Tag: patent

Life Sciences: Protecting the Crown Jewels

Sills Cummis & Gross P.C

An innovator or owner of patent rights or other technology in the life sciences arena is often unable, because of lack of financial or other resources, to develop or commercialize a pharmaceutical product covered by such intellectual property rights. In these cases, the innovator/owner (the licensor) will frequently out-license the invention to a third party (the licensee) for development and commercialization by such licensee. The resulting license agreement can be a complicated document. In this article, I will address some of the important licensing considerations that a licensor should take into account before executing a license agreement.

Consider the Exclusivity v. Non-exclusivity of the License Grant

An initial consideration in a license agreement is whether the license grant will be exclusive or non-exclusive to the licensee. If the license grant is exclusive, then the licensor typically agrees not to grant a license to any third party. If the license grant is non-exclusive, then the licensor typically is permitted to grant further licenses to third parties. Even in an exclusive license, however, the licensor may want to retain certain rights for itself. For instance, the licensor may want to preserve for itself the right to enter into certain geographical markets or fields of use. The parties should be very clear in the license agreement as to whether or not the licensor is permitted to exercise any R&D, commercialization or other rights during the term of the license agreement.

Whether a license is exclusive or nonexclusive will set the tone for the associated rights and obligations of the parties set forth in the remainder of the license agreement. For example, an exclusive licensee is usually subject to “diligence” obligations, requiring it to exploit the licensed technology in order to maintain the license grant; a non-exclusive licensee is usually subject to limited or no such obligations. Also, an exclusive licensee usually has more rights than a non-exclusive licensee with respect to the prosecution, maintenance, defense and enforcement of patent rights.

Also Consider the Scope of the “Field of Use” and “Territory”

Other important initial considerations in the license agreement are the scope of the licensed field of use and the scope of the licensed territory. A “field of use” defines the field in which the licensee may exercise the licensed rights and may take one of many forms. For example, the field of use may be all encompassing (“any and all fields and applications”), may be limited to only therapeutic or only diagnostic products, may be limited to only biologics or only small molecule products, or may be limited to a specific medical indication (e.g., cardiac indications). Especially in the case of an exclusive license (and based on the nature of the licensee), it is sometimes better for the licensor to limit the field of use. Then the licensor would be permitted to grant subsequent rights to other parties in the non-licensed fields. Alternatively, if the field of use is broad, the licensor should require that the licensee actually exercise its rights in certain specified fields in order to maintain such rights. If the licensee fails to exercise its rights in a specified field of use within a certain period of time, the licensor’s remedies could include the right to terminate the license agreement in its entirety, the right to terminate the license agreement with respect to one or more specific fields and/or the right to convert an exclusive license grant in such field to a non-exclusive grant.

Considerations regarding the “territory” are very similar to the considerations regarding the field of use. Often, in order to maintain an exclusive worldwide territory grant, the licensee is required to exploit the licensed technology in specified countries. For example, the licensee may be required to develop and commercialize a product covered by the licensed technology (licensed products) in the United States and at least one other “major market country” (e.g., Japan, France, Germany, Italy, Spain and the United Kingdom). Again, the licensor’s remedies for the licensee’s failure to satisfy this obligation could be similar to the remedies set forth above for field of use.

Maximize the Royalty Payments

Pursuant to the terms of the license agreement, the licensee will most likely be required to pay to the licensor a royalty based on sales of licensed products. Although the determination of the amount of royalty is in large part a business decision and takes into consideration, among other things, the scope and strength of the licensed patent and other intellectual property rights, the breadth of the field of use and territory, whether the licensed product is a therapeutic product (typically a higher royalty rate) or a diagnostic product, and whether the license grant is exclusive or non-exclusive, there are many important legal nuances that the licensee could and should consider. One such nuance is the calculation of “net sales.”

The amount of royalty owed by the licensee is normally calculated by multiplying the royalty rate by the amount of sales of the licensed products. The royalty rate does not need to be a flat rate and could be graduated, for example, with a rate change as sales increase. In determining the “sales” portion of the royalty calculation, it is more advantageous to the licensor that sales be based on amounts invoiced (as opposed to amounts received) by the licensee, thus keeping the risk of bad debt (i.e., a sales amount is invoiced but not actually received by the licensee) with the licensee. Also, although “net sales” (as opposed to “gross sales”) is the usual royalty base, the licensor should restrict the deductions taken into account to determine such net sales. For example, although the “net sales” calculation frequently includes deductions from gross sales for governmental taxes and charges, customer credits and rebates, and transportation, storage and insurance expenses, the licensor should avoid less typical deductions such as sales commissions owed by the licensee or a catch-all deduction for “other reasonable deductions.”

Ensure That the Inventions Are Fully Exploited

Once a licensor licenses its invention to a third party in an exclusive license arrangement, the licensor will lose much control over the day-to-day use of the technology. It is imperative that the licensor requires the licensee to actually exploit the technology in a timely manner and devote sufficient time, money and resource to such exploitation. Almost all exclusive patent or technology license agreements contain a “diligence” provision requiring the licensee to employ certain efforts with respect to the research, development and commercialization of licensed products. Generally, the diligence requirement provides that the licensee must use “commercially reasonable efforts” to advance the product through the pipeline and sale process. However, the meaning of “commercially reasonable efforts” is not precise and the two parties to the contract could interpret the phrase, and the corresponding diligence requirement, quite differently.

A prudent licensor defines the diligence requirement more exactly. Ideally, the diligence requirement would be accompanied by diligence milestones, contractually obligating the licensee to reach certain developmental, regulatory or sales milestones by certain target dates or to spend a certain dollar amount on the licensed product in a given time period. Additionally, different diligence standards could apply with respect to different jurisdictions. If the licensee fails to meet its target, the licensor would be entitled to one or more remedies such as a financial payment from the licensee or a right of termination.

