President Enacts AIA Technical Fix into Law

As reported yesterday by Politico, the President signed a series of bills into law, including H.R. 6621. As a reminder, Congressperson Lamar Smith (R-Tx) sponsored H.R. 6621 to correct several “technical” aspects of the America Invents Act (AIA). The primary technical correction of the Bill is the elimination of the 9 month dead zone that was inadvertently created for newly issued, first to invent patents relative to their availability for Inter Partes Review (IPR). As the technical amendment was enacted into law yesterday, the post grant dead zone has been eliminated.

Federal Circuit Unlikely to Open the Door to Discovery via Subpoena in Inter Partes Patent Reexamination

Generally speaking, “discovery” is a litigation process by which information or facts pertinent to a case can be systematically obtained from an opponent or third party prior to trial. Historically discovery has not been permitted in patent reexamination proceedings because, according to the USPTO, patent reexamination does not qualify as a “contested proceeding” in accordance with 35 U.S.C. §§ 23-24. This argument makes perfect sense for ex parte patent reexamination, but perhaps less so for inter partes patent reexamination proceedings. Since much of the case law denying discovery in patent reexamination came about decades ago in the ex parte patent reexamination context, it is surprising that it took this long for the applicability of discovery in the inter partes context to make it up to the CAFC. (although the lack of discovery in inter partes patent reexamination has been recently emphasized in Lingamfelter v. Kappos)

Last week the Federal Circuit heard oral argument (here) in Abbott Laboratories v. Cordis Corp. (12-1244) on the issue of whether parties can subpoena documents or testimony in an inter partes patent reexamination proceeding before the USPTO under 35 U.S.C. § 24.   By way of background, §24 provides as follows:

The clerk of any United States court for the district wherein testimony is to be taken for use in any contested case in the Patent and Trademark Office, shall, upon the application of any party thereto, issue a subpoena for any witness residing or being within such district, commanding him to appear and testify before an officer in such district authorized to take depositions and affidavits, at the time and place stated in the subpoena.

Cordis, the patent owner, sought subpoenas under §24 seeking discovery to rebut the declarations submitted by requesters Abbott Laboratories and Boston Scientific on the question of obviousness. Abbott filed a motion to quash the subpoenas, arguing among other things that 35 U.S.C. § 24 does not authorize the issuance of subpoenas because inter partes patent reexaminations are not “contested cases” within the meaning of the statute.

During the oral argument Abbott appeared to have the upper hand, and by a significant margin. Abbott and the amicus Solicitor pointed out that the legislative history of the America invents act (AIA) clearly explains that patent reexamination has been considered an “examinational” proceeding whereas the new post grant proceedings are adjudicative in nature. The AIA provides discovery for these new adjudicative proceedings because they are contested cases that are heard before Administrative Patent Judges of the Patent Trial & Appeal Board, whereas examinational proceedings like reissue and reexamination are essentially an extension of the examination phase and overseen by patent examiners. The Solicitor emphasized that the PTO has declined to promulgate rules allowing the issuance of subpoenas in reexaminations precisely because they are examination proceedings conducted before examiners and not contested cases held before administrative law judges. The Solicitor also made the interesting point that under Cordis’ broad definition of “contested case” even ex parte reexaminations would be subject to §24, which would create the anomalous result that requesters and patent owners would be entitled to obtain discovery via subpoena in ex parte reexaminations.

These arguments are consistent with the Board’s historic treatment of reexaminations as compared to patent interferences. Patent interferences have been conducted as contested cases in which limited discovery is permitted.

It is expected that the Federal Circuit will affirm the district court’s decision to quash the subpoena and decline to open the door to discovery via subpoena in reexamination proceedings. For the parties to the approximately 1,000 inter partes reexaminations still pending, discovery will likely be available only if the challenger seeks inter partes review or is able to pursue such in a parallel litigation.

