"Commercially essential" patents: an explanation

Reporting on the Enforcement session in yesterday's Best Practices in IP 2013 conference (see earlier post here), this blogger confessed himself to be unaware of the term "commercially essential patent", in contrast with technically essential patents which form the bedrock of technical standards. Speaker Luc Savage (Orange) has kindly emailed to explain the term in greater detail:

"Although applicable for non-standard related pool, in standard related pool, an Intellectual property right, such as a patent, licensed by the pool for a royalty must be essential to the standard. There are two approaches to the definition of “essentiality”. 

The first more rigorous approach, “technically essential”, provides that the specification of the standard must read on the patent claim(s) in order to make a standard conformant product, i.e. there is no technical alternative to circumvent the patent claims, otherwise the patent would not be essential. 

The second broader approach, “commercially essential”, provides that the patent will be considered essential if, “as a practical matter”, it would be infringed in making a standard conformant product, but there would be alternative implementation(s) where the patent would not be infringed. The notion of “commercially essential” is not well defined today, but I thought it was useful to address this new approach to patent pool".

Thanks, Luc, for taking the trouble to clarify this!

Best Practices in IP 2013: patent enforcement

The final session of today's Tel Aviv conference, "Best Practices in Intellectual Property 2013: International Perspectives on Creating and Extracting Value", dealt with enforcement -- including patent litigation.  Moderated by Zeev Pearl (Pearl Cohen Zedek Latzer), the session was opened by Luc Savage (Orange), who spoke on the advantages of patent pooling.  Some patents are "standards-essential", he said, while others are "commercially essential" [a term with which, this blogger is embarrassed to say, he is unfamiliar]. This was contrasted with "privateering", as described by Ruud Peters (Philips), a way of licensing third-party ships to seize the ships of one's enemy (and now licensing a third-party company to sue in respect of the products of one's competitors).  This can obviously benefit both the patent owner and the privateer.

Daniel Pabst (Pabst Licensing) then explained the policy developed by his family in protecting the family business's patents, which were treated with disdain both by its bank and by its infringing competitors. The company ceased to trade as a manufacturer, laid off its workforce and became a licensing company. Working closely with customers of its licensees, who were encouraged not to purchase components who had not concluded patent licences, Pabst has managed to retain a large share of its markets -- though it has been dragged into patent litigation from time to time in which the effect has been for infringers to take licences.

Huw Evans (Norton Rose LLP) reviewed the pooling, privateering and licence-company options: all were viable in appropriate circumstances. He also spoke of FRAND-based patents and the circumstances in which an injunction might be available even where the patent owner has made it plain that it is willing to license a standard patent on fair, reasonable and non-discriminatory terms (on which see the Huawei CJEU reference here).

The panelists then reviewed the problems faced by the small patent owner faced with infringements by large-scale corporations, particularly where that patent was its sole asset and was at risk of being invalidated in a counterclaim, as well as the routes to settlement where litigation is threatened. The need for a small company to be able to get on with its business, unencumbered by the expense and stress of patent litigation was recognised, even where that company was being asked to pay a royalty for use of a patent where it considered that there was no need for it to do so.

Earlier sessions of this conference have been noted on the IPKat here, here and here and on IP Finance here and here

Chinese prior art: we may be hearing more about it ...

Phil & Ted's Most Excellent Buggy Company Ltd v TFK Trends for Kids GmbH & Others [2013] EWPCC 21 is a fairly unexciting action. TFK alleged infringement, so the claimants took the initiative by bringing an action for unjustified threats, also seeking revocation of TFK's patent. What is interesting here is the last line of the judgment, in which Judge Birss QC (as he then was) finds for the claimants and says: "The patent is invalid in that it is obvious over Chinese Utility Model CN2739058Y (Goodbaby)". This blogger suspects that variants on this last line will be heard with increasing frequency in British courts, among other places, as the sheer volume of Chinese patent and utility model filing continues to grow. The quality of Chinese patents and utility models has been questioned in some quarters and almost all Chinese utility models are filed for domestic consumption but, no matter what the quality of the claims and description, their impact as disclosed prior art in countries far remote from China can scarcely be imagined.

Vermont versus varmint? Troll tackled with unfair practices suit

From the practised pen of guest blogger Miri Frankel comes news of a remarkable development in the fight against so-called patent trolls in the United States -- the launch of an unfair and deceptive practices suit under state law. Miri explains:

Vermont:  Small US State, Big Fighter of Patent Trolls 

Vermont is generally known for its sweet maple syrup, delicious ice cream, cute teddy bears, and hand-carved, one-of-a-kind, maddeningly difficult wooden puzzles that are enjoyed by fans including Bill Gates, Queen Elizabeth II, and the author of this post.  But this week, Vermont also became known for taking a tough stand against patent trolls.  