Maintain Control over Patent Prosecution

In an exclusive patent license arrangement, the licensee usually pays for the costs associated with patent prosecution and maintenance. Even in a non-exclusive arrangement, the licensee could be required to pay for a portion of such amounts. Though the licensor bears some or all of the patent prosecution and maintenance expenses, the licensor should ensure that it ultimately has control. Ideally, the license agreement should provide that the licensor controls the prosecution and maintenance, perhaps with counsel reasonably acceptable to the licensee. The licensor could allow the licensee to provide input into where (which jurisdictions) the licensor will prosecute and maintain the patents. However, the licensor should have the final say as to the scope and jurisdiction of the patent filings. In order to address a licensee’s concern that it would be required to pay for expenses in jurisdictions where the licensee does not deem patent coverage to be necessary or desirable, the license agreement could provide that the licensee may notify the licensor that the licensee will not pay the patent costs in a particular jurisdiction – in which case the licensee would probably lose its license rights (or at least its exclusivity, in the case of an exclusive license grant) with respect to such jurisdiction.

Carefully Consider Termination Provisions

A license agreement includes customary termination provisions. For example, each party usually has the right to terminate the agreement in the case of an uncured material breach by the other party. Additionally, the licensee typically has the right to terminate the license agreement for convenience (without cause) following some notice period (e.g., 90 days). Following termination of the license agreement, the licensor may want to either resume R&D or commercialization efforts on its own or re-license the technology to another suitable third party. In order to avoid the need to duplicate efforts (and expenditures) of the first licensee, the licensor should give careful consideration to the termination provisions in the license agreement. Ideally, if the licensee terminates the license agreement for convenience (i.e., the licensee walks away from the technology) or the licensor terminates the license agreement because of an uncured material breach by the licensee, the licensee would be required to automatically assign to the licensor, for no additional consideration or for some agreed upon payment, all of the results, know-how and intellectual property generated by or on behalf of the licensee under the license agreement and all regulatory files, regulatory approvals and other rights related to the licensed product. Thus, the licensor or its new licensee would be able to capitalize on the past work performed by the licensee, expedite timelines and reduce expense.

All or some of the points described above could be very important to a licensor. Although the interrelation of these and various other provisions in a license agreement are complex, by understanding the unique issues and concerns that arise when analyzing and negotiating a license agreement, the licensor is better able to protect its invention and ultimately increase its profit.

ARTICLE BY

Lori M. Waldron
OF
Sills Cummis & Gross P.C.

This article appeared in the February 2015 issue of The Metropolitan Corporate Counsel.  The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect those of Sills Cummis & Gross P.C.   Copyright © 2015 Sills Cummis & Gross P.C.  All rights reserved.”

Target Wins Rehearing of IPR Joinder Decision with Expanded Panel

Schwegman Lundberg Woessner

Last fall, the Patent Trial and Appeal Board (PTAB or Board) interpreted the IPR joinder provision, 35 U.S.C. § 315(c), to require joinder requests by a non-party to an ongoing proceeding.  (Target Corp. v. Destination Maternity Corp., IPR2014-00508 and IPR2014-00509.)  Prior to that decision,  the Board had interpreted § 315(c) to allow for issue joinder by the petitioner of the original proceeding (see, for example Microsoft v. Proxyconn, IPR2013- 00109).  Of course, joinder was decided on a case-by-case basis, but had not previously been denied because the request was made by the petitioner of the original proceeding.

Target Corp. filed rehearing requests in both affected IPR proceedings in an effort to have the Board reconsider its interpretation of  35 U.S.C. § 315(c) with an expanded panel.  Target’s arguments are quite clearly stated in its Motion for Rehearing.  The Board granted Target’s rehearing request.  In a 4:3 decision,  the majority agreed that § 315(c) had been overly narrowly interpreted in the prior decision:

Turning now to the merits of the Request for Rehearing, the contention at the heart of Petitioner’s request for rehearing is that the denial of its Motion for Joinder was “based on an erroneously narrow interpretation of 35 U.S.C. § 315(c).” Paper 22, 1. We agree with Petitioner.

The majority read § 315(c)’s reference to “any person who properly files a petition under section 311” in conjunction with § 311′s requirement that the petition filer not be the patent owner, to broadly interpret § 315(c) to include any person except the patent owner.  This interpretation is at odds with the dissent’s analysis, which reads § 315(c)’s reference to “may join as a party” to literally require a new party for joinder:

The statute under which Petitioner seeks relief provides:

(c) JOINDER.—If the Director institutes an inter partes review, the Director, in his or her discretion, may join as a party to that inter partes review any person who properly files a petition under section 311 that the Director, after receiving a preliminary response under section 313 or the expiration of the time for filing such a response, determines warrants the institution of an inter partes review under section 314.

35 U.S.C. § 315(c) (emphasis added). The statute does not refer to the joining of a petition or new patentability challenges presented therein. Rather, it refers to the joining of a petitioner (i.e., “any person who properly files a petition”). Id. Further, it refers to the joining of that petitioner “as a party to [the instituted] inter partes review.” Id. Because Target is already a party to the proceeding in IPR2013-00531, Target cannot be joinedto IPR2013-00531.

While the majority decision does align with panel decisions on joinder prior to Target, one must ask whether this issue is finally resolved by this expanded panel decision.  For example, what happens if another panel does not follow this interpretation § 315(c)?  Or suppose this decision is appealed; would the Federal Circuit reverse a Board decision on joinder as it relates to institution given its recent interpretation of 35 U.S.C. § 314(d) in In re Cuozzo Speed Technologies? (“We conclude that § 314(d) prohibits review of the decision to institute IPR even after a final decision. . . . Section 314(d) provides that the decision is both ‘nonappealable’ and ‘final,’ i.e., not subject to further review. 35 U.S.C. § 314(d).”)  Would a Federal Circuit appeal have to be in the form of a petition for writ of mandamus?  If so, how would that square with the mandamus decisions in In re Dominion Dealer Solutions, LLC, 749 F.3d 1379, 1381 (Fed. Cir. 2014)(mandamus relief not available to challenge the denial of a petition for IPR) and in In re Proctor & Gamble Co., 749 F.3d 1376, 1378–79 (Fed. Cir. 2014)(mandamus relief not available to provide immediate review of a decision to institute IPR)?