First Covered Business Method Challenge Ordered Based on SAP Petition

The Patent Trial & Appeal Board (PTAB) has ordered the very first business method patentability trial of the America Invents Act. The first petition for a Covered Business Method Patent Challenge (CBM) was filed on September 16th by SAP (CBM2012-00001). The petition (here) challenged U.S. Patent  6,553,350 of Versata Development Group. In May of 2011, Versata secured a $345 million dollar verdict in the Eastern District of Texas against SAP ($260 million in lost profits and $85 million as a reasonable royalty). The verdict is currently on appeal to the CAFC.

Yesterday, the PTAB held that SAP’s petition had demonstrated that it was more likely than not that the claims of the ‘350 patent were unpatentable under 35 U.S.C. §§ 101 and 102 (Trial Order here). The PTAB also set the trial schedule, mandating that the oral hearing be conducted by October 1, 2013. (scheduling Order) This schedule would provide for a written decision of the PTAB in roughly 10-12 months from yesterday’s Order, as mandated by statute.

For obvious reasons, I provide no substantive commentary.

inter partes reviewBusiness executives routinely wrestle with whether to defend a patent infringement suit in court, settle the dispute for less than the cost/risk of defending it (especially in the case of patent “troll” suits), or seek the help of the USPTO to address the problem patent via a post grant patent proceeding. Patent litigation is a well-worn path and the variables and risks associated with it are relatively well understood. The same can, to an extent, be said of patent reexamination at the USPTO. But now that inter partes reexamination has been replaced with inter partes review (IPR), an entirely new mechanism of the America Invents act, CEOs and CFOs around the world are asking how this new option alters the existing landscape.

The primary business distinctions between IPR and court proceedings are cost, predictability, effectiveness, and speed. With respect to cost, according to statistics published by AIPLA and others defending a patent lawsuit through trial costs well in into the millions of dollars for cases involving substantial financial exposure. IPR, in the vast majority of cases, will cost in the hundreds of thousands of dollars. As a business rule of thumb, Continue Reading CEO’s Guide to Avoiding Patent Litigation Costs

Functional Claim Drafting Practices Considered by USPTO

Despite public misconceptions to the contrary, software is not patentable. Of course, aspects of software, or “software related” patents exist in which an otherwise statutory apparatus or product is claimed that includes computer implemented functionality. In an effort to enhance the “quality” of these software related patents, the USPTO issued a notice last Thursday in the Federal Register entitled: Request for Comments and Notice of Roundtable Events for Partnership for Enhancement of Quality of Software Related Patents.

The Notice “sets forth several topics to begin the Software Partnership discussion. The first topic relates to how to improve clarity of claim boundaries that define the scope of patent protection for claims that use functional language.”

Reading through the tea leaves, the USPTO appears quite interested in exploring means-plus-function claiming with the software community. Since this style of claiming directly links the disclosed structure of the patent specification (algorithmic in the case of computer implemented features), it may be that the Office is proposing to rein in the scope of software claims by requiring the more narrow claim type. Thus, the “enhancement in quality” may result in future software related patents becoming more difficult to assert based on their narrower scope. To this end, the USPTO proposed the following talking points for the upcoming roundtable:

The USPTO seeks comments on how to more effectively ensure that the boundaries of a claim are clear so that the public can understand what subject matter is protected by the patent claim and the patent examiner can identify and apply the most pertinent prior art. Specifically, comments are sought on the following questions. It is requested that, where possible, specific claim examples and supporting disclosure be provided to illustrate the points made.

1. When means-plus-function style claiming under 35 U.S.C. 112(f) is used in software-related claims, indefinite claims can be divided into two distinct groups: claims where the specification discloses no corresponding structure; and claims where the specification discloses structure but that structure is inadequate. In order to specify adequate structure and comply with 35 U.S.C. 112(b), an algorithm must be expressed in sufficient detail to provide means to accomplish the claimed function. In general, are the requirements of 35 U.S.C. 112(b) for providing corresponding structure to perform the claimed function typically being complied with by applicants and are such requirements being applied properly during examination? In particular:

(a) Do supporting disclosures adequately define any structure corresponding to the claimed function?

