The Latest Update on the New Generic Top Level Domain (gTLD) Program

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It has been a long time since we had any notable updates on the gTLD process to report.  However, after a slow start, the new gTLD program is now in full swing.  On March 22, 2013, ICANN released the first round of Initial Evaluations to the general public. This was the first major milestone of the gTLD program.  As a reminder, there are three possible outcomes of this Initial Evaluation:  1) Pass: the application was found to be consistent with the requirements in the Applicant Guidebook and can advance to the next phase; 2) Eligible for Extended Evaluation: additional information was requested by the Financial, Technical/Operational, Registry Services, or Geographic Names evaluation panels; or 3) Ineligible for Further Review: the application was determined not to meet the relevant criteria in the Applicant Guidebook.  The next round of Initial Evaluations was released on May 24, 2013, bringing the total number of passing applications to 433.  ICANN has also announced that it has ramped up to releasing the results of these Initial Evaluations  in batches of 100 prioritized applications per week.

The most recent results of the Initial Evaluations are available here.  https://gtldresult.icann.org/application-result/applicationstatus/viewstatus

Applicants that passed the Initial Evaluations have now moved onto the contracting phase and pre-delegation testing to determine whether the applicant meets the technical requirements of the program.  However, applicants in string contention will need to wait for the string it is in contention with and resolve that contention before proceeding.

This current progress, however, could potentially be hindered if ICANN choses to implement the recent recommendations from the Governmental Advisory Committee (“GAC”). On April 11th, the GAC released its Beijing Communique, outlining recommendations for new TLDs.  Among the numerous recommendations of the new TLD program, the GAC recommended the following:

  1. The GAC identified several strings that it recommended should not proceed beyond the Initial Evaluation phase.
  2. The GAC requested a written briefing about the ability of the applicant to alter the string applied for in order to address the GAC’s concerns.
  3. The GAC suggested that ICANN reconsider its position on singular and plural strings, since the inclusion of both could lead to potential user confusion.
  4. The GAC recommended six new safeguard should apply to all new gTLDs, including WHOIS verification and checks, mitigation of abusive activities, procedures for maintaining documentation, procedures for handling complaints and stringent consequences for violation of the requirements.
  5. The GAC further advised that ICANN should carefully consider community feedback on applications from interested groups.
  6. The GAC recommended that ICANN should develop clear policies for handling applications for strings such as .WTF, .GRIPE, .SUCKS, .FAIL in order to reduce cyber bullying and misuse.

The full text of the GAC’s recommendations is available here.

For now, however, ICANN appears to be on track to complete Initial Evaluations on all applications by August 2013 and to roll out the first new gTLDs by the end of July.

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Large Damages OK, but Injunctive Relief Too Broad Re: Versata Software, Inc. v. SAP America, Inc. Patent Infringement Case

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Addressing a finding of infringement that resulted in a lost-profits and reasonable royalty damages award of more than $300 million, the U. S. Court of Appeals for the Federal Circuit affirmed a lower court’s ruling of infringement and damages, finding that sufficient evidence supported the findings.  Versata Software, Inc. v. SAP America, Inc., Case No. 12-1029 (Fed. Cir., May 1, 2013) (Rader, C.J.).

Versata sued SAP in 2007 over two patents that provide particularized pricing data based on factors such as the type of customer, type of product and size of the order.  Starting in the mid-1990s Versata sold its software, called Pricer, to many large companies, including as IBM, Lucent and Motorola.  SAP began offering software that provided customized pricing as part of its enterprise software in 1998.  As acknowledged by the Federal Circuit, when “SAP entered the market by bundling hierarchical pricing into its enterprise software, the market for Pricer disappeared.”

At a first trial, SAP was found to have infringed both patents, but the lower court later granted SAP judgment as a matter of law (JMOL) of non-infringement as to one of the patents and ordered a new trial on damages based on a change in governing law.  In a second trial, the jury awarded Versata $260 million in lost profits and $85 million in reasonable royalties.  Further, the district court permanently enjoined SAP from continuing to sell its customized pricing software. Predictably, SAP appealed.

SAP argued to the Federal Circuit that its accused products did not infringe and that, in any event,  the lost-profits and royalties damages, as well as the permanent injunction, should be set aside as improper for various reasons.  On the infringement issue, SAP argued that it could not infringe because its software is not capable of performing the necessary tasks (required by the claims) without additional computer instructions.  As for damages, SAP argued that the lost profits and reasonable royalty damages were improperly calculated as a matter of law and should be set aside.  SAP also argued that the injunction was overbroad in that it would prevent the company from offering maintenance and additional licenses to previously existing users.

As to the issue of infringement, the Federal Circuit found sufficient evidence to support the jury’s verdict of infringement.  The Court noted that the record “clearly support the jury’s conclusion that SAP’s accused products infringe the asserted claims without modification or additional computer instructions.”

In considering SAP’s arguments on damages, the Federal Circuit rejected some of SAP’s arguments on lost profits damages noting that they should have been raised under a Daubert challenge.  The Court found that sufficient evidence supported the jury’s damages findings on lost-profits and reasonable royalty damages.

However, the Federal Circuit agreed that the permanent injunction as entered was overbroad and remanded the case to the district court for modification of the injunction.

