Source: https://www.patentdocs.org/2017/05/index.html
Timestamp: 2019-04-18 10:59:21+00:00

Document:
PricewaterhouseCoopers (PwC) and CB Insight recently released the results of its US MoneyTreeTM Report on U.S. venture funding for the first quarter of 2017. The report indicates that venture capitalists invested $13.9 billion in 1,104 deals in the first quarter, which constituted a 15% increase in dollars and a 2% decrease in deals as compared with the fourth quarter of 2016, when $12.0 billion was invested in 1,085 deals (see chart below, which shows total venture funding from the second quarter of 2015 through the first quarter of 2017; chart from MoneyTreeTM Report). While the increase in dollars and deals in the first quarter of 2017 reversed an eight-quarter low in both dollars and deals in the fourth quarter of 2016, first quarter funding was still $1.8 billion behind last year's pace.
With respect to funding by sector, the internet sector captured the top spot among the sectors tracked in the report, collecting $5.2 billion in 485 deals in the first quarter of 2017. The healthcare sector came in second, with $3.7 billion invested in 190 deals (see chart below, which shows venture funding for the internet, healthcare, mobile & telecommunications, software (non-internet/mobile), and industrial sectors; chart from MoneyTreeTM Report).
The report also includes separate analyses of funding in the areas of artificial intelligence, digital health, and cybersecurity, as well as funding by geographic region and a global regional comparison.
The U.S. Supreme Court handed down its decision today in Impression Products, Inc. v. Lexmark International, Inc., unsurprisingly reversing the Federal Circuit regarding the metes and bounds of the patent exhaustion doctrine. The Court ruled that the doctrine precludes a patentee from using the patent laws to enforce any agreement that restricted a purchaser's post-sale ownership rights in a patented article, and that the doctrine extended to patented products sold abroad. The decision reversed Federal Circuit precedent that permitted patentees to limit the scope of rights transferred to purchasers upon sale of a patented article, provided that such restrictions were "clearly worded" (Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992)) and further expanded the scope of exhaustion to include sales made outside the U.S., which the Federal Circuit had held were outside the reach of exhausting U.S. patent rights (Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001)). The decision represents a culmination of the Court's delineation of the expansive scope of exhaustion regarding intellectual property rights that can be found in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) and (in the copyright context) Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013).
The case arose over the resale of laser printer toner cartridges, sold by Lexmark both in the U.S. and abroad. The cartridges were sold at a discount under an agreement that prohibited the buyer from selling the cartridges to any third party for reloading (with "a powdery substance, known as toner, that laser printers use to make an image appear on paper"). Each cartridge contained a chip that prevented third party reloading, but technology developed in ways that the microchip could be overridden. Petitioner/accused infringer Impression Products reloaded and sold Lexmark cartridges obtained from discount purchasers both foreign and domestic. The District Court dismissed Lexmark's infringement suit as to U.S. sales but permitted pursuit of a patent infringement remedy for foreign sales; the Federal Circuit affirmed as to foreign sales but also permitted Lexmark's infringement case to proceed for U.S. sales as well.
The Federal Circuit, relying on its (now-overruled) decision in Mallinckrodt, Inc. v. Medipart, Inc., 976 F. 2d 700 (Fed. Cir. 1992), held that the patent right included the right to impose "clearly communicated" post-sale restrictions that could be enforced by an infringement suit. The Court's basis for this opinion was that the law defines infringement as "making, using, selling, offering to sell, or importing" a patented article "without authority," and thus post-sale restrictions would comprise infringement because they denied the purchaser the requisite authority for unrestricted use. The Federal Circuit's application of the exhaustion principle was that it was presumptive but that the presumption could be expressly rebutted by such post-sale restrictions.