ARTICLE BY

Timothy Bianchi
OF
Schwegman, Lundberg & Woessner, P.A.

Practice Considerations Post Teva v. Sandoz

Sterne, Kessler, Goldstein & Fox P.L.L.C. - Attorneys at Law

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., No. 13-854, slip op. 574 U.S. __ (2015), the U.S. Supreme Court ruled that underlying factual issues resolved while formally construing a disputed patent claim term at the district court level are subject to a clear error standard of review as opposed to a de novo standard.

The Patent at Issue

The litigated patent claimed a method for manufacturing Copaxone, Teva’s multi-billion dollar a year drug used in the treatment of multiple sclerosis. Sandoz, as a generic pharmaceutical challenger under the Hatch-Waxman Act, attacked the patent as indefinite because it contained claim language describing an active pharmaceutical ingredient having a “molecular weight of 5 to 9 kilodaltons.” Although three accepted definitions1 exist in the relevant art to calculate “molecular weight,” the method of calculation to be used was not described in the claim, the patent specification, or the prosecution history. The district court took evidence on this issue, namely through extrinsic expert testimony, and ruled that “molecular weight” would have been calculated by determining the “peak average molecular weight.” Accordingly, the district court held the phrase to be definite and accepted the understanding advanced by Teva’s expert. The Federal Circuit, however, reversed and held that the claim was indefinite after reviewing the district court claim construction de novo.

The Supreme Court’s Decision

In the majority opinion, authored by Justice Breyer, the Court explained that claim construction may involve both legal and factual elements that could necessitate differing levels of appellate scrutiny. Specifically, if a patent claim term is construed based upon the intrinsic evidence alone (i.e., patent claims, specification, and prosecution history), the determination is exclusively one of law, subject to de novo review. However, if the intrinsic evidence is not dispositive of the meaning of a claim term, then extrinsic evidence can be consulted (e.g., expert testimony, technical dictionary definitions, etc.) to better understand the meaning of the term. It is these underlying “facts” relating to extrinsic evidence that are reviewed according to the clear error standard. The Court reasoned that the District Judge, having presided over the entire proceeding, has a comparatively greater familiarity with the “specific scientific problems and principles” than the appellate court and should be afforded deference on factual findings. While the new scheme announced by the Court changes the standard of review for subsidiary factual matters, the ultimate issue of claim interpretation will still be reviewed de novo.

What is the Significance of Teva v. Sandoz?

The holding in Teva could have broad-ranging implications for clients in the procurement and enforcement of their patent rights. Below are a few examples of how the decision could impact current patent practice.

As an initial matter, patent owners should pay particular attention to the sufficiency of the disclosure with regard to key elements of the claims and consider specifically defining these elements in the specification through, for example, the use of a glossary. Such a strategy could help avoid protracted battles of the experts that could result in claim terms being redefined in ways never intended by the patent owner. While this approach has the potential to narrow claim scope, and may require additional time and expense during patent prosecution, it could result in a stronger, more effective patent less susceptible to post-Teva based challenges.

In the context of litigation, the Teva decision could provide motivation for litigants to create “factual issues” that are determinative of claim construction. Patentees, for example, may be tempted to try and broaden the scope of their claims by creating ambiguities in claim language in order to advance constructions that were never originally intended but may now be supported by extrinsic evidence. Alternatively, accused infringers may attempt to create as many factual disputes as possible with regard to the meaning of a claim in an effort to lock the patent owner into an unfavorable finding. Regardless of the motivations of the parties, district courts will likely become more attentive to these issues knowing their claim construction determinations could be afforded a higher standard of review. It is possible that the Teva decision could even result in broader acceptance among district court judges of “trial-like” Markman hearings with submission of expert testimony and extrinsic evidence at the claim construction stage.

Finally, in light of the changing claim construction standard of review in federal courts, parties (petitioners) should consider how this will impact the use and significance of inter partes review (IPR) proceedings. For example, IPR proceedings provide petitioners with a “broadest reasonable interpretation” standard for claim construction, while also allowing petitioners to submit an expert declaration in support. Since patent owners are typically not given an opportunity to submit a rebuttal expert declaration before the Board institutes trial, this can provide a preliminary advantage for petitioners attempting to secure a favorable construction, as an initial finding on claim construction is usually made as part of the institution process. Moreover, the patent owner may find it difficult to overturn the initial claim construction inertia, whether during the postinstitution phase or on appeal after a final decision on the merits has been made by the Board.

Many questions remain in the wake of Teva, as patent owners and challengers alike will be faced with new claim construction strategy scenarios relying on extrinsic evidence.

ARTICLE BY

Daniel E. Yonan
Jon E. Boljesic
OF
Sterne, Kessler, Goldstein & Fox P.L.L.C.

 1 The three accepted definitions to determine “molecular weight” included a (1) peak average molecular weight; (2) number average molecular weight; or (3) weight average molecular weight.

The “Top Ten” Intellectual Property Stories of 2014 (Most “Definitely”)

Schwegman Lundberg Woessner

I don’t think I can recall a more action-packed year for intellectual property law in my career, much less during the almost six years that I have been writing this blog. I am trying to write this while in transit, so there will be few footnotes or cites, but they are easy enough to find in my past posts, or online. I am not even sure that I outlined ten stories before I started typing, but here goes — in no particular order.

1,2,3 and 4. Mayo meet Alice meet Myriad – The Tortuous Path of s.101.

Although only Alice was decided in 2014, the excitement really started with the unexpected release of the PTO “Life Sciences” Guidelines in March (No. 1 Story). The draft Guidelines directed Examiners to reject claims to products of nature unless they were significantly different in structure from the products in their natural states, and declared that simple “If A, then B” diagnostic claims were patent-ineligible as attempts to patent natural phenomena.

The Guidelines were continuously criticized as based on a misreading of the earlier Mayo and Myriad S.Ct. decisions and were released in a revised form in December (No. 2 Story) via publication for comment in the Fed. Reg. The revised Guidelines recognized that the standards for claiming diagnostic tests were in flux but permitted consideration of functional differences in resolving the PE of natural products.