(b) If some structure is provided, what should constitute sufficient ‘structural’ support?

(c) What level of detail of algorithm should be required to meet the sufficient structure requirement?

2. In software-related claims that do not invoke 35 U.S.C. 112(f) but do recite functional language, what would constitute sufficient definiteness under 35 U.S.C. 112(b) in order for the claim boundaries to be clear? In particular:

(a) Is it necessary for the claim element to also recite structure sufficiently specific for performing the function?

(b) If not, what structural disclosure is necessary in the specification to clearly link that structure to the recited function and to ensure that the bounds of the invention are sufficiently demarcated?

3. Should claims that recite a computer for performing certain functions or configured to perform certain functions be treated as invoking 35 U.S.C. 112(f) although the elements are not set forth in conventional means-plus- function format?

The Software Partnership roundtable events are scheduled for February 27th in New York City, and February 12th in Silicon Valley. Written comments will be accepted until March 15th 2013.

language.

H.R. 6621 Clear All Congressional Hurdles

Late last week, the Senate passed H.R. 6621 with amendment (passed days earlier by the House). The Senate amendment removed the provision requiring a USPTO report on the remaining pre-Gatt patent applications (i.e., “submarine patents”). The pre-Gatt provision was the only one that drew any opposition in the House. As such, the amended bill was accepted by the House without objection (late last night) and will now be enacted into law by the President.

As a reminder, the main benefit of the technical amendment is the elimination of the post grant dead zone.

Rippling Effect of PTAB Proceedings to Upset Patent Litigation Business Model?

Opponents of the U.S. patent system are quick to deride the America Invents Act (AIA) as a failure when it comes to the so called “patent troll” or “non-practicing entity” (NPE) problem. Indeed, a steady stream of news articles from otherwise reliable sources such as the Wall Street Journal only serve to sensationalize and reinforce this misperception. Most such articles will focus on what has happened prior to September 16, 2012 (i.e., failure of the joinder rules) as opposed to what is now happening as a result of the AIA.

On September 16th, 2012 the new post grant patent proceedings of the America Invents Act (AIA) became available to patent challengers for the first time. These proceedings have only been available for a few months, but allow challenges to suspect patents of any vintage in a far more speedier, cost effective, and challenger friendly manner relative to that of the federal district courts. The idea behind these proceedings is that for the very first time, there will be a true, accelerated alternative to patent litigation. Not surprisingly, there has been a robust demand for these proceedings with over 100 petitions filed in the first few months—many of which target NPE portfolios. The new post grant proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) will conclude in a fast enough time (12-18 months) to transform the existing litigation landscape in a manner that will significantly undermine the NPE patent litigation business model.

The impact of these new, AIA post grant proceedings are only now beginning to be felt in the district courts.

Last week, in Semiconductor Energy Laboratory Co. Ltd. v. Chimei Innolux Corporation et al. (CACD) the very first litigation was stayed pending the outcome of the new PTAB proceedings. Shortly after September 16, 2012 the defendants, CMI, sought Inter Partes Review (IPR) of the 6 patents-in-suit. Immediately thereafter, CMI sought a stay of the ongoing litigation pending the outcome of the PTAB proceedings.

The Order staying the litigation issued last week. In the Order the Court noted features of the new AIA proceedings that make them more attractive relative to past USPTO options, explaining:

As this Court has previously noted, the amended standards for granting inter partes review probably results in an even higher likelihood than under the prior standard

that the issues in this action will be simplified .   .   .   .and the delay caused by the new IPR procedure is significantly less than the delay caused by the old procedure.

(Order here)

As IPR, CBM and PGR filings become more commonplace going forward, the contingency fee model that is primarily responsible for spawning the boom in NPE litigation will become a much riskier proposition. Simply stated, the contingency representation will now have to account for the likelihood that the dispute will almost certainly transfer over to the unfamiliar USPTO forum. Once there, the cost to conduct the proceeding for a challenger will be on the order of 10-20% of the cost of court based litigation proceeding. With the higher cost proceeding stayed, and the corresponding cost pressure off the challenger, and with the added benefit of the lower standards of proof accepted by the USPTO to prove unpatentability, plaintiff attorneys may find that the risk of investing in all but the largest NPE portfolios a bet no longer worth making.

