT have to pay attention to the district court’s earlier claim construction – it can more or less start from scratch with its own construction, and create results that can vary widely from the district court’s earlier construction.

Additionally, the relative quality and clarity of claims construction at the district court level can vary widely from court to court.  This is because some district courts (such as Eastern District of Texas) have extensive experience and expertise in handling patent cases, while others do not.  This is evidenced by statistics showing the relative rates of success in appealing construction claims to CAFC (please see http://www.patentlyo.com/patent/2008/02/claim-construct.html).

The key takeaway here for non-legal licensing professionals is to make sure that you have at least a rudimentary understanding of the Markman process.  Additionally, it is important that before you choose a particular Federal district court in which to pursue infringement litigation, that you make sure to verify just how much experience that particular court has with adjudicating infringement claims.

In Re Bilski - Business Method Patents At Risk

In one of the more important developments in recent years, the Court of Appeals for the Federal Circuit (CAFC) is set to review the propriety of business methods patents, in relation to the case In Re Bilski.

Newcomers to the IP field may not be aware of what a "business method" patent is, or why the subject is of such importance.  Generally speaking, a business method patent claims patent rights to business, marketing, financial or transactional techniques.  Prior to the case State Street Bank v. Signature Financial Group (149 F.3d 1368, 1998), U.S. patent law more or less shied away from granting patent rights for business methods.  The reasons for this were a) Section 101 of the Patent Code, by its statutory language, allowed only for patents on "...any new and useful process, machine, manufacture or...composition of matter," and the courts typically held that a business method did not fall within the statute; and b) perhaps more importantly, the courts expressed concerns that a patentee who held rights to a business method patent could acquire a monopoly right over everyday business practices.  For example, giving a customer change after a purchase could arguably be a “business method” – would it make sense for one party to have the monopoly right over others making change for their customers?

However, with the State Street case, the courts opened the door to acceptance of business method patents.  Since then, and with some gusto, applications for business method patents have steadily increased.  The most common applicants for such patents have been internet companies (e.g., Amazon's "one-click" shopping method is the subject of a business method patent), as well as financial, insurance and service companies.

In Bilski, the patent at issue involves claims to a method of managing the risk of bad weather via commodity trading.  Key to this case is the fact that the patent claims are not tied to any particular form of tangible technology - such as a computer, for example.  This fact is important in Bilski, as business method patents have only been issued where there is some "tie-in" to a tangible technology.

Perhaps because of the lack of this “tie-in,” the Bilski patent was in fact never issued - the claims were rejected by the Patent Board of Appeals (BPAI), which is part of the U.S. Patent and Trademark Office (USPTO).  the BPAI, in its decision, more or less asked the CAFC to provide guidance on the matter - and the CAFC stepped up to the plate in grand fashion, choosing to not only review the Bilski claims specifically, but to also review the propriety of business method patents in general.

Court observers expect that a decision in Bilski will be forthcoming sometime in Q2 2008.  The case deserves close attention, as the CAFC may move to severely limit or even eliminate business methods as a subject for patent.  Since State Street, applications for business method patents have soared; it is fairly clear that the elimination of a whole class of patents could upset the expectations of IP protection (and potential licensing revenue) that patent holders and their investors may presently have.