As for sales made abroad, the Federal Circuit relied on its (now also overruled) decision in Jazz Photo Corp. v. International Trade Commission, 264 F. 3d 1094 (Fed. Cir. 2001), where foreign sales did not preclude an infringement suit for unauthorized importation and sale of a patented article. This decision was based on the lack of the predicate benefit to the patentee of selling an article abroad that was protected by a U.S. patent, in view of the lack of extraterritorial effect of the patent: there was no patent premium received by the patentee under those circumstances, and thus the Court believed exhaustion was not justified.
The Supreme Court was presented with two questions: can a patentee impose an express restriction on use or reuse of a patented product sold in the U.S. that is enforceable under the patent laws, and does sale of a patented article abroad exhaust the patentee's right to restrict importation of a product sold abroad? The Supreme Court answered no to both questions, based on its view that patent exhaustion is a limitation on the patent right under the common law principle against restraints on alienating property. The Court's opinion as to U.S. sales was unanimous, in an opinion colorfully written with regard to the facts (e.g., "[n]ot blind to this business problem [of reloading cartridges to be sold at a lower price"; "Lexmark, however, was not so ready to concede that its plan had been foiled [i.e., by thwarting the microchip limitation on reloading]") by Chief Justice Roberts. Justice Ginsberg dissented with regard to foreign sales, which she believed should not exhaust U.S. patent rights. Justice Gorsuch did not participate in the decision.
With regard to resale of cartridges purchased in the U.S., the Court struck down any post-sale restrictions because it held that all patent rights were exhausted upon first sale. The basis for this decision was limited to patent law (the Court recognized that there might be a cause of action in contract law, however ineffective), and the opinion declares that the doctrine of patent exhaustion has been consistent in U.S. law for over 160 years, citing Bloomer v. McQuewan, 14 How. 539 (1853). The Court characterized the function of exhaustion to operate "automatically"; once a patentee sells a patented article that article becomes "private, individual property" of the purchaser subject to no further rights by the patentee. Patent law provides the patentee with the right to set prices and negotiate with purchasers over terms of sales, but the Court opined that once the sale is made the patentee does not have the right, under patent law, to "control the use or disposition" of the product, citing United States v. Univis Lens Co., 316 U. S. 241, 250 (1942). This principle was affirmed most recently by the Court in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008), which the Court says should have removed "any lingering doubt that patent exhaustion applies even when a sale is subject to an express, otherwise lawful restriction."
The opinion cites its decision in Kirtsaeng regarding a similar principle ("the first sale doctrine," codified at 17 U. S. C. § 109(a)) in copyright law, which decision also cited "the common law's refusal to permit restraints on the alienation of chattels." The Court cites as ancient provenance of this "venerable principle" the common law in the 17th century (the Court citing Lord Coke to that effect) that disfavors if not affirmatively rejects (the opinion describing the common law attitude as "hostility," "antipathy," and "enmity") any restraint on the free alienation of chattels and other private property, which are "obnoxious to the public interest," citing Straus v. Victor Talking Machine Co., 243 U.S. 490, 501 (1917).
The opinion then provides as an illustration of the "annoyance and inconvenience" to the public that would result from the Court deciding otherwise an auto repair shop, where the component parts (should they be subject to post-sale restrictions) could leave open to patent infringement liability a mechanic for servicing a privately owned vehicle. "[The] smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale," according to the opinion (in a conclusion bolstered by amici briefs that used smartphones and other articles of manufacture constituting multiple patented components).
The opinion supports its conclusions with further citations to precedent (including Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8, 17–18 (1918) and Univis) which, although being resale price restriction cases brought under antitrust law, were decided on the grounds that such restrictions were an impermissible extension of the patentees right to exclude. And Congress has not seen fit to change the law, according to the Court; this inaction raises the presumption that Congress does not intend patented articles to be an exception to the common law rule limiting patent rights, citing Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U.S. 104, 108 (1991).
