Court Questions Reasoning in Achates Publishing

Today, in Click-To-Call Techs. v. Oracle Corp., (here) the Federal Circuit reconsidered its earlier decision (GVR Order) in light of the 35 U.S.C. § 314(d) discussion in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016).  In its earlier Click-to-Call decision, the Court found that issues arising under 35 U.S.C. § 315(b) (i.e,, one year time bar) could not be appealed, pursuant to 314(d).  In today’s non-precedential decision, the Court found that it could not reverse its earlier ruling since it was bound by its own precedent to the contrary.

However, the viability of the precedent was called into serious question.
In the per curiam portion of the court’s opinion, it was explained that 

Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) bound the Court to its original determination that dismissed

Click-To-Call’s 315(b) argument based on a lack of appellate jurisdiction. (Achates established, prior to Cuozzo, that a party cannot challenge the Board’s decision to institute an IPR proceeding under § 315(b) because it is barred under § 314(d)). The Court had earlier determined that Achates was not overruled by Cuozzo. (Wi-Fi One, LLC v. Broadcom Corp., (Fed. Cir. Sept. 16, 2016)).

In concurring opinions, Judges O’Malley and Taranto agreed that they must dismiss Click-To-Call’s appeal because they are bound by the court’s precedent in Wi-Fi One and Achates. However, both judges wrote separately to explain why they believe that the full Federal Circuit sitting en banc should review the court’s reasoning in Achates in light of Cuozzo.

Judge Taranto emphasized jurisdictional issues under the Administrative Procedure Act (APA) as compared to matters of patentability:

314(d). . .refers to a “determination . . .whether to institute an IPR under this section” (emphasis added). As a textual matter, those words clearly encompass the “reasonable likelihood” determination specified in § 314(a), but they leave unclear to what extent they reach determinations of compliance with other statutory provisions bearing on institution. The interpretive task demands a wider focus, beyond the words of § 314(d) alone, as the Court’s analysis in Cuozzo itself shows. . . ..regulations treat compliance with the timing rule for IPRs as a matter of Board “jurisdiction.” 37 C.F.R. § 42.3(b) (in section headed “Jurisdiction,” providing that “[a] petition to institute a trial must be filed with the Board consistent with any time period required by statute”) . . . .  The “jurisdiction” label, while a troublesome one in many contexts, here relates to an Administrative Procedure Act principle that the Court in Cuozzo invoked in stating that, at least sometimes and maybe generally, § 314(d) does not bar review to determine if agency action is “‘in excess of statutory jurisdiction.’”                                                
 .        .        .        .         .

The Supreme Court could easily have written its opinion more broadly. Instead, it took evident pains to speak in terms that left a good deal open. And then, rather than conclude that Cuozzo so clearly implies unreviewability of § 315(b) determinations that the Court should simply deny the petition for certiorari in the present case, the Court granted certiorari, vacated our judgment finding unreviewability, and remanded the case for further consideration

Dispute Over AIA Trial Institution Practices …Be Careful What You Wish For

Since the advent of AIA trials, opponents of the system have attempted to unravel them.  First, BRI was challenged, then 7th amendment constitutionality, and a host of other administrative issues; all have failed to date. Yet, a few challenges to fundamental AIA trial practices persist. Earlier this week, the Federal Circuit denied en banc review in one such remaining challenge, in SAS Institute Inc., v. ComplemenSoft LLC.  

As previously discussed, SAS challenged all sixteen claims of ComplementSoft’s patent 7,110,936 in inter partes review (IPR). Trial was instituted for claims 1 and 3-10, but claims 2 and 11-16 were denied institution. On appeal to the CAFC, SAS argued that it was inefficient to institute on only a subset of claims, and that the controlling rule authorizing partial institution (37 C.F.R. § 42.108(a) was in direct conflict with statutes 35 U.S.C. §§ 314(a)/318(a); the Federal Circuit disagreed (Judge Newman dissenting).

