US Patent reform: fears to changes

I was planning what to do during last warm long weekend in Madrid when I realised that the America Invents Act passed in Congress with a vote of 304-117.

Much has been said in the last days about the inconvenience of this reform. Most of the comments I have read refer to its negative impact. Some of those describe drastically the effects. How does it look if we put some of them together?

“The anti-innovation patent reform act of 2011” “creates strong financial incentives for usurping patent rights by hacking and industrial espionage”, “could end up making it more difficult for inventors to defend their patents against infringement” and would be “dangerous to U.S. Security”.

Not bad, write?

Changes always cause fear. Modification of the system means that the new regime will have to be studied, bring some uncertainty and most of the times have economic effects (this Act has also been called the “job-killing Patent-Bill”).

I prefer trying to see the benefits and among those, the comment that brings the attention of this Patlit is the “attempt to keep patent battles out of the courts”. How this would happen? Damages regulation may have an important role. According to the Executive summary published in the website of the Republican Majority in Congress (here) “only a person who suffers a competitive injury as a result of false marking may bring a civil action in federal court for compensatory damages”. If this is correct, what would be the future of Patent Trolls?

If you want to read what do politicians say, you may like to read "The America Invents Act - Promoting American Innovation, Creating American Jobs, Growing America's Eeconomy" (here) (pdf alert)

In any case, experience show that changes are very rarely as bad (neither as good) as seemed.

We’ll see who is right.

What do you think?

Interview with White House "IP Czar," Victoria Espinel

Following up on our earlier post regarding the Obama administration's recently-announced IP enforcement plan, below is an interview that PatLit conducted via email with Victoria Espinel, the White House's new U.S. Intellectual Property Enforcement Coordinator.

The Joint Strategic Plan on Intellectual Property Enforcement outlines the administration's international, inter-agency initiative to combat IP infringement. After reading the Plan, however, we noted that its language mainly addresses copyright and trademark law. Wanting to know the Plan's implications for patent law, we submitted questions to Ms. Espinel, whose office graciously responded via email. Our questions, and Ms. Espinel's answers, follow:

Q: Ms. Espinel notes in her "Letter to the President of the United States and to Congress" that "the U.S. Copyright Office participated in the development of this Joint Strategic Plan." Did the U.S. Patent and Trademark Office have any similar input, particularly in regard to patent law? Was the USPTO approached in the process of the Plan's development?
A: WE WORKED VERY CLOSELY WITH THE USPTO ON ALL FACETS OF THE PLAN'S DEVELOPMENT. (THE USPTO IS PART OF THE DEPARTMENT OF COMMERCE.)

Q: Was patent law a consideration in the development of this plan? Or does the Administration envision patent enforcement issues as being the province of the courts and Congress?
A: WE HEARD A VARIETY OF CONCERNS ABOUT PATENT ENFORCEMENT FROM THE PUBLIC - MOSTLY WITH RESPECT TO ENFORCEMENT IN INTERNATIONAL MARKETS.

Q: Does the plan include any developments for law enforcement (penal or civil) involving patents, as it does for copyright and trademark?
A: THE ASSESSMENT OF LAWS WILL COVER ALL ASPECTS OF INTELLECTUAL PROPERTY.

Q: The Plan provides for support for victims of IP infringement. Will victims of patent infringement receive similar services?
A: YES, THE STRATEGY EXTENDS TO INFRINGEMENT OF PATENTS AS WELL.

Q: Will the enhanced International Trade Commission (ITC) exclusion order enforcement extend to patented products?
A: YES.

Q: Will the FBI, DOJ, DHS, Secret Service, and/or other relevant agencies play any role in patent enforcement?
A: THE STRATEGY LAYS OUT THE PRIORITIES FOR OUR LAW ENFORCEMENT. THESE APPLY TO ALL TYPES OF INTELLECTUAL PROPERTY.

Q: Will patent enforcement be included in the the training that the Government provides to state and local agencies and prosecutors regarding IP enforcement?
A: AS APPROPRIATE.

Q: Will patent law be considered by the Economic and Statistics Administration and IPEC, in their interagency meeting assessing existing IP laws and potential IP improvements? Will the USPTO be one of the agencies participating in this meeting?
A: THE ESA INTIATIVE IS ABOUT MEASURING THE ECONOMIC CONTRIBUTION OF IP INDUSTRIES, NOT ASSESSMENT OF LAWS. ECONOMIC CONTRIBUTION WILL APPLY TO ALL TYPES OF IP. USPTO WILL PARTICPATE.

Q: Does the Plan include any provisions for patent reform? Does your office have any comment on the patent reform bills currently before Congress, or on patent reform in general?
A: NO COMMENT.