The Court expressly identified the Federal Circuit's error (where "it got off on the wrong foot") to be grounding its decision on the extent of the "authority" that the patentee grants a purchaser, which while presumptively plenary does not (under the Federal Circuit's now overruled precedent) need to be so. On the contrary, the Court found the patent exhaustion principle to be much more than a presumption -- it is an affirmative limit on the scope of a patentee's right to exclude, the Court citing United States v. General Elec. Co., 272 U.S. 476, 489 (1926) to this effect. The opinion sets out the principle: the right to own (and use, and sell) property exists outside the patent right, and the law grants to patentee but a limited exception to that right, which exception is exhausted by sale by the patentee of the patented article.
The Court states that the remedy if any must be found in contract, but recognizes that the party who would have infringement liability (remanufacturers like Impression Products) are not in privity with the patentee and thus contract law under these circumstances does not provide a remedy. Responding to arguments by Lexmark, the Court notes that licenses and licensees are different, the Court distinguishing case law with regard to these entities with cases involving post-sale restrictions (specifically, General Talking Pictures Corp. v. Western Elec. Co., 304 U.S. 175, aff 'd on reh'g, 305 U.S. 124 (1938), which involved violation of restrictions on licensees). The Court states that these situations do not implicate restraints on free alienation, because a patent license does not transfer title; it just "expands the club of authorized producers and sellers." "Because the patentee [in licensing] is exchanging rights, not goods, it is free to relinquish only a portion of its bundle of patent protections," says the Court. A patentee can condition sale by a licensee to restrict post-sale use, but the opinion states that this is a also right limited by contract and not the patent law, citing Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 506–507, 516 (1917). The opinion succinctly states the scope of the exhaustion doctrine: "Patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee pur­ports to impose, either directly or through a license."
With regard to sales abroad, the Court cited its Kirtsaeng decision and found the same grounding in that case as here, in the unlawfulness of restraints on the alienation of chattels. Because this common law principle applies without regard to where the post-sale activity takes place, the distinction Lexmark (and Justice Ginsberg in dissent) made regarding foreign versus domestic sales disappears for the Court majority. The Court finds the application of these principles in the patent context "just as straightforward" as in copyright, and moreover, sees no "theoretical or practical" sense in differentiating between patent and copyright on exhaustion, citing the "many everyday products . . . [are] subject to both patent and copyright protections." The Court was unmoved by Lexmark's argument that, without patent protection a foreign sale would not command the patent premium on price, saying that "the Patent Act does not guarantee a particu­lar price, much less the price from selling to American consumers. Instead, the right to exclude just ensures that the patentee receives one reward—of whatever amount the patentee deems to be 'satisfactory compensation,'" citing Keeler v. Standard Folding Bed Co., 157 U.S. 659, 661 (1895).
Exhaustion does not arise because of the parties' expecta­tions about how sales transfer patent rights. More is at stake when it comes to patents than simply the dealings between the parties, which can be addressed through contract law. Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation. Exhaustion does not depend on whether the patentee receives a premium for selling in the United States, or the type of rights that buyers expect to receive. As a result, restrictions and location are irrelevant; what mat­ters is the patentee's decision to make a sale.
This decision (as the Quanta and Kirstaeng decisions before it) has important ramifications for biotechnology patent claims. There are two immediately evident examples: cases where a patentee having method claims and composition claims limits post-sale rights by a so-called "label license" for uses for a patented article; and cases where a patented article has the biological property of replication, where the license precludes use of replicates of the article after purchase. An example of the first type of situation are the limits placed on the practice of the polymerase chain reaction, based on patents to the amplification method and the thermostable polymerase. The restrictions were of two types: first, licenses to the method were granted only upon purchase of the polymerase and use of an "authorized" thermocyler. Second, the method (and for that matter, the polymerase) was not licensed for diagnostic uses, only for scientific research. Under the patent exhaustion doctrine set forth in the Lexmark opinion, it is likely that neither of these restrictions would be enforceable. First, although the polymerase has other uses that would not infringe the claims of the PCR method patent, it is likely that sale of the thermostable polymerase would exhaust the method claims as well, since the thermostable characteristic of the polymerase embodies essential features of the claimed invention. This is even more likely regarding the diagnostic use prohibition, since it represents the kind of restriction the Court prohibited in Adams v. Burke: "when a patented item is 'once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee.'" Adams, 17 Wall. 453, 457 (1873).