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How Monsanto Applies to Nonagricultural Biotechnology

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The facts behind the Supreme Court’s recent ruling in Monsanto v. Bowman are simple enough. Farmers are able to buy soybeans containing Monsanto’s patented glyphosate resistance technology under a license that permits them to plant and grow one generation of crops. Vernon Bowman skirted this program, however, by purchasing commodity soybeans from a grain elevator knowing that the seeds would nonetheless likely contain the very same Monsanto technology. He then planted the seeds, raised crops, and saved seeds from these crops to plant new crops. The Supreme Court held that Bowman’s actions infringed Monsanto’s patents because unlicensed growth of the seeds was a new making of the patented invention. Consequently, the doctrine of patent exhaustion did not provide any defense as to these new seeds.

This was not a surprising result for the biotechnology industry. The idea that patent rights in seed progeny are not exhausted by the original sale of their “parents” was well established in the United States, and is even codified in the European Biotechnology Directive.

The Court left us with a relatively clear answer regarding the scope of patent exhaustion related to seeds. The use of the purchased, licensed seeds for consumption and/or processing cannot be interfered with by the original seller, as the patent rights on those individual (sold) seeds have been exhausted. The planting and cultivation (i.e., replication) of those seeds, however, can only be done under a license from the patentee. In other words, even though someone sells you a bag of seed, you have no right to plant and grow that seed without a license (although there may be a good argument that the license should be implied in appropriate cases).

So, where does Bowman leave us when it comes to determining the infringement or enforceability of self-replication biotechnology patents outside of the agricultural context? For other patented self-replicating (or easily replicable) technologies, the circumstances may present more complicated questions.

Biotechnology inventions such as cell lines, bacteria, and other living material often must exist in a condition of continuous self-replication simply to be maintained for any use. Vectors, plasmids, etc., replicate within cells, and from generation to generation within host cells, allowing for production of vastly more nucleic acid copies than initially used for transfection. Even small linear nucleic acids such as those used for primers and probes may be “replicated” to generate large quantities relatively easily using PCR or other methods in molecular biology. In each case, (cells, viruses, vectors, probes), something analogous to planting, watering, cultivating, is required. In view of the Bowman decision, the question persists as to whether such replication will be permitted or considered an unlicensed “remanufacture” or new making of the original, patented item.

In this regard, we note that Justice Kagan left open the possibility that the replication might be “a necessary but incidental step in using the item for another purpose.”[1] Certainly, the replication contemplated in this part of the opinion is that which must necessarily occur in connection with some authorized practice of the invention. Maintenance of culture cells, for example, where the cells are necessarily replicating only for the purpose of maintaining the culture during its authorized use or in preparation for such use is one example that seems to fit comfortably within this aspect of the Court’s opinion.  In other words, a license for multigenerational use of a cell line may be implied in these circumstances, even if it is not given expressly.

Other technologies may not present quite so simple an analysis. DNA vectors can be used for a variety of purposes, not all of which require replication. For example, vectors can be used as probes or markers, they can be used to transport sequences of interest for further manipulation, or they can be used as immunizing agents. None of these uses require or specifically contemplate replication. Of course, some vectors are used in contexts where replication is likely or assumed (e.g., transfection of cells or bacteria, generation of transgenic tissues or organisms). The consideration of vectors under Bowman will, therefore, likely depend more heavily on context, including the sales and licensing practices of the patentee.

Some commentators have characterized the Bowman holding as “limited to the facts,” pointing to the Court’s comment that “[o]ur holding today is limited – addressing the situation before us, rather than every one involving a self-replicating technology.”[2] Attempts to limit Bowman to its specific facts should be taken carefully. Indeed, the Court cut through much of the surrounding facts to reach its core holding – that replication is a new making of the patented invention and an infringement in the absences of a license. Accordingly, it does appear that the holding may address the most important “situation” for all self-replicating technologies, even if it does not address all of the context-dependent permutations of the facts involving self-replication technologies.

Consequently, assertions of “self-replicating” material turning otherwise innocent parties into patent infringers are simply not credible. To paraphrase the Court in Bowman, the soybeans Bowman took home from the grain elevator didn’t plant themselves, didn’t spray themselves with glyphosate, and didn’t otherwise cultivate themselves to produce the unauthorized crop. Similarly, in biotechnology, it is likely that unauthorized and infringing activity will quite clearly fit the Monsanto “situation” and be easily recognizable as infringement. For example, maintaining an initial cell culture in the hands of the licensee-purchaser, although it also involves replication, should be easily distinguished from distribution of the culture (or vectors, or phage, etc.) to unauthorized third parties.

Nonetheless, given the potential for unnecessarily complex analysis and possible confusion of courts, patent holders should carefully consider how their license provisions may be used to clarify not only express grant and restriction provisions, but also how the license may shape an understanding of how the invention works and its intended use. The dividing line between authorized and infringing activity will be influenced by context, and parties are well advised to define that context by the licensing contract and not rely on the bare contours of the doctrine of patent exhaustion. The license is the place where the parties involved, the patent holder and the licensee, have a chance to agree on what is authorized and what is not. It is also the place where the patent holder has an opportunity to shape future interpretations of what the practice of the invention encompasses and what it does not. An effort to be as comprehensive as possible in the positive, express grant of the license may be as important as the restrictions that are expressly stated. If, as is quite possible, the restrictions fail to contemplate the full scope of intended unauthorized activities, a grant of authorization that is more specific may allow a court to more accurately determine what is “necessary but incidental” to the authorized practice of the invention and what is not.

The Bowman decision provides the biotech community some much needed clarity regarding self-replicating inventions. Perhaps equally important, the Court displayed a keen sensitivity to the negative implications of an overly broad exhaustion doctrine. While there will undoubtedly be further development of the law as it is applied to different technologies, the fundamental ability to control self-replicating inventions at each generation through the grant or withholding of a license places authority where it belongs – with the patentee. And, by reducing the need for complex work-arounds, the clarified authority and more calibrated level of control provided by theBowman decision should facilitate licensing negotiations to the benefit of both parties.