However, only a few days later, in U. of Utah Res. Fndn v. Ambry, (No. 3 Story) the Fed. Cir. held that primers could not be patented if not structurally changed from their natural sequence. Judge Dyk, writing for the panel, simply misread Myriad as holding that no isolated product of nature — as opposed to no naturally occurring DNA — could be patented unless it was markedly different than in its natural state. This decision followed the earlier invalidation of the claims to Dolly the cloned sheep in In re Roslin in which Judge Dyk, declared that no naturally-occurring living organism is patentable. The Utah panel also held that claims to comparing a subject’s DNA sequence to a reference sequence, wherein the claim also recited PCR amplification or probing, did not escape the Mayo requirement for an additional inventive concept in additional to the abstract idea of comparing sequences. This decision is ripe for rehearing en banc, if only to correct Judge Dyk’s manifest misreading of Myriad (and to keep the PTO Guidelines under some judicial control).

The title of this “news story” is meant to point up the tsunami-like “abstract idea” judicial exception to s. 101 patent-eligibility (PE). The Mayo v. Prometheus decision only mentions “abstract idea” once, and it is to cite to an earlier decision. The S. Ct. in Mayo reversed the Fed. Cir., holding that a claim reciting a natural phenomenon was required to recite some further inventive concept in order to be “significantly more” than a claim preempting use of the phenomenon. In Bilski, the Fed. Cir. fashioned the “machine or transformation test”. Judge Rader’s dissenting argument that a claim to hedging commodity risk was no more than an attempt to claim an abstract idea. The S. Ct. agreed with Judge Rader.

In Alice Bank, (No. 4 Story) the S. Ct. managed to marry the Mayo “test” for PE to the abstract idea exception of Bilski. The Court applied a two-step test. First, decide if a claim involves an abstract idea and then examine the claim to see if it contains significantly more than elements that are conventional and routine in the relevant art. Now, enter Utah Res. Foundation (Myriad) v. Ambry. While Ambry argued that the diagnostic claims were no more than an attempt to claim a natural phenomenon (mutations in DNA), the Fed. Cir. took a different tack and looked to itsMyriad decision for guidance.

And, lo and behold, at the Fed. Cir. level, Judge Lourie wrote that the DNA comparison claims were not PE, since they were directed to an abstract idea(!) So the Fed. Cir., simply applied the Mayo test as articulated in Alice and invalidated the method claims asserted by Myriad as attempts to claim an abstract idea, albeit with a bit of window dressing (PCR and probing). In the coming year, I can only hope that the PE of a simple “If A, then B” diagnostic claim will be resolved. And I also hope that Judge Breyer is not writing for the majority.

5. Kimble v. Marvel. The S. Ct. granted cert. to revisit the question of whether or not a requirement that a licensee pay post-expiration date royalties for a patent license is per se illegal (as it is presently).

6. Nautilus v. Biosig. While the S. Ct. tried to raise the bar for meeting s. 112(b) by requiring that claim elements be defined with “reasonable certainty,” rather than by the Fed. Cir.’s requirement that the meaning of the element not be “insolubly ambiguous” or “amenable to construction.” It is not at all clear where the new bar has been set.

7. Teva v. Sandoz. The S. Ct. granted cert. to resolve the question of whether or not it is proper for the Fed. Cir. to conduct de novo review of the district courts’ factual findings during claim construction. By the way, what is a mixed question of law and fact and how is a court to review them separately? Appeal to the Fed. Cir. and find out!

8. American Calcar v. American Honda Motors. This convoluted case stands for the observation that the inequitable conduct defense has risen from the grave of legal doctrines, to which it had been consigned by many commentators. Still, to prevail on this defense, a defendant is greatly assisted by the presence of a single (or perhaps two) “bad actors” who do things like try to patent a competitor’s drug — which, remarkably was the factual posture of two cases before the Fed. Cir. last year. You can advocate with vigor; just don’t lie.

9. Commil v. Cisco. Although the question present in the granted petition for cert. seems narrow (To what extent can evidence of a good faith belief in non-infringement negate the element of intent required to induce infringement?), this appeal is evidence that the S. Ct. is not yet tired of the challenges posed by Title 35.

10. Progress in Regulations Affecting Bringing Biosimilars to Market. In August, the FDA released its “Purple Book” listing approved reference products and actually accepted an application for a biosimilar “generic”. While some commentators feel that it will be more effective to re-conduct phase III trials than to try to navigate the hostile regulatory hurdles thrown up by the agency, the availability of biosimilar drugs seems inevitable.

ARTICLE BY

Warren Woessner
OF
Schwegman, Lundberg & Woessner, P.A.

USPTO Issues New Subject Matter Eligibility Examination Interim Guidelines – Abstract Idea Guidance

Sterne Kessler Goldstein Fox

On December 15, 2014, the USPTO issued Interim Guidance for examination of subject matter eligibility under 35 U.S.C. § 101. These new guidelines largely follow the previous interim guidelines issued on June 25, 2014, in view of CLS v. Alice (2014), with some additional details. The new guidelines have also combined that earlier guidance for claims reciting abstract ideas with the March 4, 2014, guidance for claims reciting natural phenomena/laws of nature.

Under the new guidelines, the examiner will first determine whether the claim is directed to one of the four accepted statutory categories. If it does, examiners are instructed to apply the 2-part patent-eligibility analysis, as articulated by the Supreme Court in Alice. Examiners are instructed to apply the 2-part analysis to the broadest reasonable interpretation of the claims when analyzed as a whole. Importantly, the Guidance also confirms that “[e]very claim must be examined individually, based on the particular elements recited therein, and should not be judged to automatically stand or fall with similar claims in an application.”

Analysis for Software/Business Method Claims – Abstract Idea Guidance

To evaluate software and business method claims, the “abstract idea” analysis laid out in the Guidance will be the most relevant. To determine whether a claim recites an abstract idea, the 2-part Alice test is as follows: 1) determine whether the claims are directed to an abstract idea, and if they are, then 2) determine whether the claims recite additional elements that amount to significantly more than the abstract idea.