If it were agreed that the statute “at least one claim” is in conflict with the rule (perhaps on eventual appeal to the SCOTUS) is this really something petitioners or patentees should want?  

Probably not.

In the abstract, arguing the legislative intent behind the AIA is all well and good (efficiency of the PTAB alternative, public policy against concurrent proceedings). Yet, in practice, partial institutions provide balanced benefits to both petitioner and patentees.

First, for petitioners, while a partial institution is a disappointment, statutory estoppel does not apply. This is because the non-instituted claims are not part of the trial, and are not part of any Final Written Decision (FWD).  Shaw Industries Group Inc. v. Automated Creel Systems Inc. (CAFC 2016).  Forcing such claims to FWD simply adds an estoppel that could be otherwise avoided. Failed challenges, whether at institution or FWD are bound to go back to the courts — inefficiency on some level is inevitable in this regard.  If anything, the earlier a weak challenge to a given claim is identified (i.e., institution) the more likely the parties are to settle. While theoretically speaking a partial institution might lead to a second petition filing of a failed petitioner, the PTAB has made clear that such a filing is highly likely to be denied.  Conopco, Inc. dba Unilever v. The Procter & Gamble Company (IPR2014-00628, Paper 23, March 20, 2015).  In my experience, partial institutions provide leverage points for settlement.  Creating shorter dispute timelines is entirely consistent with the legislative intent of the AIA.

On the patent owner side, partial institutions are of significant value.  Frequently, stays are avoided since “simplification of issues for trial,” a factor in such determinations, is effectively mooted when it is clear the trial will need to go forward as to at least non-instituted claims. As between the two options, Patentees, even if later winning on some claims at FWD, will not want their litigation efforts needlessly stalled for a 12 month PTAB trial.  This would limit settlement leverage and unnecessarily expand legal spend.

Theoretical inefficiencies in competing legal frameworks should not trump the practical, settlement advantages of the current system.

New 101 Guidance Addresses Recent CAFC Decisions

Today, the USPTO issued a memorandum entitled “Recent Subject Matter Eligibility Decisions.” (here).  The memo  provides a discussion of two recent CAFC decisions identifying eligible subject matter, namely McRO, Inc. dba Planet Blue v. Bandai Namco Games America Inc., 120 USPQ2d 1091 (Fed. Cir. 2016) and BASCOM Global Internet Services v. AT&T Mobility LLC, 827 F .3d 1341 (Fed. Cir. 2016).

With respect to McRO, the memo emphasizes the value of the specification in interpreting claims under 101, specifically where a problem is identified in the art, and the solution presented in the claims. As to Bascom, the memo emphasizes that conventional elements may nonetheless be arranged in unconventional manners (again emphasizing the value of the specification in explaining such).

The Office promises more updates in the future, including addressing yesterday’s decision in  Amdocs (Israel) Ltd. v. Openet Telecom, Inc., No. 2015-1180 (Fed. Cir. Nov. 1, 2016), which found distributed computing to be an unconventional technological solution. 

USPTO Revisits 2011 Rule Proposal (Rules 56(a) &555(a))

In the wake of the Federal Circuit’s 2011 decision in Therasense Inc. v. Becton Dickinson and Co., the USPTO quickly moved to revise the Duty of Disclosure to align with the Court’s new, but-for materiality standard—perhaps too quickly.  The 2011 proposal sought to update the relevant rules (1.56 and 1.555) by explicitly adding a short hand, reference to the Therasense case itself. The earlier proposal also intertwined the the “egregious conduct” exception of the Therasense holding (Duty of Candor & Good Faith) with the Duty of Disclosure.

At the time, I questioned whether it was unnecessarily confusing to mix together concepts of conduct and disclosure given the agency’s historical segregation of such. Others found it odd that the rule would reference the name of the case as opposed to spelling out the “but-for” materiality standard of its holding.