Bilski v. Kappos: Supreme Court says, "No comment"

U.S. Supreme Court Chief Justice John Roberts has famously repeated the aphorism that, if it is not necessary that an issue be decided, it is necessary that it not be decided. Such is the lesson of Bilski v. Kappos. Apparently taking the Chief Justice's counsel to heart, the Supreme Court has issued an undoubtedly wise but nevertheless perplexing decision that is likely to make patent attorneys relieved but confused ... and leave everyone else simply confused.

As every patent law practitioner on earth has no doubt learned by now, the Supreme Court's nine Justices decided that Bilski's claimed invention is an "abstract idea," and therefore not patentable under 35 U. S. C. §101, Gottschalk v. Benson, Parker v. Flook, and Diamond v. Diehr. As to all other questions, however, the Court has delivered a resounding "No comment."

Conventional wisdom had already guessed that the Court would rule Bilski's claimed process not subject to patent. That said, all were waiting to hear whether the Circuit Court's "machine or transformation test" is viable, and whether business methods, software, and biotech inventions may be patented. To which the nine Justices replied, in short: Maybe, maybe not.

Authored by Justice Kennedy, the Court's majority opinion is a lesson in equivocation:

ABSTRACT IDEA: Seemingly the only issue on which the majority does not hesitate is the conclusion that Bilski's claimed process of hedging risk is an unpatentable abstract idea. Not even "limiting an abstract idea to one field of use or adding token postsolution components" can make it patentable. BUT, as Justice Stevens and three other Justices complain in their concurrence, the Court "never provides a satisfying account of what constitutes an unpatentable abstract idea."

BUSINESS METHODS: The majority suggests that certain business methods may be patentable: "[T]he Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101." In fact, under 35 U. S. C. §273(b)(1), "federal law explicitly contemplates the existence of at least some business method patents." BUT: "[W]hile §273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions." And "even if a particular business method fits into the statutory definition of a “process,” that does not mean that the application claiming that method should be granted."

MACHINE-OR-TRANSFORMATION: Scolding the Federal Circuit for the narrowness of its machine-or-transformation test, the Court nevertheless admits that this test is helpful: "This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101." BUT: "The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible 'process.'" (emphasis added) The Court reasons that new or unforeseen technologies might require standards of evaluation other than the machine-or-transformation test. Therefore the Court interprets §101 to be a "dynamic provision" that may require "new inquiries." What are these new tests? Who knows? The Court offers no suggestions.

PATENTABLE PROCESSES, SOFTWARE PATENTS, BIOTECH, ETC.: Because of unforeseen consequences, the Court refused to decide any issue other than the case before it or to rule on whether "technologies from the Information Age should or should not receive patent protection." (All those who had feared a broad pronouncement disqualifying software or other new-tech patents can now breathe a sigh of relief.) It's similarly futile to look for specific guidance as to patentable processes: "The Court ... need not define further what constitutes a patentable 'process,' beyond pointing to the definition ... provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr."

There is, of course, quite a good rationale behind the Court's position; the majority is deferring to Congress's aim of facilitating innovation. According to the Justices, §101's "expansive terms" and "permissive approach to patent eligibility" indicate the legislature's intent to give "a liberal encouragement" to innovation. The Federal Circuit's exclusive and artificial machine-or-transformation standard imposes upon the statute "limitations and conditions which the legislature has not expressed."

Again, almost no one expected the Court to uphold Bilski's patent. The only aspect of this ruling that seems to have surprised anyone is its vagueness. Given that the Court rejects Bilski's business method as an "abstract idea," it would have been helpful if the Court had made more effort to define that term. One can hazard a guess that cases involving claimed business methods will revolve primarily around this question in the near future.

As Tom Goldstein mused diplomatically on the Supreme Court blog, "the breadth of today's ruling is an open question." Thus Bilski v. Kappos, the most anticipated patent law case in recent history went out not with a bang, but with a whimper. No sweeping pronouncements and few definitive declarations were in evidence. In fact, the majority opinion may raise more questions than it answers. This, of course, can only work to the benefit of most patent attorneys, who make a living from the continued raising of such questions.

Obama introduces IP enforcement plan

Signaling how seriously it takes IP issues, on June 22 the Obama administration released the first-ever Joint Strategic Plan for Intellectual Property Enforcement (JSPIP).

Last week Vice President Joe Biden and U.S. Intellectual Property Enforcement Coordinator Victoria Espinel joined Attorney General Eric Holder, Homeland Security (DHS) Secretary Janet Napolitano, and representatives from the Trade and Commerce departments to announce the Plan. A multi-agency effort aimed at stemming intellectual property theft, the JSPIP sets out a scheme for cooperation among the DHS, Federal Bureau of Investigation, Secret Service, Customs and immigration agencies, and other federal entities charged with intellectual property issues and law enforcement.