Part 1

In accordance with Alice, the Interim Guidance notes that fundamental economic practices, certain methods of organizing human activities, an idea ‘of itself,’ and mathematical relationships/ formulas are recognized as abstract ideas. Citing previous cases, the Interim Guidance provides examiners with specific examples of abstract ideas:

  • mitigating settlement risk (Alice);

  • hedging (Bilski);

  • creating a contractual relationship (buySAFE);

  • using advertising as an exchange of currency (Ultramercial);

  • processing information through a clearinghouse (Dealertrack);

  • comparing new and stored information and using rules to identify options (SmartGene);

  • using categories to organize, store and transmit information (Cyberfone);

  • organizing information through mathematical correlations (Digitech);

  • managing a game of bingo (Planet Bingo);

  • the Arrhenius equation for calculating the cure time of rubber (Diehr);

  • a formula for updating alarm limits (Flook);

  • a mathematical formula relating to standing wave phenomena (Mackay Radio); and

  • a mathematical procedure for converting one form of numerical representation to another

    (Benson).

Part 2

If no abstract idea is found in Part 1, then Part 2 need not be addressed. But if Part 1 identifies an abstract idea in the claims, Part 2 is considered. The Guidance stresses the importance of considering the claim as a whole, rather than addressing individual elements on their own.

The Guidance provides examples of limitations that may be enough to qualify as “significantly more” when recited in a claim. These examples include:

  • improvements to another technology or technical field;

  • improvements to the functioning of the computer itself;

  • applying the abstract idea with, or by use of, a particular machine;

  • effecting a transformation or reduction of a particular article to a different state or thing;

    • adding a specific limitation other than what is well-understood, routine and conventional in the field, or adding unconventional steps that confine the claim to a particular useful application; and

    • other meaningful limitations beyond generally linking the use of the abstract idea to a particular technological environment.

      These examples are consistent with the recent Federal Circuit Decision in DDR Holdings, LLC. v. Hotels.com (DDR).

      Limitations that do not qualify as “significantly more” include:

    • adding the words “apply it” (or an equivalent) with the abstract idea, or mere instructions to implement an abstract idea on a computer;

    • simply appending well-understood, routine and conventional activities previously known to the industry, specified at a high level of generality, to the abstract idea, e.g., a claim to an abstract idea requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry;

    • adding insignificant extrasolution activity to the abstract idea, e.g., mere data gathering in conjunction with the abstract idea; and

    • generally linking the use of the abstract idea to a particular technological environment or field of use.

      2-Part Analysis Not Always Necessary

      According to the Interim Guidance, examiners do not need to perform the complete 2-part analysis when eligibility is self-evident. A full analysis may not be needed where the claims clearly do not preempt the abstract idea in such a manner that others cannot practice it. For instance, the interim guidelines note that a claim directed to a complex manufactured industrial product or process that recites meaningful limitations along with an abstract idea may sufficiently limit its practical application so that a full eligibility analysis is not needed. As an example, a robotic arm assembly having a control system that operates using certain mathematical relationships is not an attempt to tie up use of the mathematical relationships and would not require the examiner to perform the full 2-part analysis to determine eligibility.

    The Interim Guidance is effective on December 16, 2014 and is not legally binding. The USPTO is seeking public comments on this Interim Guidance along with additional suggestions on claim examples by March 15, 2015.

Apple Gets Another Bite At $368 Million Verdict

IMS_expert_blktype-transparent

You don’t get two bites at the apple, it is sometimes said, but Apple Inc. is getting a second bite at defending itself against a massive damages award after the Federal Circuit Court of Appeals vacated a $368 million jury verdict in a patent infringement case.

The court vacated the award because it found that the plaintiff’s damages expert improperly relied on a model known as the Nash Bargaining Solution to calculate reasonable royalty damages.

Federal district courts have split on whether to allow expert testimony using the Nash Bargaining Solution, but the Federal Circuit held that the expert failed to establish the tie between the Nash theorem and the facts of this case.

The underlying issue in the case was whether two of Apple’s products — FaceTime, which allows secure video calling between Apple devices, and VPN On Demand, which creates a virtual private network from an iOS device — infringed four patents owned by VirnetX, a Nevada software and licensing company.

A jury in federal court in Tyler, Texas, concluded that all four patents were valid and that Apple had infringed them. It awarded VirnetX damages of $368 million.

Proving Reasonable Royalties

On appeal, the Federal Circuit upheld the jury’s verdict of infringement with regard to the VPN On Demand product but reversed and remanded aspects of the infringement verdict with regard to the FaceTime product.

The court then turned its attention to Apple’s challenges of the testimony of VirnetX’s damages expert. In a patent case, when infringement is found, a court is to award damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”

To establish a reasonable royalty rate in this case, VinetX’s expert offered three alternative methods of calculation. Apple challenged the admissibility of all three methods under Daubert, but over Apple’s objection, the trial court admitted the testimony.

On appeal, however, the Federal Circuit found problems with all three theories.

Smallest Salable Unit

The expert’s first theory was to apply a one percent royalty rate to the base. He derived the one percent rate from the royalty VirnetX typically sought in licensing its patents. For the base, he used what he called the “smallest salable unit” — the lowest sale price of each model of the iOS devices that contained the challenged features. With this theory, he calculated the total damages to be $708 million.

Apple argued that the expert erred by using the entire market value of its products as the royalty base without demonstrating that the patented features drove the demand for those products. The Federal Circuit agreed.

“The law requires patentees to apportion the royalty down to a reasonable estimate of the value of its claimed technology, or else establish that its patented technology drove demand for the entire product,” the court explained. “VirnetX did neither.”

The court went on to say that the expert “did not even try to link demand for the accused device to the patented feature, and failed to apportion value between the patented features and the vast number of nonpatented features contained in the accused products.”

The Nash Bargaining Solution

For both the expert’s second and third theories — each of which he used only with regard to FaceTime — he relied on the Nash Bargaining Solution, a so-called game theory developed in 1950 by John Nash, a mathematician and co-winner of the 1994 Nobel Prize in economics.