This article was written by guest bloggers Christopher Jeffers, Ph.D.Carl Massey, Jr.Thomas F. Poché, Ph.D.


[1]Although the Court referenced the copyright statute, 17 U.S.C. § 117(a)(1), in conjunction with this “necessary but incidental” fact pattern, the statute actually considers only computer programs and states there is no infringement if “a new copy or adaptation is created as an essential step in the utilization of the computer programin conjunction with a machine and that it is used in no other manner.” From this, better language in the Bowmanopinion might have been “necessary and essential” or even “necessary and incidental.” 

[2] Bowman Op. at 10.

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America Invents Act (AIA) Reform: An Interview with a Former Patent Judge of the U.S. Patent and Trademark Office

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With its recent overhaul to the patent system, the Leahy-Smith America Invents Act (“AIA”), enacted by Congress on September 16, 2011, makes significant changes to the way patent infringement claims are brought and adjudicated. However, whether these changes actually revolutionize the system or fall short and lack luster is a contentious topic best left to the experts, such as James T. Carmichael. Mr. Carmichael has previously served as Administrative Patent Judge on the Patent Trial and Appeals Board (“PTAB”), formerly known as the Board of Patent Appeals and Interferences, and prior to that as Associate Solicitor of the U.S. Patent and Trademark Office (“USPTO”), and currently represents inventors and patent challengers before the USPTO in private practice with Miles & Stockbridge. He has definite opinions on the overall strength and benefits of the Act. These include the potential reduction of litigation expenses by 90% and the ability for a patent to be cancelled more quickly and easily.

Patent Infringement Nuisance Lawsuits

The most significant way that the AIA revamps the patent system is by way of reducing the nuisance value of a lawsuit. Lawsuits brought by non-practicing entities (“NPE”) consist of a business or individual who is not producing or marketing the patent but nonetheless enforces the patent against alleged infringers. The average legal cost for defending patent infringement remains about $3 million. As such, defendants tend to settle rather than pay the high attorneys’ fees, even if the lawsuit is frivolous or weak. Mr. Carmichael opined that the AIA helps decrease this practice because it can cut the legal costs to $300,000. This in turn will help drive the settlement value down, providing NPEs with less incentive to pursue nuisance settlement amounts in the hundreds of thousands or more.

Critics of the AIA point out that even though plaintiff NPEs recover significantly less under the new provision, they make up for the difference in settlement amounts by simply suing a higher number of alleged infringers. As such, NPEs are developing a new business model in response to the AIA that has the “effect of spreading the pain.” Moreover, small businesses are still adversely affected by even the smaller settlement amount and may opt to settle rather than pursue litigation, thus continuing the practice of nuisance value suits before the AIA.

Mr. Carmichael concedes that the new legislation reduces the cost of litigation but not necessarily the number of suits filed. However, he insists that the AIA is a “big step in the right direction” and succeeds generally in bringing the nuisance value down. According to him, industry largely supports the AIA because it reacts and provides a solution to the high cost of striking down an invalid patent before the AIA revisions. In addition, not every patent claim is from a NPE with a nonmeritorious case and many patent claims are legitimate and should be asserted, given the value of patent rights.

Patent Post-Grant Process Under PTAB

The AIA reduces the cost of striking an invalid patent by providing for post-grant opposition which provides an alternative to litigation. Under the newly-implemented inter partes review (IPR), an entity or business may challenge the validity of the patent at the PTAB. IPR will be decided by a PTAB three-judge panel, whereas under the previous system of reexamination, patent examiners from the Central Reexamination Unit (CRU) determined the patent claim rights. According to Mr. Carmichael, the benefit of adjudication under PTAB is that it is easier for PTAB to cancel a patent then for a jury to invalidate a patent. Under the AIA, there is no presumption of validity applied in the patent review process so deference is not given to the patent examiner. Further, a patent challenger can go directly to the administrative judges to challenge the patent with more technical and nuanced arguments that cannot adequately be made to a jury. The new procedures “grant effective ways to determine if a challenge is valid,” according to Mr. Carmichael. Ultimately, striking an invalid patent is “faster and easier than before, mainly because these proceedings are conducted by PTAB, not [CRU patent] examiners or courts.”

In addition, under the AIA, patent review is provided the maximum time limit of one year, whereas under reexamination, no such time limit existed and the correction of patents was a time-consuming process. Parties could potentially add new arguments under reexamination but the new patent post-grant opposition process will be more efficient. Prior legislation did not have this time limit, which is one reason why Mr. Carmichael deemed it as ineffectual as compared to the AIA.  Courts are now likely to stay patent infringement proceedings in view of the speedier PTAB processes.

A Successful Verdict for the AIA’s Patent Reform Provisions

Ultimately, Mr. Carmichael views the AIA legislation as the “first in history” to successfully accomplish diminishing the nuisance value of a patent infringement suit and provide effective avenues of opposition to patent challengers with meritorious claims. Mr. Carmichael dismisses complaints from critics of the legislation, stating “I think it did enough for what it was trying to accomplish.” According to Mr. Carmichael, the AIA will serve as the “most powerful tool in history to challenge [patent] validity.” The final enactment of the legislation occurred recently on March 16, 2013, and only time will tell whether the rest of the legal community agrees with him or not.