Business-to-Business Initiative Drives Government Interest

Small technology companies and start-ups face a daunting task in enforcing their intellectual property due to the cost prohibitive nature of patent litigation. In year’s past academics and major bar associations would often brain storm as to how these market participants (as opposed to NPEs) might be able to cost effectively get a fair shake in the U.S. patent system. Back in 1989, an idea was floated that perhaps the government could help out by establishing a small claims court of sorts to allow such small players an opportunity to prove their case.

For example, where relatively small amounts of licensing revenue/damages are at stake, (e.g., 3 million or less)  it is frustrating for small organizations to be faced with a legal bill of equal value to the potential recovery. Although these goals are far from clear in this week’s Federal Register Notice (here), the USPTO  is soliciting commentary on the concept of creating a small claims court that would be voluntary in nature, likely exclude NPEs, and focus on small (a few million or less) business-to-business disputes

Specifically, the USPTO wants to know if there is a need for such a court and the general ideas of the public on how such a court would operate, the proper venue, arbiters, pleadings, etc. 

Again, although unstated in the Notice, one idea is to build on the existing Patent Pilot Program of the District Courts. While not every district participates in this program, those located in inconvenient venues might seek out the U.S. Court of Federal Claims as a default venue. Although not widely know, this court routinely considers patent disputes centering around government and defense related activities. The concept is to voluntarily allow some disputes to be heard by this tribunal with limited discovery, and a fast track decision.  As roughly 3.4% of patent cases make it to trial, it is believed that such a program, perhaps limited in duration as a pilot program, would more cost efficiently drive such “small claims” B2B disputes to a more market effective solution. 

(Note: This post has been updated from the original version to expand upon the broader based policy rationales, which were unfortunately left out of the Notice)

Technical Amendment Passes First Hurdle

Yesterday, the House considered H.R. 6621, a bill to correct and improve certain provisions of the America Invents Act, under a suspension of the rules requiring a two-thirds majority vote for passage. The bill was passed 308-89.

Rep. Rohrabacher spoke out against the GATT study aspect of the Bill (requiring information on the remaining “submarine patents” pending at the USPTO), which might explain the surprising opposition to such an otherwise politically insignificant legislative initiative. Seems Rep. Rohrabacher was concerned about the study revealing information on these otherwise “secret” applications.

In any event, the Bill now heads to the Senate, greatly increasing the odds that it will be passed and enacted in the near term.

H.R. 6621 Revised to Exclude Reissued Patents from 9 Month Post Grant Review Window

As reported earlier this month, Congress is currently considering a technical amendment to the America Invents Act (AIA). House Bill H.R. 6621 is being proposed by Congressperson Lamar Smith (R-Tx) to correct several “technical” aspects of the AIA. On the post grant side the bill proposes to eliminate the 9 month dead zone that now applies to newly issued, first to invent patents relative to their availability for Inter Partes Review (IPR).

As I pointed out when the initial draft of the bill was circulated, there was a second post grant aspect of H.R. 6621’s proposed fix that seemingly created more problems than it remedied; namely, the repeal of 35 U.S.C. § 325(f). The repeal of this section, although well intentioned, would have created unintended consequences. That is to say, repeal of 325(f) would have ensured that all —not just reissues with broader claims— would be subject to two separate PGR windows. Such would have created a significant disincentive to correct high value patents via patent reissue. This same criticism was later echoed by some of the major bar associations.

I am pleased to report this section of the bill has been dropped in the revised version of H.R. 6621. As an alternative, the current version of the bill proposes to effectively exclude all reissued patents from PGR. (revised bill here). With this revision, as well as others that eliminate some controversy over the remaining pre-GATT patent applications (i.e., submarine patents) still pending at the USPTO, I would expect the bill to move forward without incident.