According to a report from Ars Technica, a mysterious company called MPHJ Technology, along with more than forty equally mysterious subsidiaries, claims that it holds patents on the process of scanning a document and attaching it to an email over a network.  MPHJ and its subsidiaries have sent letters to small businesses across the United States, including many in Vermont, threatening to file a patent infringement suit against the letter recipient if the recipient company fails to pay MPHJ (or the relevant subsidiary) a licensing fee of about $1,000 per employee.  

It is probable that at least some small businesses, lacking expert knowledge of patent law and fearing costly litigation, paid the fees to MPHJ.  But two non-profits that assist disabled Vermont residents fought back by engaging Vermont’s Attorney General.  

A press release distributed by the Office of the Attorney General of Vermont stated

“In an effort to protect Vermont’s small businesses and non-profit organizations, Attorney General Bill Sorrell filed a first-of-its-kind lawsuit today against MPHJ Technology Investments, LLC. It marks the first time that a state attorney general has filed suit against a so-called “patent troll.”

The complaint alleges that MPHJ Technology has engaged in unfair and deceptive acts under Vermont’s Consumer Protection Act. 

MPHJ Technology claims to have a patent on the process of scanning documents and attaching them to email via a network. The Attorney General’s complaint alleges that the company has sent letters containing multiple deceptive statements and demanding about $1,000 per employee, to many Vermont small businesses as part of a nationwide campaign. At least two of those businesses are non-profits that assist developmentally disabled Vermonters. 

Patent trolling is a national problem. A recent major study out of Boston University estimated the cost of patent trolling on the US economy at $29 billion in 2011 alone. Representative Peter Welch recently co-sponsored the Saving High-Tech Innovators from Egregious Legal Disputes (“SHIELD”) Act of 2013 in Congress (previously described here) to address the problem and the Federal Trade Commission held a workshop to address patent trolling in December 2012. 

The Vermont Legislature passed first-in-the-nation legislation creating a new tool for targets of patent trolling and for the Attorney General to address the issue. Governor Peter Shumlin is expected to sign the bill into law today.”  

VT Attorney General to patent trolls: “I will crush you!” 

The Vermont investigation found that MPHJ conducted little to no due diligence regarding whether a letter recipient actually violated its patents and falsely claimed that most other letter recipients happily paid the requested licensing fees.  The Vermont Attorney General’s suit claims that MPHJ, knowingly and in bad faith, made these deceptive statements with the intention of inducing recipients to pay the demanded sums in violation of the Vermont Consumer Protection Act.   

Could consumer protection laws be used as be a new tactic to fight patent trolls?  Possibly.  In other instances, patent trolls are not quite as egregious as MPHJ, so their activities may not trigger violations of states’ consumer protection laws.  However, if Vermont Attorney General Bill Sorrell is successful in his lawsuit against MPHJ, other state Attorneys General could follow with similar investigations and, where appropriate, suits against unscrupulous patent trolls.  Such action against a patent troll would be dependent on a governmental investigation.  On the other hand, if the federal SHIELD Act is passed into law, it would give the victims (er… defendants) a tool that they can use directly to fight patent trolls.  

Copy of the Complaint here.

Scottish solicitors recommend keeping jurisdiction to litigate patents

On Wednesday the Law Society of Scotland issued a statement concerning the future of patent litigation in Scotland. Bear in mind the fact that Scottish patent litigation is subject to two layers of uncertainty: one relates to the impact of the Unitary Patent Court system within the European Union as a whole, while the other relates to whether Scotland's contemplated departure from the United Kingdom would automatically require the country to apply for membership of the European Union.

The statement runs as follows:

"The Law Society of Scotland has today, 22 May, recommended that the Court of Session retains its jurisdiction over patent cases under the new Community Unitary Patent system.

The Intellectual Property Bill, once enacted, will pave the way for establishing a Unitary Patent Court system in the UK. The Society considers it important that Scotland is allocated one of the (up to four) possible local divisions of the Court. This will ensure that businesses operating in Scotland are not unduly disadvantaged by no longer having a local option to enforce or defend their rights.

Gill Grassie, member of the Law Society of Scotland's Intellectual Property Committee, said:

"The Court of Session currently has jurisdiction in Scotland over cases under existing patents. If it were not to have this for the new Unitary Patent, then litigants in Scotland would no longer have an effective local option available to protect their patent rights - they would instead have to litigate or defend their position elsewhere in the UK or Europe. This could significantly increase costs for those litigants. Designating the Court of Session as one of the UK local divisions of the Unitary Patent Court would ensure that patent litigants who operate in Scotland are not unduly disadvantaged"".

