Tag: patent

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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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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Almost All Applications Filed On or After September 16, 2012 Will Require a New Inventor’s Declaration

On Tuesday, August 14, 2012, the United States Patent and Trademark Office (USPTO) published a final rule entitled “Changes to Implement the Inventor’s Oath or Declaration Provisions of the Leahy–Smith America Invents Act.” Among other things, this rulemaking implements 35 USC 115, which changed the requirements for the inventor’s oath or declaration. Amended 35 USC 115(b) provides that the oath or declaration must contain two statements: (1) that the application was made or was authorized to be made by the affiant or declarant, and (2) that the individual believes himself or herself to be the original inventor or an original joint inventor of a claimed invention in the application. All oaths or declarations submitted in an application filed on or after September 16, 2012 must meet the requirements of 35 USC 115 as amended by the AIA.

The phrase “or was authorized to be made” is new and does not appear in the current version of the inventor’s declaration. As a result, oaths or declarations submitted in applications filed before September 16, 2012 will not satisfy the statutory requirements for an oath or declaration for an application filed on or after September 16, 2012.

This is especially significant for continuing applications: continuations, divisionals, and continuation-in-part applications. Previously, applicants could submit a copy of the inventor’s oath or declaration from a parent application for a continuation or divisional application of that parent application. However, according to this final rule, starting September 16, 2012, this will no longer be possible if the current oath or declaration does not contain the new statements as above. The oath or declaration that is submitted for a continuing application that was filed on or after September 16, 2012, must satisfy the amended AIA statute. As a result most applications will need a new oath or declaration.

Adding to the problem, the USPTO will no longer review an oath or declaration in an application for compliance with the rules during the examination process. The USPTO will review applications to determine whether the application includes an oath or declaration when the application is in condition for allowance. Therefore it could be many years before the applicant learns that the oath or declaration is defective.

RECOMMENDATION: File continuing applications, continuations, divisionals, and continuation-in-part applications prior to September 16, 2012, if obtaining a new oath or declaration with the signature of the inventors may be a problem. Contact your attorney for other options.

© 2012 Sterne Kessler

USPTO Preliminary Guidelines Spread Mayo on Patent-Eligibility

The National Law Review recently published an article by Christopher L. Drymalla, Jeffrey B. Swartz, Jeffrey S. Whittle and Michael R. Samardzija, Ph.D. of Bracewell & Giuliani LLP regarding Patent-Eligibilty:

A day after the United States Supreme Court delivered its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc.,1 the United States Patent and Trademark Office issued preliminary guidance2 instructing examiners to reject process claims that invoke laws of nature and only add steps which constitute “well-understood, routine, conventional activity” that is described in the most general of terms regardless of whether there is a transformation involved.

According to the Patent Office, although the “machine or transformation test” remains an “important and useful clue,” it is not to be considered “the sole or a determinative test” for eligibility as it does not “trump the ‘law of nature’ exclusion.” Moreover, the Mayo decision reinforces the need for a patent applicant whose claims include a law of nature, a natural phenomenon, or an abstract idea to ensure the “claimed product or process amounts to significantly more than a law of nature, a natural phenomenon, or an abstract idea with conventional steps specified at a high level of generality appended thereto.” (emphasis in original). Although the guidelines put special importance on process claims as were at stake in Mayo, the guidelines appear to indicate this analysis may apply to all claims related to laws of nature, natural phenomena, or abstract ideas.

Neither the guidelines nor Mayo provide specific guidance for what would make a product or process significantly more than a law of nature, a natural phenomenon, or an abstract idea. Nevertheless, the Patent Office sees the claim at issue inMayo as a prime example of one which merely includes a highly general and conventional step of which patent examiners are expected to be more cautious.  As explained in the guidelines, the claims in Mayo emphasize the “law of nature” correlation between the concentration of the drug and its threshold limits for therapeutic effects and harmful side effects.

Simply adding the well-understood, routine, conventional actions of administering the drug and checking its blood concentration in the most general of terms, however, does not confer patent eligibility as the claims themselves are “effectively directed to the [law of nature] exception itself.” Based on the new guidelines, an examiner confronting a similar claim set is directed to reject the claim as non-statutory subject matter under 35 U.S.C. § 101 (utility or patent-eligibility requirement section). The guidelines do specifically note that the applicant in such a case will then have the opportunity to defend the claim and show why it is not drawn to the patentability exception itself. The applicant will have to rely on other claim limitations to support the argument.

The Patent Office’s guidelines suggest that the Mayo decision should be viewed as a cautionary tale for applicants who intend to direct claims to inventions which arguably incorporate the use of laws of nature, natural phenomena, or abstract ideas.

Should you have any questions, please contact your Bracewell & Giuliani LLP patent attorneys. We will, of course, keep you advised as to any new developments in this area.

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1No. 10-1150, 566 U.S. ___, 2012 WL 912952 (S. Ct. Mar. 20, 2012) (for a more thorough discussion of Mayo and the particular facts and determinations involved,see Update: Can’t Touch This – Supreme Court Finds Personalized Medicine Patent Claims Invalid, Bracewell & Giuliani LLP (Mar. 20, 2012).

2See Memorandum: Supreme Court Decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (Mar. 21, 2012).

© 2012 Bracewell & Giuliani LLP