We recognize that such inventions are becoming ever more prevalent, complex, and diverse. In another case, the article's self-replication might occur outside the purchaser's control. Or it might be a necessary but incidental step in using the item for another purpose. . . . We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.
It is clear, however, that the Supreme Court has eviscerated the Federal Circuit's interpretation of the effect of patent exhaustion on patent rights, and that in this as in many other areas, the Court has determined that its views are the correct (if not only) views regarding U.S. patent law.
The textbook policy rationale for the existence of a patent system is a quid-pro-quo -- a tradeoff in which an inventor is granted a time-limited property right over his or her invention in return for disclosing it to the public. Such disclosure is expected to, over time, spur further innovation, and bolster research and development. But empirical measurements of the impact of the patent system on innovation and the economy have been difficult to come by. Patents are just one factor influencing ongoing scientific and engineering advances, and their impact is perhaps impossible to determine in an aggregate sense.
Heidi L. Williams of the National Bureau of Economic Research reviewed the available evidence of how patents on existing technologies might affect follow-on innovation and research investment. Her conclusion is that more evidence is needed: "[G]iven the limitations of the existing literature we still have essentially no credible empirical evidence on the seemingly simple question of whether stronger patent rights -- either longer patent terms or broader patent rights -- encourage research investments into developing new technologies."
Nonetheless, in a recent article, Vera Ranieri of the Electronic Frontier Foundation (EFF) has used this essentially neutral position to argue in favor of recent changes to U.S. patent law that arbitrarily and subjectively limit patentable subject matter. In doing so, Ms. Ranieri falls back on a number tired tropes and misconceptions about the workings of U.S. patent law, and fails to consider the damage done by these changes to the certainty function of the patent system.
In 2014, the Supreme Court handed down a highly controversial decision in Alice Corp. v. CLS Bank Int'l. In a nutshell, the Court ruled that patent claims should be analyzed to determine whether they are too "abstract," and if they are, these claims should be further analyzed to determine whether they incorporate "significantly more" than an abstraction. In doing so, the Court went well beyond the plain language that Congress set forth in 35 U.S.C. § 101, the section of the patent statute that defines subject-matter eligibility. Furthermore, the Court purposely declined to define what it meant by "abstract" and "significantly more," essentially leaving it up to the Federal Circuit, the district courts, and the USPTO to provide meaning for these ambiguous terms.
While not explicitly stating it, in Alice the Court effectively targeted software and business method inventions (and certain types of life science inventions, such as diagnostic methods) for an additional level of scrutiny. In fact, the EFF's own amicus brief in Alice encouraged the Court to use the case to "reign in overbroad software patents." Whether or not this argument ultimately swayed the Justices to rule as they did, the effect of Alice is clear -- over 15,000 patent claims have been invalidated under § 101 since this decision came down, the vast majority of these in the software and business method space. Additionally, some software and most business method claims are now harder to obtain from the USPTO, with rejection rates of over 90% in some business method art units.
In many cases, courts have invalidated patents under § 101 without undertaking claim construction. Let that sink in for a while -- courts are throwing out patents as allegedly being abstract without determining the actual scope of the claimed invention.
The problem with Alice is not just that it limits the scope of patentable subject matter, but that it does so in an arbitrary and subjective fashion. Courts and the USPTO have struggled mightily with making sense of the decision. Judge Wu of the United States District Court for the Central District of California criticized Alice for setting forth an "I know it when I see it" test. Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent-eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues." Former Chief Judge of the Federal Circuit Paul Michel stated that Alice "create[d] a standard that is too vague, too subjective, too unpredictable and impossible to administer in a coherent consistent way in the patent office or in the district courts or even in the federal circuit."