In his first use of the Nash theorem, the expert began by calculating the profits associated with the use of FaceTime. He did this based on the revenue generated by Apple’s addition of a front-facing camera on its mobile devices. He then determined that, under the Nash theory, the parties would have split this revenue 50/50. However, after accounting for Apple’s stronger bargaining position, he concluded that Apple would have taken 55 percent of the profits and VirnetX, 45 percent. That amounted to $588 million in damages.

For his second use of the Nash theorem, the expert assumed that FaceTime “drove sales” for Apple’s iOS products. Eighteen percent of all iOS sales would not have occurred without the addition of the FaceTime feature, he concluded. Based on that, he calculated the amount of Apple’s profits that he believed were attributable to FaceTime and apportioned 45 percent of those profits to VirnetX. That amounted to $606 million in damages for FaceTime.

Apple challenged both these theories, arguing that the expert’s use of the 50/50 split as a starting point was akin to the 25 percent rule of thumb for royalties that the Federal Circuit had rejected in earlier cases. Here again, the Federal Circuit agreed with Apple’s argument.

The problem, the court explained, is that the Nash theorem arrives at a result that follows from a certain set of premises. Here, the expert never tied his use of the theorem to the facts of the case.

“Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises,” the court said. In this case, the expert never did that.

Based on these conclusions, the court vacated the damages award and sent the case back to the district court for further proceedings.

Has an expert ever used the Nash Bargaining Solution, or other game theory, in one of your cases? If so, was the result positive?

ARTICLE BY

Robert J. Ambrogi, Esq.
OF
IMS ExpertServices

More GMO Woes: Another Corn Exporter Sues Syngenta for its Failure to Isolate its GMO Corn

Mintz Levin Law Firm

Last month, Archer Daniels Midland Co. (“ADM”) joined a slew of corn exporters and other stakeholders who have sued Syngenta based on allegations that China rejected these exporters’ products because Syngenta’s genetically modified corn seed, which contains a trait that China has not yet approved for import, was not kept separate from the plaintiffs’ products.

Corn Thrasher

Syngenta’s corn seed contains MIR 162, a patented genetically modified (“GMO”) trait that may protect corn crops from insect damage.  This corn is also known as “Viptera corn.”  The ADM suit against Syngenta, which was filed in Louisiana state court on November 19, alleges that Syngenta was negligent in marketing its GMO corn.

The complaint explains that although Syngenta told the U.S. Department of Agriculture that it would put into place programs to keep the GMO corn separate from other strains so that it would not end up on ships headed for countries that have not yet approved the import of foods containing MIR 162. Syngenta has not implemented any such programs.

One major issue stemming from Syngenta’s alleged failure to isolate GMO corn is that MIR 162 has not been approved in all major export markets, including China, the world’s second-largest consumer of corn behind the United States.  Therefore, when the Syngenta seed is mixed with other corn seed during shipment, as corn in the United States is “commoditized,” or mixed together, during export, the entire lot is rejected when it reaches China because MIR 162 has not yet been approved for import.  Over the past year, China has rejected over one million tons of U.S. corn and corn products because they contained MIR 162.

ADM, which alleges “substantial economic losses and damages” due to these rejections, joins over one hundred farmers and corn exporters who have filed lawsuits against Syngenta for damages stemming from Syngenta’s failure to segregate its GMO corn seed.  For example, corn exporters Cargill Inc. and Trans Coastal Supply recently sued Syngenta for damages suffered due to China’s rejection of their corn shipments.

Additionally, groups of Midwestern farmers filed proposed class actions in Nebraska and Illinois federal courts in October 2014, in which they accused Syngenta of continuing to market and sell seeds containing MIR 162 and misleading farmers into planting this GMO corn alongside the rest of their corn crops.  In response to these prior suits, Syngenta has continually stated that these cases have no merit.  For example, in a recent conference call with analysts, Syngenta’s CFO stated that the company believes that it has complied with all laws, rules, and regulations in all of the countries in which it sells its GMO corn.

As we’ve explored in past posts, GMO foods continue to be controversial in the United States.  The ADM case is just one example of how the development and use of GMO foods in the United States can have far-reaching effects that extend beyond American consumers and legislation and into international trade.  Stay tuned for updates regarding Syngenta’s response to the ADM complaint.

ARTICLE BY

Michelle Gillette
Dominique L. Windberg
OF
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

U.S.-Centered Negotiations for Product Made and Sold Outside United States Do Not Constitute Sale or Offer for Sale in United States

Mcdermott Will Emery Law Firm

Halo Elecs., Inc. v. Pulse Elecs., Inc. and Pulse Elecs. Corp.

In a case exploring the limits of what constitutes a sale or offer for sale “within the United States” under 35 U.S.C. § 271(a), the U.S. Court of Appeals for the Federal Circuit found that sales were carried out outside of the United States and, even though they were partially negotiated in the United States, did not constitute an infringement of U.S. patent rights under § 271(a).  Halo Elecs., Inc. v. Pulse Elecs., Inc. and Pulse Elecs. Corp., Case Nos. 13-1472; -1656 (Fed. Cir., Oct. 22, 2014) (Lourie, J.) (O’Malley, J., and Hughes, J., concurring).

Halo accused Pulse of infringing its patents related to surface mount electronic packages containing transformers for mounting on a printed circuit board.  Pulse’s products were manufactured in Asia and the majority of its products were delivered to customers in Asia.  Pulse received the purchase orders for these products abroad.  However, Pulse engaged in pricing negotiations with its customers in the United States, and Pulse’s U.S.-based employees had to approve prices quoted by its agents when those prices fell beneath a threshold.  The district court granted Pulse summary judgment of non-infringement finding that its activities for these sales were insufficient to constitute a sale or offer for sale “within the United States.”  After a trial finding that the same products that did enter the United States infringed Halo’s patents, the district court found Pulse’s substantial invalidity defense negated the objective prong of willfulness under In re Seagate.  Halo appealed.