As Ms. Espinel correctly notes on the White House blog:

"Infringement of intellectual property can hurt our economy and can undermine U.S. jobs. Infringement also reduces our markets overseas and hurts our ability to export our products. Counterfeit products can pose a significant threat to the health and safety of us all."

Citing damage done by software piracy and counterfeit goods, the Plan aims to combat these problems by implementing strategies such as:

• decreasing purchase and use of illegal products;
• increased investigation, transparency, reporting, and communication on IP concerns;
• enhanced coordination and training among domestic federal, state, and municipal agencies, as well as overseas;
• cooperation with trading partners, including increased focus on enforcing IP in China;
• securing the supply chain by monitoring foreign-based websites and other portals for infringement; and
• improved tracking of funds used in IP enforcement.
  

Microsoft has offered to support the Plan by helping to prevent illegal businesses from advertising online sales of counterfeit medicines.

Curiously, the Plan contains few specific provisions addressing patent law; its authors focus mainly on copyright and trademark issues. A White House spokesperson has nevertheless assured PatLit that the USPTO was closely involved in the Plan's development, and that the JSPIP indeed covers patents. We're awaiting further details. Meanwhile, read the Plan here, or view last week's press conference here.

Ricoh undercuts NPE profit potential

If other U.S. courts follow the lead of Wisconsin District Court Judge Barbara Crabb, NPEs (non-practicing entities, or "patent trolls") may soon see an end to their massive settlement winnings. Last month, office equipment manufacturer Ricoh won an infringement action against Taiwanese company Quanta Computer. But Crabb rejected Ricoh's request for an injunction to prevent Quanta from selling the patented optical drives at the heart of the suit. Pointing to eBay (547 U.S. 388 (2006)), the judge diverged from traditions of presumptive injunctive relief in cases of patent infringement cases, and instead appeared to establish certain criteria for distinguishing among types of patent holders. Such criteria seemed intended as a direct hit against NPEs.

Crabb was unpersuaded that Ricoh would suffer irreparable harm if an injunction did not issue. To justify this analysis, she relied on the eBay concurring opinion:

"When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

This language appears to specifically target NPEs; Judge Crabb explicitly contrasted such "entities" with researchers, independent inventors, and direct market competitors -- the latter classes apparently being more deserving of injunctive relief against infringers. Because Ricoh does not manufacture or sell the patented optical disc drive, Crabb reasoned that the plaintiff was not Quanta's direct competitor, and thus would not suffer irreparable harm in the absence of an injunction.

But she also turned an eye to the plaintiff's intent; since Ricoh had previously licensed its patent to numerous companies, Crabb decided that Ricoh's main motive was not "to narrowly limit the practice of its invention," but was rather to "simply maximize a potential licensing fee." And: "[b]ecause that is not an adequate ground for an injunction, plaintiff’s motion for a permanent injunction will be denied." The parties were ordered to negotiate a compulsory license for future use.

This policy-based decision may be one court's way of addressing the U.S. Congress's failure to heed the pleas of large companies and end the plague of the "patent trolls." It does remove one bargaining chip from the NPEs' stable of tricks. By hitting NPEs where it hurts -- in their pocketbooks -- the court may well accomplish what Congress never could.

Read the decision here.

Indian pharma sector "fares well" in US disputes

India's Financial Express reports ("Domestic pharma cos fare well in patent litigation tests") on the pharma patent litigation success rates of India's leading pharmaceutical companies in US litigation over the past decade. Lupin Pharma has a success rate of 75%, while Sun Pharma (67%), Ranbaxy (63%) and Dr Reddy’s (61%) are not far behind. The article also gives a neat thumbnail sketch of the pharma patent litigation environment.

Should appeal courts have a didactic role?

In an article last Friday for Intellectual Property Watch, ("US Federal Circuit May Offer Patent, Tech Policy Guidance For High Court"), Winter Casey reports on a lecture by Rochelle Dreyfuss, a professor at New York University School of Law, in which she is reported as suggesting that the United States Federal Circuit Court of Appeals should act more like a teacher to the Supreme Court and do a better job explaining its policy reasoning when it makes decisions on innovation-related cases: if the Federal Circuit was clearer in how it reached its conclusions in patent disputes, the Supreme Court might opt to get involved in fewer patent cases. The article reviews responses to Professor Dreyfuss's suggestions and adds:

"... Dreyfuss’ remarks came at a time when the Supreme Court is weighing in on more patent cases - the upcoming case of Bilski v. Kappos has received significant attention by industry ... and patent legislation is still pending before Congress.