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New Trademark Headaches, But Help is On the Way Re: Internet Corporation for Assigned Names and Numbers’ (ICANN) Expansion of Generic Top-Level Domains (gTLDs)

Neal Gerber

For brand owners that have often struggled to keep up with all the infringement and cybersquatting issues in the 22 existing generic top-level domain name registries, or “gTLDs”, like .com, .org, and .net, life is about to become even more challenging. The Internet Corporation for Assigned Names and Numbers’ (ICANN) planned expansion of gTLDs to potentially almost 2,000 in total has the potential to create major trademark enforcement headaches. In order to address some of those concerns and burdens, ICANN has created the Trademark Clearinghouse, which allows brand owners to submit information regarding their registered trademarks into a single database across all the new gTLDs for an annual fee of approximately $150 per trademark per year.

Registration in the Trademark Clearinghouse provides two primary benefits:

  • First, it allows brand owners priority access for registering their trademarks as domain names in any new gTLD that is available to the general public as it launches.1 For example, if Acme Car Sales owns a trademark registration covering the term ACME in any jurisdiction worldwide, as the anticipated .cars registry launches, Acme Car Sales would be able to register acme.cars before others have that opportunity.
  • Second, Clearinghouse registrants will receive notice if anyone tries to register domain names that match their marks. Thus, to take the prior example, if Acme Car Sales decides not to register acme.cars, but a third party proceeds to do so, Acme Car Sales will receive notice of the registration and then can contest it if appropriate.

Although this sounds promising, be aware that the Clearinghouse is not perfect—if Acme Car Sales’ only trademark registration is for “ACME,” the Clearinghouse does not provide any benefits pertaining to domain name registrations that differ even slightly from the trademark registration, such as acmesales.cars, or acmechicago.cars. Additionally, individual registries are permitted to determine on their own how to handle situations where multiple entities own trademark registrations for the same mark.

Despite these shortcomings, the Trademark Clearinghouse presents a good first step toward brand protection in the new gTLD space, and most brand owners will benefit from registration. Registration is now open, and will remain open as long as new gTLDs are being released.

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Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

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The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles.  While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the Supreme Court of the United States held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder’s permission.  Bowman v. Monsanto Co., Case No. 11-796 (Supreme Court May 13, 2013).

In this case, Monsanto had asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds).  Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer “may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose.”  Vernon Hugh Bowman is a farmer who purchased soybean seeds from a grain elevator.  Bowman replanted Roundup Ready® seeds in multiple years without Monsanto’s permission.  The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed.  Bowman appealed to the Supreme Court, which granted certiorari.

On appeal, Bowman heavily relied on the “patent exhaustion” doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article.  Bowman argued that the authorized sale of the Roundup Ready® seeds exhausted Monsanto’s patent rights in the seeds, because “right to use” in the context of seeds includes planting the seeds and reproducing new seeds.

Patent Implications

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit’s decision that Bowman’s activities amounted to making new infringing articles.  The Supreme Court held that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  Specifically, the exhaustion doctrine restricts a patentee’s rights only as to the particular article sold, but “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.”  The Supreme Court noted that if Bowman’s replanting activities were exempted under the exhaustion doctrine, Monsanto’s patent would provide scant benefit.  After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman’s argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto.  However, as the Supreme Court explained “[A]pplying our usual rule in this context . . . will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.”

Tying the Supreme Court’s decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court’s 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA).  PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting.  However, reconciling the two forms of protection, Justice Kagan explained, “[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed’s progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed.”

Other Self-Replicating Technologies

The Supreme Court’s decision in Monsanto is, of course, important for agricultural industries.  If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others  that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines, and self-replicating DNA or RNA molecules.  If subsequent cases extend the “no exhaustion” holding of Monsanto to these technologies, patent protection would extend to copies made from the “first generation” product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to “the situation before us” and is not an overarching pronouncement regarding all self-replicating products.  The Supreme Court suggested that its “no exhaustion” ruling might not apply where an article’s self-replication “occur[s] outside the purchaser’s control” or is “a necessary but incidental step in using the item for another purpose,” citing computer software (and a provision of the Copyright Act) as a possible example.  As explained by Justice Kagan, “We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”  In this regard, the Supreme Court particularly noted that “Bowman was not a passive observer of his soybeans’ multiplication.”  Instead, Bowman “controlled the reproduction” of seeds by repeated planting and harvesting.  Thus, the Supreme Court suggests that a purchaser’s “control” over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies.  Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court’s ruling.

Antitrust Implications

By holding that Monsanto’s restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny.  Other court decisions have called into question other license restrictions viewed as going beyond the scope of patent protection as being potentially susceptible to an antitrust or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine last addressed in Quanta, which held that “the initial authorized sale of a patented item terminates all patent rights in that article.”  This boundary line conventionally demarcated the end of a patent’s protection and the beginning of a potential antitrust minefield.  Some commentators may interpret the Monsanto decision to push that line further out.  Importantly, however, the Supreme Court deemed the seeds at issue to be a “new product.”  So construed, Monsanto’s restriction on replanting did not affect the product’s use, as in Quanta and Univis Lens, but rather came within the well-settled principle that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

The Supreme Court not only was doctrinally conservative in its Monsanto decision, it was also careful to explain that its holding is a narrow one.  Monsanto never exhausted its patent rights in the “new” seeds; indeed, it never truly “sold” them.  Rather, Bowman created new seed from seeds that Monsanto had sold.  The decision therefore may not portend a more general inclination to construe the scope of patent protection more broadly.  In fact, the Supreme Court went so far as to clarify that it could reach a different outcome were it presented with a different technology.