On appeal, the Federal Circuit panel affirmed that Pulse’s U.S.-based activities for its products manufactured and sold in Asia were not sales or offers for sale “within the United States.”  The Court noted that while a sale is not necessarily limited to the place of transfer of the tangible property, but may also be determined by the place where agreement to such a transfer takes place, extraterritorial applications of U.S. patent law were disfavored.  The Court found it was undisputed that the products at issue were manufactured, shipped and delivered abroad; that the purchase orders were received abroad; that the negotiations that occurred in the United States did not constitute a firm agreement to buy and sell; and that Pulse was paid abroad for its products.  Based on these facts, the Court found it need not reach Halo’s argument that the place of formation of a contract can be determinative of whether a sale has occurred “within the United States.”  The Court further explained that for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States, and that Pulse’s actions therefore did not constitute an offer for sale cognizable under the Patent Act.  Finally, the panel affirmed the district court’s finding of no willfulness, agreeing that Pulse’s presentation of a substantial invalidity defense at trial negated the objective prong of the willfulness test.

Practice Note: In a concurrence, Judge O’Malley and Judge Hughes, while agreeing with the finding of no willfulness under current case law, urged the full court to reexamine its enhanced damages jurisprudence in light of the Supreme Court of the United States’ decisions in Highmark v. Allcare Health Management Sys., and Octane Fitness v. ICON Health & Fitness.  Specifically, the concurrence urged reconsideration of the two-part subjective/objective test required under Seagate; the requirement that willfulness be proven by clear and convincing evidence; whether de novo review is the appropriate standard on appeal; and whether willfulness must be decided by the court as a matter of law.

ARTICLE BY

Christopher L. May
OF
McDermott Will & Emery

Antares Pharma Bolsters the “Original Patent” Rule for Reissued Patents

Michael Best Logo

On November 17, the Federal Circuit decided Antares Pharma, Inc. v. medac Pharma Inc., holding reissued patent claims invalid for failing to comply with the “original patent” requirement of 35 U.S.C. § 251. The court’s decision casts a spotlight on the original patent rule and reinvigorates the little-used doctrine as an invalidity defense against reissued patent claims.

In Antares Pharma, the plaintiff alleged infringement of U.S. Patent RE44,846. Specifically, the plaintiff asserted four claims that had been added through reissue proceedings to broaden the original patent. The original claims were directed to various embodiments of a jet injection device, and the asserted reissue claims covered particular safety features for any injection device. The patentee sought a preliminary injunction, which the district court denied. The court found substantial questions of validity regarding whether the reissued claims impermissibly recaptured subject matter surrendered during prosecution to obtain the original claims.

On appeal, the Federal Circuit declined to address the recapture issue. The court instead decided the case by invoking the original patent rule, an issue that had been argued but not resolved below.

Section 251, which governs reissue applications, states in pertinent part that where a patentee has by error claimed more or less that it had a right to claim in a patent, the Patent Office will “reissue the patent for the invention disclosed in the original patent.” The italicized provision had previously been applied in a manner analogous to the written description requirement to require that reissue claims found adequate support in the disclosure of the original patent. In Antares Pharma, however, the Federal Circuit turned to Supreme Court precedents dating back as far as 1854 to read a more stringent standard into the “original patent” provision of § 251. In particular, the court held that whether or not the written description requirement was satisfied, “the specification must clearly and unequivocally disclose the newly claimed invention as a separate invention.”

Applying that standard to the reissue claims on appeal, the court not only affirmed the denial of a preliminary injunction, but also held the asserted reissue claims invalid as a matter of law. The court concluded that the safety features claimed during reissue were never described separately from the jet injector or disclosed in the particular claimed combinations. Because the original specification lacked “express disclosure” of the exact embodiments recited in the reissue claims, those claims failed to satisfy the original patent requirement.

The Antares Pharma decision provides guidance to potential reissue applicants and offers a significant new weapon for parties accused of infringing a reissued patent. For patentees, the decision expands the risks associated with using a reissue application to seek supplemental or complementary patent protection—the reissue applicant not only risks intervening rights and undesirable modification or loss of previously issued claims, but now faces a heightened requirement, not applicable to continuing applications, for clear and unequivocal disclosure of the newly claimed subject matter as a separate invention. To the extent practical, new applications should clearly set forth each potential invention with detailed examples. For parties accused of infringement, the exacting Antares Pharma standard will provide an additional, robust basis for validity challenges against asserted reissue claims during litigation.

ARTICLE BY

Andrew T. Dufresne
Marshall J. Schmitt
OF
Michael Best & Friedrich LLP

They Know It When They See It: Patentable Subject Matter After Alice

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To those with even a casual interest in the preparation and prosecution of patents in the United States, the holding in the Supreme Court’s June 2014 decision in Alice Corp. v. CLS Bank International is well known: claims directed to intermediated settlement encompass an abstract idea, and generic recitation of a computer implementation in such claims fails to transform the abstract idea into patent-eligible subject matter. Predictably, numerous articles have since been published extolling the virtues (or lack thereof, as the case may be) of theAlice decision. While the patent eligibility debate is good and necessary, it leaves open the question of many would-be patentees: may I get a patent on my software-based innovation?

While the Court provided virtually no “bright line” rules in answer to this question, the decision nevertheless suggests various approaches that may be employed going forward to best ensure your patent application embraces patent-eligible subject matter.

Background

Alice Corporation obtained various patents directed to, as the Court put it, “a computerized scheme for mitigating ‘settlement risk’—i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation.” In a highly fractured opinion, the Court of Appeals for the Federal Circuit concluded that all of Alice’s claims were directed to patent-ineligible subject matter.

On further appeal, the Court cited its recent decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., in which the Court laid out its two-step process for separating patents directed to patent ineligible concepts from “those that claim patent-eligible applications of those concepts.” First, one must “determine whether the claims at issue are directed to . . . patent ineligible concepts.” If so, in the second step, one must then ask what else is in the claims that may be sufficient to “transform” the ineligible concept into a patent-eligible application thereof.