Today, the USPTO has revisited this earlier proposal, and issued a new proposal.  
The new proposal modifies Rules 56(a) for patent applications and Rule 555(a) for patent reexamination. The new proposal removes the explicit reference to Therasense, and adds in its place an explanation of but-for materiaility. The proposal also correctly separates the egregious conduct exception of Therasense from the Duty of Disclosure sections of these Rules (here).

The newly proposed Rule 56 is reproduced below:

§ 1.56 Duty to disclose information material to patentability.
(a) A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability. Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability under the but-for materiality standard as defined in paragraph (b) of this section. The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration or the application becomes abandoned. Information material to the patentability of a claim that is cancelled or withdrawn from consideration need not be submitted if the information is not material to the patentability of any claim remaining under consideration in the application. There is no duty to submit information which is not material to the patentability of any existing claim. The duty to disclose all information known to be material to patentability is deemed to be satisfied if all information known to be material to patentability of any claim issued in a patent was cited by the Office or submitted to the Office in the manner prescribed by §§ 1.97(b) through (d) and 1.98. However, no patent will be granted on an application in connection with which affirmative egregious misconduct was engaged in, fraud on the Office was practiced or attempted, or the duty of disclosure was violated through bad faith or intentional misconduct. The Office encourages applicants to carefully examine:
(1) Prior art cited in search reports of a foreign patent office in a counterpart application, and
(2) The closest information over which individuals associated with the filing or prosecution of a patent application believe any pending claim patentably defines, to make sure that any material information contained therein is disclosed to the Office. 

(b) Information is but-for material to patentability if the Office would not allow a claim if the Office were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction consistent with the specification.

Rule 555(a) includes substantially similar language but removes the “patents and printed publications” limitation of the previous version of 555(a) to encompass disclosure of information as to any matter that is appropriate for consideration in a reexamination proceeding (e.g.,admissions by patent owner), as opposed to being limited to patents and printed publications.

Privilege Expanded to Cover Communications with Foreign Agents

Tomorrow’s Federal Register will include a NPRM to amend the rules of practice before the Patent Trial and Appeal Board (PTAB). The proposed rule recognizes that, in connection with discovery conducted in certain proceedings at the United States Patent and Trademark Office, communications between U.S. patent agents or foreign patent practitioners and their clients are privileged to the same extent as communications between clients and U.S. attorneys. (advanced copy here)

The rule would apply to Inter Partes Review (IPR), Post-Grant Review (PGR), the transitional program for Covered Business Method (CBM) patents, and derivation proceedings. This rule would clarify the protection afforded to such communications, which is currently not addressed in the rules governing Board proceedings at the USPTO.
The language of the rule proposal is as follows:

§ 42.57 Privilege for patent practitioners.

(a) Privileged communications. A communication between a client and a domestic or foreign patent practitioner that is reasonably necessary or incident to the scope of the patent practitioner’s authority shall receive the same protections of privilege as if that communication were between a client and an attorney authorized to practice in the United States, including all limitations and exceptions.

The rule is designed to ensure consistency in such determinations before the agency as the common law on privilege for domestic and foreign patent practitioners varies across jurisdictions. Different approaches are taken, and results sometimes conflict. This may lead to administrative inefficiencies and inconsistencies in outcomes, as PTAB must select which set of common law rules to follow.

Preliminary Responses Accompanied by Declaration Evidence: Early Results 

Back on May 1st, the Patent Trial & Appeal Board (PTAB) began to accept new testimonial evidence with patentee preliminary responses.  The PTAB implemented this change to address complaints that patentees were disadvantaged by previous rules precluding such evidence from accompanying a preliminary response to the petition. It was argued that the previous rules were especially imbalanced as almost all petitions were accompanied by petitioner declaration evidence.  I had my doubts.

Now that we are some 5 months removed from the rule modification, early results are in.  
While the data sample is still quite small, the introduction of new evidence seems to have done little for patentees thus far.  