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The New Generic Top-Level Domains and the New Trademark Clearinghouse: Deciding Whether to Register Your Brands

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The Internet Corporation for Assigned Names and Numbers (“ICANN”) is the organization that oversees domain names worldwide.  It recently began accepting new applications for expanding the number of generic top-level domains (“gTLDs”) on the Internet. The most popular gTLDs until now have included .com, .info, .org, and .net. With the approval of applications for new gTLDs will come an unlimited number of new opportunities on the Internet for entrepreneurs of all types, including trademark infringers. Thus, trademark owners must make some decisons on how to address this new threat. One possibility is the new Trademark Clearinghouse.

ICANN created the Trademark Clearinghouse (“Clearinghouse”),  which went live on March 26, 2013, in an effort to help trademark owners protect their brands in the midst of this expansion of available gTLDs.  Trademark owners who record their marks with the Clearinghouse under the relevant procedures are entitled to: (1) first priority in registering their recorded marks as second-level domain names under the new gTLDs during the “sunrise” period (which will vary by gTLD but will be at least 30 days before the general public would be permitted to do so), and (2)  receipt of notification when a domain has been registered under any new gTLD that matches the trademark owner’s recorded mark. The ICANN filing fee to record a trademark in the Clearinghouse is $150 (US) for one year, $435 for three years, and $725 for five years.

There is no deadline for recording a trademark with the Clearinghouse, but there are advantages to doing so during the “sunrise” periods. As stated above, recordation during this period provides trademark holders with advanced opportunities to obtain a second-level domain name under one of the new gTLDs before registration is open to the general public, e.g., twinkies.food. In addition, during the “trademark claims period,” which will run for at least 90 days after the initial operating period for general domain name registration under a new gTLD, those seeking registration of a domain name that matches a recorded trademark will be notified of the existence of the recorded mark. There is no mechanism in place which will automatically prevent the registration of a domain name matching a recorded trademark. Thus, although someone seeking to register a domain name which matches a recorded trademark may be notified about the existence of the recorded mark, that someone may still register that domain. Should this happen, the owner of the recorded trademark will be notified of the registration and will then have to make a unilateral decision on what action to take, if any, against the registered domain.

For those who have recorded their marks at the Clearinghouse, ICANN provides two global rights protection mechanisms for dealing with allegedly improper domain registrations: (1) the Uniform Domain Name Dispute Resolution Policy, and (2)  Uniform Rapid Suspension. Each mechanism operates in a slightly different manner.

Since neither recordation with the Clearinghouse nor any other ICANN procedure actually stops registration of a domain name which matches a recorded trademark, reaction by trademark owners to the Clearinghouse has been mixed. Accordingly, each trademark owner will have to engage in its own cost/benefit analysis and weigh the pros and cons of this new system in deciding whether to record any, all, or some of its trademarks.

Federal Circuit Fails to Clarify Software Patent Eligibility

Neal Gerber

In a highly-anticipated decision that was expected to clarify the test for eligibility of software patents under 35 U.S.C. § 101, in CLS Bank Int’l v. Alice Corp.,1 a divided en banc panel of the Federal Circuit upheld the lower court’s determination that the asserted method, computer-readable medium, and system claims are invalid. In doing so, however, the Federal Circuit further muddied the waters, “propound[ing] at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive of innovation.”2 In sorting through the 135 pages of seven different opinions in this decision, at least a few takeaways include: (1) the future of software patents remains uncertain for the time being; (2) until further development, the outcomes of future Federal Circuit cases regarding software patents will vary greatly based on the specific judicial panels deciding the cases; and (3) for now, parties filing and enforcing software patents should consider focusing their subject matter more heavily on system claims and the hardware used in those systems.

Background

At issue were patents directed to “a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate . . . ‘settlement’ risk.”3 Certain of the asserted claims “recite methods of exchanging obligations between parties,” others “are drawn to data processing systems,” and others are directed to “computer-readable media containing a program code for directing an exchange of obligations.”4

CLS Bank filed suit in the United States District Court for the District of Columbia against patent owner Alice Corp. seeking, in pertinent part, a declaratory judgment of patent invalidity under 35 U.S.C. § 101.5 The District Court granted summary judgment that the asserted claims are invalid as being directed to ineligible subject matter (i.e., an abstract idea).6 Alice Corp. appealed to the Federal Circuit, and a three-judge panel reversed the District Court and found all of the asserted claims to be patent eligible.7 The Federal Circuit granted CLS Bank’s petition for rehearing en banc.8

The En Banc Decision

In a one paragraph per curiam opinion, a majority of the en banc panel affirmed the District Court’s holding that the asserted method and computer-readable medium claims are ineligible and invalid under § 101, and because a majority could not be reached with respect to the asserted system claims, the District Court’s determination regarding those claims remained intact, rendering the asserted system claims ineligible and invalid under § 101 as well.9

None of the six remaining opinions garnered a majority of six of the ten judges that sat on the en banc panel.10Accordingly, as best stated by Chief Judge Rader, “though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.”11 Thus, the precedential effect of the Federal Circuit’s decision is limited to the asserted claims, with the remaining opinions simply providing insight into the Judges’ different, conflicting proposed approaches to determining patent eligibility.12