Thanks go to Kate Manning for supplying this information.

Litigation in the Brave New World 5: Preliminary Procedures and Provisional Measures

EU patent litigation: will
this complex machine work?

In this, the fifth in the series of blogposts on the European patent package reform, Don McCombie (Latham & Watkins) examines some of the mechanics of the new regime for European patent litigation. He explains the proposed new rules governing preliminary procedures and interim relief, orders governing the inspection of premises and the preservation of evidence, and freezing orders that prevent the removal of a litigant's assets from the jurisdiction.

Preliminary Procedures and Provisional Measures 

Having now covered the more difficult, technical aspects of the proposed new Unified Patent Court (UPC) in a number of lengthy posts, the next few posts will deal with a few discrete aspects of the proposals.  This post deals with preliminary procedures and provisional measures. 

Interim/Preliminary Injunctions 

Article 62(1) of the UPC Agreement provides for the grant of injunctions against an alleged infringer “or against an intermediary whose services are used by the alleged infringer” on a provisional basis. The wording   largely tracks that of Article 9(1)(a) of the Enforcement Directive, although there are some differences.  Article 62(1) states that such injunction may be subject to a ‘recurring penalty payment’, which under the Enforcement Directive is only available if provided for under national law.  Part 4 of the 14th Draft of the Rules of Procedure deals with the procedure relating to provisional measures, but there is no provision relating to ‘recurring penalty payments’, or how these are to be implemented in practice. Article 62(1) also states that the court may order that the continuation of the alleged infringing activities be made subject to the “lodging of guarantees intended to ensure the compensation of the right holder”, and an applicant for provisional measures must state reasons why such measures are considered necessary (R206(2)(c)). 

Article 62(2) states that “the Court shall have the discretion to weigh up the interests of the parties and in particular to take into account the potential harm for either of the parties resulting from the granting or the refusal of the injunction”. This is repeated in R211(3), but the UPC Agreement and the Rules of Procedure are silent as to how the court is to weigh up the relative interests of the parties.  However, R211(2) does state that the Court “must be satisfied with a sufficient degree of certainty that the applicant is entitled to commence proceedings […], that the patent in question is valid and that his right is being infringed, or that such infringement is imminent”.  Individual national laws take different approaches to these issues – please see the previous post in this series for a discussion of the applicable law.  I won’t return to the issue of conflicting national law approaches in any detail here, but I note, for example, that the English courts have developed substantial case law following the American Cyanamid principles, which differs from the approach taken by the German courts. 

If an injunction is granted, the Court may order the patentee to provide security adequate to compensate the defendant in the event that the Court revokes the order for provisional measures (R211(4)), and payment of security is compulsory in ex parte actions. 

Part 3 of the Rules of Procedure provides detailed guidance on a number of points, including: the lodging of protective letters (“schutzschrifte”) (R207); the formal requirements of an application for provisional measures (R206); formal examination of the application (R208); the Court’s discretion whether to inform the defendant of any application (R209); any oral hearing (R210); ex parte decisions (R212); and the revocation of provisional measures and the requirement for compensation of the defendant (R213). 

Orders to Preserve Evidence and Inspect Premises 

Article 60 of the UPC Agreement sets out relatively comprehensive provisions for the preservation of evidence (also known as a Saisie) and the inspection of premises. Save for the inspection provisions, Article 60 is broadly similar to Article 7 of the Enforcement Directive. Part 2, Chapter 4 of the Rules of Procedure sets out how to apply for these measures.  Article 60(1) allows a claimant, even before the commencement of proceedings, to apply for measures to preserve relevant evidence, which may involve taking samples or seizing infringing goods, items used in the protection of allegedly infringing products or documents (Art 60(2)).  These measures may be ordered ex parte (Art 60(5) and 60(6)), may require the lodging of security by the applicant (60(7), and may be  revoked (60(8)). 

Whilst orders to preserve evidence are already covered in the Enforcement Directive, with Member States therefore already being obliged to provide equivalent measures under national law, the inspection provisions in Articles 60(3) and 60(4) may have no national equivalents in some Member States.  The order for inspection envisaged in Article 60 appears similar to a so-called 'Anton Piller' order under English law, requiring the conduct of the search of any premises to be supervised by an appointed person.  As the geographical location of the premises to be searched will clearly fall within territorial scope of only one national part of a European patent, the national law to apply to the search order, insofar as this is not covered by EU law or the UPC Agreement, should be easy to determine (see the previous post). 