In the below chart the start date of August 15th was chosen to capture those Institution Decisions having preliminary responses due on or after May 15th.  In this 7 week window of Board decisions, only 38% of filers availed themselves of the new option (presumably the number has since risen as filers in May/June might not have had sufficient time to assemble a fulsome declaration).  Of those 67 patentees availing themselves of the new rule, 43 of the Institution Decisions failed to mention the new evidence.  

In 16 of the Institution Decisions, charted below in orange, the Board found that the evidence created an issue of material fact (likely disputing petitioner declaration evidence, the dispute construed in favor of petitioner for institution purposes).  The new evidence was cited approvingly in only 8 decisions (charted in red).  Of course, it is hard to gauge the value of these submissions in the the 43 decisions which did not reference the evidence.  For example, although unreferenced, the evidence may have nevertheless reinforced a Board determination one way or the other.  

As noted above, the data set is still in its infancy.  Likewise, the Board itself is still acclimating to this new dynamic.  That said, it appears these spotty results still militate in favor of continued caution for patentees.

prelimdata

As to the those cases in which the new evidence was cited, it is interesting to note that there appears to be some difference in efficacy based on technology.  In other words, petitions in the unpredictable arts seem incrementally more likely to result in stalemate (contested fact) determinations when taking into account that the vast majority of filings are in the predictable arts.

prelimdata2

Again, admittedly the data set here is small. But, where the art is unpredictable, dueling declarants appear more likely to lead to institution.  As deposition of petitioner declarants follows institution, patentees in the unpredictable arts may be unnecessarily previewing their evidentiary hand.  Just some things to keep an eye on going forward.

Jury Trial/Article III Challenges to PTAB Expectedly Fail at High Court

Yesterday, the Supreme Court of the United States denied certiorari in two cases challenging the constitutionality of AIA trial proceedings. MCM Portfolio LLC v. Hewlett-Packard Co. et al., and Cooper et al. v Lee et al.  These cases largely presented the same constitutional challenge as that lodged against the USPTO’s patent reexamination system in the 1980s, in Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985).  Since that time, patent validity has been found to fall within the “public rights exception,” permitting adjudication before non-Article III tribunals.

These more recent cases hoped to distinguish reexamination from AIA trials on the ground that reexamination was not adjudicative, but examinational.  Of course, after Cuozzo, it has been clear that this line of reasoning was certain to fail.

In terms of those hoping to unravel AIA trial proceedings, a writ of certiorari remains pending in Ethicon Endo-Surgery Inc. v. Covidien LP.  This challenge focuses on the ability of the USPTO Director to delegate her authority to institute AIA trial proceedings to the Board, the same entity providing the ultimate decision on outcome. Certiorari in this case seems equally unlikely.

Now that opponents are running out of options to unhinge the PTAB, attention may shift to legislative efforts and/or rule based modifications coming out of the PTAB.  

For a discussion of expected rule changes and efforts in this regard, don’t miss the November 15th program, IAM Patent Law & Policy 2016.  Speakers this year include former USPTO Director David Kappos, current USPTO Director Michelle Lee, PTAB Chief Judge David Ruschke, former CAFC Chief Judge Paul Michel, and many more. 

Long Awaited FTC Study Offers Little In Terms of New Ideas

Yesterday, the Federal Trade Commission released an extensive study on Patent Assertion Entities (PAEs) (here). Interestingly, the report segmented PAEs into two classes, Portfolio PAEs (100s of patents) and Litigation PEAs (10 patents or less).  

The study pointed out that Litigation PAEs filed 96% of the cases in the study and accounted for 91% of the reported licenses, but only 20% of the reported revenue. On the other hand, 93% of reported Litigation PAE licenses followed a lawsuit against the eventual licensee and 77% were valued at less than the estimated cost of defending a patent lawsuit through the end of discovery—a threshold below which litigation settlements might be considered nuisance value.  

To combat this behavior the FTC proposed familiar ideas.