Judge Lourie Requires an Inventive Concept

Judge Lourie, joined by four panel members, advocated that a claim embodying an abstract idea is patent eligible under § 101 if that claim includes “additional substantive limitations”—which Judge Lourie termed an “inventive concept”—“that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”13In other words, according to Judge Lourie, if a claim includes elements embodying an abstract idea, additional elements of the claim (i.e., those elements not embodying the abstract idea) must include an “inventive concept” for the claim to be patent eligible. With respect to claim directed to computer-implemented inventions, Judge Lourie asserted that “appending generic computer functionality to lend speed or efficiency to the performance of an . . . abstract concept does not meaningfully limit the claim scope for purposes of patentability. . . . [T]he requirement for computer participation . . . fails to supply an ‘inventive concept.’”14

Applying this approach to the asserted claims, Judge Lourie opined that the claims embodied “the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary . . . empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow.”15 He found that none of the elements of any of the claims in addition to those embodying the alleged abstract idea, including the structural elements of the system claims,16 include an “inventive concept,” and found all of the asserted claims to be ineligible and invalid under § 10117. Regarding the inclusion of computer functionality in the claims, Judge Lourie stated that “adding generic computer functions to facilitate performance provides no substantial limitation and therefore is not ‘enough’ to satisfy § 101.”18Judge Lourie largely disregarded the format of the claims (i.e., whether the claims were drawn to methods, computer-readable media, or systems), opining that “when § 101 issues arise, the same analysis should apply regardless of claim format.”19

Chief Judge Rader Focuses on Meaningful Limitations

Chief Judge Rader, joined in full by one panel member20 and in part by two other panel members,21 disagreed with Judge Lourie’s requirement of an “inventive concept,”22 and instead advocated that a claim embodying an abstract idea is patent eligible under § 101 if that claim includes “limitations that meaningfully tie that [abstract] idea to a concrete reality or actual application of that idea.”23 With respect to a claim directed to a computer-implemented invention, Chief Judge Rader opined that the claim is patent eligible “where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea.”24

Applying this approach to the asserted system claims, Chief Judge Rader found the system claims to be patent eligible, stating that “the claim covers the use of a computer and other hardware specifically programed to solve a complex problem. . . . The specific functions recited in these claims, which are integral to performing the invention, show that the . . . claims are directed to practical applications of the underlying idea and thus are patent-eligible.”25 Chief Judge Rader stated that the specification “explains implementation of the recited special purpose computer system” and “includes numerous flowcharts that provide algorithm support for the functions recited in the claims,” concluding that “[l]abeling this system claim an ‘abstract concept’ wrenches all meaning from those words, and turns a narrow exception into one which may swallow the expansive rule (and with it much of the investment and innovation in software).”26

Turning to the asserted method claims, Chief Judge Rader stated that the claims embody the abstract idea “of using a neutral intermediary in exchange transactions to reduce risk that one party will not honor the deal, i.e., escrow management.”27 He found the asserted method claims to be ineligible and invalid under § 101 because the recited steps were “inherent in an escrow and claimed at a high level of generality” and did not add any meaningful limitations to the claims.28 Because Alice Corp. conceded that the method claims and the computer-readable medium claims rise or fall together, Chief Judge Rader also found that the asserted computer-readable medium claims were ineligible and invalid under § 101.29

Judge Newman Defers to the Plain Language of the Statute

Judge Newman would abolish the judicially-created exceptions to § 101, and advocated that the Federal Circuit “abandon its failed section 101 ventures into abstraction, preemption, and meaningfulness,” and find that a claim is patent eligible if “the subject matter is within the statutory classes in section 101.”30 In other words, under Judge Newman’s approach, a claim is patent eligible if that claim recites a “process, machine, manufacture, or composition of matter,”31 and “claims that are ‘abstract’ or ‘preemptive’“ will be “eliminate[d] . . . on application of the laws of novelty, utility, prior art, obviousness, description, enablement, and specificity.”32 Applying this approach to the asserted claims, Judge Newman found all of the claims to be patent eligible.33 Judge Newman also called for the Federal Circuit to confirm a right of “experimental use of patented information,” which she believes would render it “no longer . . . necessary to resort to the gambit of treating such information as an ‘abstraction’ in order to liberate the subject matter for experimentation.”34

Interestingly, Chief Judge Rader, in his separately-filed additional reflections, seemed to agree with Judge Newman’s adherence to the plain language of the statute, stating: “I doubt innovation is promoted when subjective and empty words like ‘contribution’ or ‘inventiveness’ are offered up by the courts to determine investment, resource allocation, and business decisions. . . . [W]hen all else fails, it makes sense to consult the simplicity, clarity, and directness of the statute.”35

Judge Linn Calls for Congressional Action

Judge Linn addressed the concerns expressed by various Amici “regarding the proliferation and aggressive enforcement of low quality software patents,” opining that “broadening what is a narrow exception to the statutory definition of patent eligibility should not be the vehicle to address these concerns.”36 Rather, Judge Linn called for legislative action, asserting that “Congress can, and perhaps should, develop special rules for software patents.”

A Divided Majority Believes that the Asserted Claims Should Rise or Fall Together

As noted by Judge Lourie, a majority of the en banc panel agreed that, under the particular facts of this case, the asserted method, computer-readable medium, and system claims should rise or fall together. It is important to note, however, that the majority did not agree on why all of the asserted claims should rise or fall together.38 Judge Lourie and those joining his concurring opinion believed that the asserted claims should rise or fall together because they all fail to satisfy his inventive concept test. Judge Linn and Judge O’Malley, on the other hand, believed that the asserted claims should rise or fall together because, based on the record, all of the claims “are grounded by the same meaningful limitations that render them patent eligible.”39 Finally, Judge Newman simply stated that “patent eligibility does not depend on the form of the claim.”40 Since the majority did not agree on why all of the asserted claims should rise or fall together, the fact that they agreed that the claims should rise or fall together in this particular case has no precedential effect.