Unfortunately, the Court provides no guidance how one goes about determining whether claims are directed to ineligible concepts in the first step. In fact, the Court expressly takes a pass on the issue, stating that it “need not labor to delimit the precise contours” of what constitutes a patent-ineligible concept. Instead, the Court noted that it’s Bilski decision concerned claims directed to “hedging,” which “all members of the Court agreed” constituted an abstract idea. Without further reference to the actual language of the claims, the Court stated that Alice’s “claims . . . are drawn to the concept of intermediated settlement.” With this setup, the Court quickly concluded that “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is a ‘fundamental economic practice long prevalent in our system of commerce.'”

Turning to the second step, the Court had little trouble in determining that various other recitations in the claim beyond the abstract idea failed to “do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” Looking at “the claim elements separately,” the Court stated that “each step does no more than require a generic computer to perform generic computer functions.” Further, considering the claimed computer elements “as an ordered combination” did not add anything “that is not already present when the steps are considered separately.”

Going Forward

So, you are now considering patent protection for your new, software-implemented invention, but the Court’s “guidance” in Alice has left you unsure whether it makes sense to proceed. Despite the outcome in Alice, patents based on software-implemented innovations have not been knocked out entirely, though they did take a pretty good punch to the gut. Going forward, would-be patentees must take greater care to ensure that they claim and present their inventions in a manner that minimizes the likelihood of being interpreted as an “abstract idea.” The following observations should help you avoid that pitfall.

1. Stay As Far Away From Bilski and Alice As You Can

As noted, the closest the Court came to providing concrete guidance for identifying patent-ineligible abstract ideas was to measure how close the underlying “inventive concept” of an invention comes to the abstract ideas found in Bilski and, in the future, Alice. That is, if the subject matter of your claims is reasonably analogous to the risk hedging claimed in Bilski or the intermediated settlement in Alice, it’s almost certainly going to be viewed as embracing an abstract idea. Instead, try to find a way to describe the subject matter of your invention as something other than a concept that is related to these concepts.

Even more so than before, for software-implemented ideas, application drafting will require a careful balancing of what you say in the specification and in the claims. That is, the difference between whatever abstract idea is arguably discussed in the specification versus the limitations in your claims (∆abst) should be as large as possible.

For example, assume an invention concerns a new technique for completing payments for goods and services via mobile, wireless devices, which method facilitates a more rapid exchange of certain types of data. Having a method claim that begins “A method for completing payments via mobile, wireless devices” strongly suggests that the “inventive concept” is directed to the mere idea of completing financial transactions, which starts to sound awfully similar to the intermediated settlement of Alice. Rather than focusing the claim on the novelty of the financial transaction itself, attempt to focus the claim on the effect the method has on the underlying mobile device, e.g., “A method for communicating transactional data by a mobile, wireless device.”

2. Get “Technical”

Perhaps more importantly, even if you can strongly contrast your claims to the underlying abstract idea, you may still be on shaky grounds if your application doesn’t somehow discuss how it leads to a technological improvement. In Alice, when rejecting the sufficiency of a generic computer implementation to rescue claims otherwise directed to an abstract idea, the Court specifically noted that the claim did not “purport to improve the functioning of the computer itself . . . [or] effect an improvement in any other technology or technical field.” Stated another way, rather than directing your specification and claims as teaching improvements to a traditionally human-implemented field of endeavor (e.g., hedging risk, mediating settlement risk), they should clearly establish how the innovation improves the operation of a machine (i.e., the computer implementing the software-driven method) or an overarching “technology or technical field” in which the computer-implemented method is employed.

The graph below illustrates the apparent “sliding scale” nature of the abstract idea and technology aspects of the Alice decision. As shown, the connection of the claimed subject matter to improvement to a particular technology is shown along one axis, and the distinction of the claims over an encompassed abstract idea (∆abst) is shown along the other. For claimed subject matter that demonstrates little distinction from the alleged abstract idea and that demonstrates a weak connection to a technological improvement, there is little likelihood (“No Chance”) of demonstrating subject-matter eligibility. Oppositely, for claimed subject matter that is strongly distinguished from the alleged abstract idea and that clearly concerns a technological improvement, there is a much greater likelihood (“No Problem”) of demonstrating subject-matter eligibility. It is to be expected, however, that the relative areas of the illustrated outcomes will be different according to the particular realm of abstract ideas at hand, i.e., the “No Chance” area is likely to be much larger when dealing with finance-related inventions versus inventions concerning, say, telecommunications.

 

For example, assume an invention concerns a new process applicable to trading platforms for various financial instruments, e.g., stocks, commodities, etc. Where possible, one should not stress how the claimed process makes trading markets more efficient or enables different types of financial instruments to be traded. Instead, it may be better to acknowledge in the specification that electronic trading is well-known and that the invention leads to better operation of the underlying machines (e.g., where the claimed process enables the machine to complete more trades per unit of time, complete the trades more accurately, in a manner less consuming of resources, etc.) or broadens the capabilities of such machines (e.g., where the process provides a function that was previously unavailable). In drafting the specification, carefully ascribe certain steps to humans versus machines where possible and then make sure the claims don’t include any of the human-performed steps.

3. Get to Know a European Patent Attorney

It has been observed by many commentators that the Alice decision is yet another nudge of U.S. practice in the direction of European practice, i.e., focused on a “technical problem” for which your invention must provide a “technical solution.” European patent attorneys have been dealing with such issues for many years and may be able to offer valuable insights how to best position your invention in an application.

4. Be Prepared to Make Decision Makers Prove “Abstractness”

A concern with the Court’s lack of guidance when assessing whether a claim embraces excluded subject matter is that, not unlike those seeking to obtain patents, the examiners at the U.S. Patent & Trademark Office (USPTO) and federal district court judges will be equally in the dark. Unfettered from concrete guidance, it may be anticipated that examiners and judges will be more apt to make unsubstantiated assertions that claims encompass abstract ideas. Having drafted your claims and specification as noted above, i.e., emphasizing less how the invention helps achieve a business goal or perform human tasks better and instead illustrating how it improves/extends operation of an underlying machine or overarching technology, you will at least have a stronger foundation for arguing against the alleged abstract idea.

ARTICLE BY

Christopher P. Moreno
OF
Vedder Price