... former USPTO Solicitor of Patents and Trademarks Nancy Linck said that Dreyfuss’ recommendation that “the Federal Circuit provide more policy rationale for their decisions to assist district court judges in following its precedent … is an excellent one.”

Linck added that “I agree with her that, if the Federal Circuit explained the policy considerations underlying its decisions, the number of reversals of district court cases might be reduced, and the Supreme Court might grant certiorari less frequently.”

Another patent lawyer attending the event said the role of the Federal Circuit is “to take a position that is consistent with the statute and also consistent with sound policy. If there is tension between what the Federal Circuit is doing and what the Supreme Court has done in the distant past, the Federal Circuit should acknowledge that tension and explain the policy reasons underlying its choice. As [Dreyfuss] said, the goal should be to substitute dialogue for hierarchy.”

... The Federal Circuit was set up as an experiment in specialisation, and there were concerns about risks of court capture by special interests, neglect of non-patent incentives to innovation such as intellectual curiosity, prizes or competition, as well as possible jurisdictional isolation of cases.

Dreyfuss said the experiment has been a “raging success,” with jurisdiction beyond patents, no capture, and eliminating “forum-shopping” of cases while establishing uniformity and predictability (possibly at the expense of flexibility). She said the increase in the more generalist Supreme Court reviews of the more technical Federal Circuit decisions could be a coming of age for the experiment.

She also said that the Federal Circuit’s history “reveals a strong interest in strengthening patent value and stemming what was perceived as a flight to trade secrecy.” But now, she noted, there are issues of too many patents and of lower quality. This is where the Supreme Court has moved in (taking more patent cases while taking less cases overall), helping the patent system to evolve and fitting it into the economy as a whole".

Superficially the notion of the Court of Appeals for the Federal Circuit acting as a teacher to the Supreme Court is attractive, for the reasons outlined. However, the reason why cases come before that court is that one or more parties to a live dispute have appealed a decision of the trial judge to that court and the prime function of any appellate tribunal should be to resolve the issues that led to the litigation arising in the first place. Neither the Federal Ciruit's appeal judges nor the members of the US Supreme Court have been elected in order to determine patent policy and it would be unfortunate if the direction taken by the US patent system were taken by the fortuitous circumstance that some issues have been raised on appeal while others have not.

Sony to pay up, but is it a bargain?

The British-based Gamesdog website reports that computer games giant Sony has been ordered to pay US$18.5m in compensation, after a US court rules that the company was liable for infringement of eight of its patents. The court said it found "clear and convincing evidence" that Sony wilfully infringed patents covering "wireless local area network apparatus" while manufacturing its PSP, mylo Personal Computer and Network Walkman products. The successful claimant was Agere Systems, an integrated circuit components company which first filed the complaint eight patents in 2006. Agere has since merged with a company called LSI.

It may seem like a fair sum of money but, divided among the eight patents, infringed in respect of three separate products, US$18.5 million doesn't seem very much at all. We may speculate as to how much Sony would have had to pay if it had taken 3 x 8 conventional licences.

Is there a market route to anti-troll protection?

Infoworld carries a post on how membership-based patent aggregator RPX is positioning itself as an effective weapon against "nefarious non-practicing entities", by which it means patent trolls. Characterised as a "defensive patent aggregator" RPX's primary goal is said to be the protection of companies from litigation against a product or service that is already in the market. Ideally, the patents will also cover products and services offered by multiple companies. The idea is that:

"Once RPX gains ownership of a patent, it takes the patent off the market, thereby reducing an existing product's susceptibility to patent trolls. RPX also allows member companies to license the patents RPX owns. As part of the contractual agreement between RPX and members, a provision states that RPX will not assert or litigate patents it acquires".

Focused almost exclusively in the IT field, including software, e-commerce, mobile communications, networking, and consumer electronics devices, RPX seeks initially to buy $100 million in patents each year, raising the cash through membership fees (US$35,000 to US$5 million, depending on the size of the company).

Bilski: an end to patent trolls?

In "US court blocks Amazon-style patent trolls", The Register reports on Re Bilski and Warsaw, a controversial decision (full text here) in which the United States Court of Appeals for the Federal Circuit upheld an earlier decision by the US Patent Office to reject a patent application for a method of hedging risks in commodities trading. The 9-3 decision rejects the court's own earlier State Street Bank ruling of what can be patented. Instead, it favours earlier Supreme Court guideline that maintains a stricter, two-pronged standard. IP auctioneers Ocean Tomo have sought to assuage fears that business method patents are no longer valid in the US, but The Register's view is one that is widely held in commercial rather than technical legal circles.