Implications

At the outset, it is important to note that Alice Corp. will almost certainly ask the Supreme Court to hear the case. The combination of the divided nature of this en banc decision, the arguably incompatible Federal Circuit precedent regarding § 101, and the potential impact on the patent system makes it likely that the Supreme Court will hear the case to (hopefully) provide clarity to courts, patent owners, and inventors. Judge Moore aptly summarized the potential impact of this case: “If the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries. . . . There has never been a case which could do more damage to the patent system than this one.”41

In the meantime, during this period of uncertainty, when preparing a patent application directed to an invention implemented in software, the applicant should consider including as much computer hardware as possible in the specification (including the claims) without unduly limiting the invention, and then tying the central software steps and functionality of the invention to those hardware elements. The applicant should also consider including system claims that include the hardware elements and how they interact to perform the software functions within the central portions of the claims.

Additionally, a patentee asserting claims directed to software during litigation should consider only asserting system claims. Although the majority did not agree on the reason why the asserted claims should rise or fall together in this particular case (robbing the decision of any precedential effect), the majority nevertheless appears to believe that claims should rise or fall together. Since method and computer-readable medium claims are more likely to be found invalid than system claims according to this decision, a patentee may not want to risk system claims being found invalid simply because corresponding method and/or computer-readable medium claims are found invalid.


No. 2011-1301, slip op. at 6–7 (Fed. Cir. May 10, 2013) (per curiam). 

Id. at 1–2 (Newman, J., concurring-in-part and dissenting-in-part). 

Id. at 2–3 (Lourie, J., concurring) (citing CLS Bank Int’l v. Alice Corp., 768 F. Supp. 2d 221, 224 (D.D.C. 2011)). 

Id. at 3–4. 

Id. at 4 (Rader, C.J., concurring-in-part and dissenting-in-part) (citing CLS Bank Int’l, 768 F. Supp. 2d at 221). 

Id.

Id. 

The Federal Circuit granted the petition for rehearing en banc to address the following two questions:

a.     What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?

        b.     In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at all times be considered equivalent for § 101 purposes?
Id. at 4 (quoting CLS Bank Int’l v. Alice Corp., 484 F. App’x. 559 (Fed. Cir. 2012)). 

Id. at 6–7 (per curiam). Chief Judge Rader, Judge Dyk, Judge Lourie, Judge Moore, Judge Prost, Judge Reyna, and Judge Wallach determined that the asserted method and computer-readable medium claims are ineligible and invalid under § 101. Judge Dyk, Judge Lourie, Judge Prost, Judge Reyna, and Judge Wallach found that the asserted system claims are ineligible and invalid under § 101, while Chief Judge Rader, Judge Linn, Judge Moore, Judge Newman, and Judge O’Malley determined that the asserted system claims are patent eligible. 

10 Judge Taranto did not participate in the decision. Id. at 6. 

11 Id. at 1–2 n.1 (Rader, C.J., concurring-in-part and dissenting-in-part) (emphasis added). 

12 Note that Chief Judge Rader wrote separately to express his dismay at the outcome. Id. (Rader, C.J., additional reflections).

13 Id. at 17–22 (Lourie, J., concurring). Judges Dyk, Prost, Reyna, and Wallach joined Judge Lourie’s opinion. 

14 Id. at 27. 

15 Id. at 25. 

16 Id. at 34 (The “tangible devices . . . , including at least ‘a computer’ and ‘a data storage unit’” recited in the claims “cannot support any meaningful distinction from the computer-based limitations that failed to supply an ‘inventive concept’ to the related method claims.”). 

17 Id. at 26–29, 31, 36. 

18 Id. at 28. 

19 Id. at 33. 

20 Judge Moore filed a separate dissenting-in-part opinion, joined by Chief Judge Rader and Judges Linn and O’Malley, “to explain why the system claims at issue are directed to patent eligible subject matter.” Id. at 4 (Moore, J., dissenting-in-part). 

21 Judges Linn and O’Malley did not join in the portion of Chief Judge Rader’s opinion that found the asserted method and computer-readable medium claims to be ineligible and invalid under § 101. Id. at 1–2 (Linn, J., dissenting). Judge Linn filed a separate dissenting opinion, joined by Judge O’Malley, that found the asserted method and computer-readable medium claims to be patent eligible. Id. at 11–12. 

22 Id. at 5–11, 22 n.5 (Rader, C.J., concurring-in-part and dissenting-in-part). 

23 Id. at 16. 

24 Id. at 22. 

25 Id. at 31, 35. 

26 Id. at 31–32, 34. 

27 Id. at 39–40. 

28 Id. at 40–42. 

29 Id. at 39, 42. 

30 Id. at 11–13 (Newman, J., concurring-in-part and dissenting-in-part). 

31 35 U.S.C. § 101. 

32 CLS Bank Int’l, No. 2011-1301, slip op. at 4 (Newman, J., concurring-in-part and dissenting-in-part). 

33 Id. at 14. 

34 Id. at 9–10. 

35 Id. at 5 (Rader, C.J., additional reflections). 

36 Id. at 12–13 (Linn, J., dissenting). 

37 Id. at 13. 

38 Id. at 2 n.1 (Lourie, J., concurring). 

39 Id. at 1–2 (Linn, J., dissenting). 

40 Id. at 4 (Newman, J., concurring-in-part and dissenting-in-part). 

41 Id. at 2–3 n.1 (Moore, J., dissenting-in-part). Judge Moore explicitly requested that the Supreme Court provide guidance on this issue: “It has been a very long time indeed since the Supreme Court has taken a case which contains patent eligible claims. This case presents the opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter.” Id. at 3.