1. Develop rules and case management practices to address discovery burden and cost asymmetries in PAE litigation;
2. Amend Federal Rule of Civil Procedure 7.1 to reach a broader range of non-party interested entities or persons;
3. Establish procedures encouraging courts to stay a PAE’s infringement action against a customer or end-user, where the PAE has also sued the manufacturer of the accused product under the same theory of infringement.; and
4. As courts continue to address the “plausibility” of pleadings in patent cases, ensure that patent infringement complaints provide sufficient notice to accused infringers.

Of course, (4) was already enacted last year in the heightened pleading requirements, (1) and (3) were proposed in the last round of patent reform legislation, and (2) was pursued by the USPTO with the nightmarish attributable ownership rules (that NOBODY, not even the PTO, wanted).

With a new administration coming in, patent reform legislation is likely to take a back seat to other legislative initiatives in 2017. Stay tuned.

Common USPTO Debate Clarified by New Precedential Decision Ex parte Schulhauser

A common debate at the PTO in recent years at both the examination and Board level has been the appropriate treatment of a claimed condition precedent.  That is, if a claim recites that certain functionality only occurs on certain conditions, does that alternate functionality constrain the broadest reasonable scope of the claim?  

In Ex parte Schulhauser (here) the Board makes clear that the answer to this question may depend on whether or not the claim is presented in a method or apparatus claim format.

In the case of a method claim, the failure to meet a condition precedent means that corresponding conditional steps recited in the claim need not be performed.  So, the broadest reasonable interpretation of such a claim cannot include steps that are not required in all scenarios.  On the other hand, where the same claimed functionality is recited as part of a computer implemented apparatus claim, the Board explains:

The broadest reasonable interpretation of a system claim having structure that performs a function, which only needs to occur if a condition precedent is met, still requires structure for performing the function should the condition occur. This interpretation of the system claim differs from the method claim because the structure (i.e., a processor programmed to perform an algorithm for carrying out the recited function should the recited condition be met) is present in the system regardless of whether the condition is met and the function is actually performed.

While the computer implemented apparatus in this instance was presented as a means-plus-function feature (necessarily requiring an algorithm for structural support) structure presented as “configured to” or “programmed to” implement such conditional functionality would presumably enjoy the same analysis.  

This decision may prove especially helpful to patent prosecutors as it is not uncommon for examiners to confuse the above method/apparatus distinctions.

Fee Setting Authority to be Exercised for FY 2017 

The USPTO discussed its first ever fee increase under the fee setting authority of the America Invents Act (AIA) in November of 2015.  At the time, an initial proposal was provided to the Public Patent Advisory Committee (PPAC) for review.  While the initial hope was to have the proposed fee adjustments take effect on October 1st (start of FY 2017), significant stakeholder feedback and considerations have, understandably, slowed the rule making process.  At long last, the Notice of Proposed Rule Making (NPRM) issued today.  Since a Final Rule Notice must follow the NPRM, the proposed fee adjustments will not go into effect until calendar year 2017.

Notable Patent Trial & Appeal Board (PTAB) fee increases include:
fees
(USPTO fee setting page here for more background)

1. IPR fees will increase from $23,000 to $30,500      (Request increases $5k, Institution increase $2.5K)
2. PGR/CBM fees will increase from $30,000 to $38,000    (Request increase $4k, Institution increase $6K)
3. Appeal to PTAB from ex parte proceeding will increase from $2800 to $3500 (Notice of appeal + appeal forwarding (large entity))  Factoring in the fee for an oral argument (large entity $1300), that could include a total of $4800 in government fees for a large entity, ex parte appeal.

Notable fee decreases:
1. Ex parte reexamination requests that are less than 40 pages are discounted 50% relative to existing fees, which remain unchanged.

Notable increase in prosecution fees
1. +$100 (large entity) +$50 (small entity) +$25 (micor entity) for first RCE ($200/$100/$50 for subsequent RCE)
2. IDS increases of ($60/$30/$15) for large ,small and micro entitites, respectively.