Order to Freeze Assets 

Article 61 of the UPC Agreement provides for freezing orders, which are governed by largely the same procedure at that for Saisie applications (see R200).  The wording of Article 61 differs substantially from that of Article 9(2) of the Enforcement Directive, but procedures implemented in national laws under the Directive are likely to broadly provide for the measures described in Article 61.  The Court may “order a party not to remove from its jurisdiction any assets located therein, or not to deal in any assets, whether located within its jurisdiction or not”.  This is potentially a very broad power, which may be applied for before the commencement of proceedings where infringement has already taken place or is anticipated to occur. 

Next post 

The next instalment in this series will cover general case management issues and evidence procedures.

Bowman v. Monsanto Co.: The Federal Circuit Finally Wins A Case at the U.S. Supreme Court

In today’s 9-0 decision, the Supreme Court of the United States affirmed a ruling by the U.S. Court of Bowman v. Monsanto Co., No. 11-796 (U.S. May 13, 2013). Opinion HERE.

Appeals for the Federal Circuit that a farmer accused on infringing Monsanto’s patent on “Roundup Ready” soybeans was not protected by the doctrine of patent exhaustion.

Background Facts:

Monsanto owns patents covering soybean seeds containing a genetic alteration that makes the seeds immune to glycophosate-based herbicides, such as Monsanto’s Roundup® herbicide. As a result, farmers can apply glycophosate herbicides directly on fields before or after planting, killing weeds but not harming the soybean plants. Monsanto sells Roundup Ready seeds under a license agreement that prohibits farmers from retaining soybeans harvested from Roundup Ready seeds for planting. Thus, although farmers may sell the harvested seeds for consumption or processing, they cannot be used as seed.

Bowman, an Indiana soybean farmer, purchased Roundup Ready seeds for his spring crop. However, unwilling to pay the premium price of the seeds for his second, more speculative planting, he purchased seed from the local grain elevator, knowing that they were largely made up of soybeans harvested from Roundup Ready seeds, and planted them. He then saved and replanted the seeds for eight successive seasons. Monsanto discovered his practice, and sued for patent infringement. Bowman defended on the ground that since he purchased his seed from the grain exchange, which had purchased it from Monsanto’s licensees, he was a downstream purchaser protected by the doctrine of patent exhaustion.

Supreme Court Decision:

The district court rejected Bowman’s defense, as did the Federal Circuit. In an opinion by Associate Justice Kagan, the Supreme Court agreed.

Although patent exhaustion allows downstream purchaser to “use” and “sell” a patented product, it does not confer the right to “make” copies of the invention. If it did, any patent would only protect against the first sale, and the invention could thereafter downstream purchasers could widely copy and distribute it. The effect would be to cause the value of the affected patent to “plummet[.]” Slip op. at 8.

The Court concluded that by replanting the Roundup Ready seeds that he purchased, Bowman was unlawfully “making” new copies of the invention:

Under the patent exhaustion doctrine, Bowman could resell the patented soybeans he purchased from the grain elevator; so too he could consume the beans himself or feed them to his animals. Monsanto, although the patent holder, would have no business interfering in those uses of Roundup Ready beans. But the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission (either express or implied). And that is precisely what Bowman did. He took the soybeans he purchased home; planted them in his fields at the time he thought best; applied glyphosate to kill weeds (as well as any soy plants lacking the Roundup Ready trait); and finally harvested more (many more) beans than he started with. That is how “to ‘make’ a new product,” to use Bowman’s words, when the original product is a seed.

Slip op. at 5-6.

The Court rejected Bowman’s main two arguments. First, Bowman argued that since seeds are all meant to be used by planting, the doctrine of patent exhaustion covered his cultivation. The Court noted, however, that the harvested seeds could be used for consumption or processing. In fact, the seeds Bowman purchased could not legally be used for replanting under a state statute. Bowman admitted that he was not aware of any other farmer who used grain purchased from a grain elevator for replanting. Thus, the patent exhaustion did not protect the use. Second, Bowman argued that the seeds he purchased, if left alone, would spontaneously germinate and reproduce. Thus, Bowman argued that the seeds themselves were responsible for any infringement. The Court rejected this “blame-the-bean” defense, noting that Bowman repeatedly orchestrated and controlled the replanting.

The Court noted that patent exhaustion could well apply in a situation where "self-replication might occur outside the purchaser’s control" or might be an essential step in "using the item for another purpose." Id. at 10. But neither scenario was before the Court. So, in the end, Bowman’s arguments against liability failed to bear fruit.