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International Trade Commission Rules Lack of Domestic Industry Results in a Termination of Investigation

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The International Trade Commission (ITC) is an independent, quasi-judicial agency that adjudicates the importation of products that allegedly infringe U.S. intellectual property rights. The ITC can halt the importation of goods that infringe U.S. patents and/or trademarks, and thus is an effective tool for obtaining a relatively rapid determination of infringement (one year) and an exclusion order. One of the requirements for such an order is to prove harm to a domestic industry. The following case (ITC investigation 337-TA-874) is an example of one way that such an investigation can be defeated.

In a recent decision, the ITC ordered an investigation into whether certain laminated products infringed the claims of a nonpracticing entity’s (NPE) patent. In initiating the investigation, the ITC ordered the administrative law judge (ALJ) overseeing the investigation to hold a preliminary hearing and to issue a decision as to whether the NPE has the required domestic industry in the United States to bring an investigation before the ITC. A finding of a lack of domestic industry would result in a termination of the investigation, as the NPE would not have standing with the ITC. This is a departure from current ITC practice, and it may provide an effective tool for preventing NPEs from bringing frivolous suits before the ITC.

Under 19 U.S.C. § 1337(a), the ITC has jurisdiction to hear matters in which a party alleging infringement (the complainant) has, or is in the process of establishing, a domestic industry in the United States. The determination of domestic industry is a two-prong test. The first prong, referred to as the “technical prong,” requires the complainant to show that it is practicing a valid claim of each asserted patent in a product sold in the United States. The analysis of the technical prong is similar to an infringement analysis, in which each claim is compared to the domestic product.1 The second prong of the test, referred to as the “economic prong,” requires the complainant to demonstrate “(a) a significant investment in plant and equipment, (b) significant employment of labor and capital, or (c) a substantial investment in its exploitation, including engineering, research and development, or licensing.”2

The complaint in the present investigation (337-TA-874) was brought by Lamina Packaging Innovations, an NPE, against a group of companies including Hasbro, John Jameson Import Company, Cognac Ferrand USA, Inc. and Camus Wines & Spirits Group. In the investigation, Lamina Packaging alleged that the respondents were infringing two of Lamina’s patents directed to a packaging material. In initiating the investigation, the ITC ordered the ALJ to issue an initial determination as to whether Lamina has satisfied the economic prong of the domestic industry requirement. Further, the ITC stated that the initial determination would become the ITC’s final determination 30 days after the date of service of the initial determination. Accordingly, a finding of no domestic industry by the ALJ would result in a termination of the investigation. The ITC ordered the ALJ to issue a decision on domestic industry within 100 days from the institution of the investigation.

Typically, lack of domestic industry is an affirmative defense presented by a respondent. The new ruling by the ITC may allow respondents to terminate ITC investigations early, opposed to the current practice that requires respondents to endure a summary judgment motion or a trial before a domestic industry decision is rendered. As more NPEs file complaints with the ITC in an attempt to “test run” future district court cases, this recent decision may greatly reduce the number of NPE cases filed with the ITC.


1 Alloc, Inc. v. Int’l Trade Comm’n, 342 F.3d 1361, 1375 (Fed. Cir. 2003).

2 19 U.S.C. § 1337(b).

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False Marking Claims Must Be Pled with Specificity as to Intent

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The U.S. Court of Appeals for the Federal Circuit settled a split among the district courts when it held that false patent marking claims must be pled with particularity under Fed. R. of Civ. Pro. 9(b).   In granting the defendant’s petition for a writ of mandamus, the Federal Circuit held that the district court should have dismissed a false marking complaint for failure to plead, with particularity, the circumstances of defendant’s alleged intent to deceive the public.   In re BP Lubricants USA Inc., Misc. Docket No. 960 (Fed. Cir., Mar. 15, 2011) (Linn, J.).

The plaintiff had included in its complaint allegations that BP was a “sophisticated company” having experience applying for, obtaining and litigating patents.   Based on that categorization, the plaintiff claimed BP “knew or should have known” that the patent had expired.   The district court concluded that the complaint satisfied the requirements of Rule 9(b) because it had pled the who, how, what and when of the alleged fraud.  BP sought mandamus at the Federal Circuit.

The Federal Circuit clarified that in all cases sounding of fraud or mistake, Rule 9(b) requires the plaintiff to plead “with particularity the circumstances constituting the fraud or mistake.”   The Court noted that Rule 9(b) acts as a “safety valve to assure that only viable claims alleging fraud or mistake are allowed to proceed to discovery.   … Permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.” The Court stated that the district court erred in denying BP’s motion to dismiss because it expressly relied on the plaintiff’s general allegations that BP knew or should have known that the patent expired. The Court explained that a complaint must provide some objective indication to reasonably infer that the defendant was aware that the patent expired.  Accordingly, general allegations that the defendant is a “sophisticated company” and that it “knew or should have known” that the patent expired are insufficient under Rule 9(b).

The Court went further and provided exemplary allegations with which a court may reasonably infer an intent to deceive, “[alleging that a] defendant [had] sued a third party for infringement of a patent after the patent had, e.g., expired or made multiple revisions of the marking after expiration” may set forth facts upon which intent to deceive can be reasonably inferred.

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