While the Federal Circuit has attempted to provide a consistent line of post-Alice case law, this has resulted in some very thin bacon slicing. For instance, in 2014 a panel in Ultramercial v. Hulu found a complex and narrow web-based transaction to be unpatentably abstract, while another panel in DDR v. Hotels.com found a web server that combines the look and feel of two different web sites meeting the requirements of § 101. Last year, in Synopsys v. Mentor Graphics, an invention automating circuit design procedures was found to be abstract because these procedures had been performed manually by humans. But in McRO v. Bandai Namco Games America, an invention automating lip-synchronization in animated characters was found not abstract even though the automated procedure could be performed by humans.
While one could argue that there are at least tenuous distinctions between the claimed inventions that were found eligible and ineligible in these four cases, the recent Recognicorp v. Nintendo case clearly illustrates the Federal Circuit's inability to apply Alice consistently. In the decision, the panel characterized a 154-word claim as nothing more than "encoding and decoding image data," despite the panels in Enfish v. Microsoft and McRo explicitly forbidding such claim over-simplification.
At the USPTO, despite the administrators' admirable efforts to provide clear examination guidelines with respect to Alice, it is notoriously well known amongst practitioners that different art units and different examiners will apply the Alice test in radically different ways. Further, it is common for an applicant to receive an Alice rejection that is purely conclusory in nature -- the examiner essentially saying "Your claims are abstract, no patent for you!" without any rationale or reasoning to support the rejection. While the latter type of rejection can be rebutted, it imposes additional and unnecessary costs on the applicant to go through extra cycles of Office actions or appeals.
Ultimately, the problem does not lie with the Federal Circuit or the USPTO. The Alice test is inherently subjective, requiring one to look at a claim and imagine analogous "well-known, routine, and conventional" activities. In doing so, examiners and judges often ignore key claim elements, resulting in a 10,000-foot view of the claim being analyzed, rather than the actual claimed invention.
Due to this subjectivity, reasonable minds can differ regarding whether a claim is abstract and whether it contains something more. There is no way for thousands of examiners and hundreds of federal judges to reach the same conclusion on a consistent basis.
For sake of argument, let's assume that Ms. Williams's analysis is correct, and that there is little or no evidence identified yet that establishes innovation is spurred on by a strong patent system. Ms. Ranieri interprets this result as an invitation to slam the door on software patents, arguing that there is no need to change the law to fix problems introduced by Alice.
But the same argument could be used to establish that there was no need for the Supreme Court to change the law in Alice either. If the impact of patent system strength on innovation was unclear, the Court should not have instituted such a dramatic change. Besides, Congress is better equipped than the Court to derive policy from such studies. If anything, the dramatic growth of technology company profitability and market capitalization from the mid-1990s to the Alice decision in 2014 suggests that a strong patent system is not inconsistent with innovation and technological investment in the software market.
Ms. Ranieri also states that the Williams paper establishes that there is no evidence that the Alice decision has "done any harm to the innovation economy or innovation generally." But the paper does not address Alice at all, and most of its cited research was conducted prior to the 2014 date of Alice. Given the lengthy, multi-year time scales of patent lawsuits, patent prosecution, and research and development, the three years between then and now is way too short a time period to draw such broad conclusions.
Throughout her article, Ms. Ranieri makes misleading statements about efforts to overturn Alice. Particularly, she focuses on proposals by the Intellectual Property Owners Association and the American Intellectual Property Law Association to rewrite § 101. A comparison of their efforts indicates that they would replace the Alice test with an analysis of whether the claimed invention as a whole (i) exists in nature independently of human activity, or (ii) solely in the human mind. Such a test would certainly result in fewer patents being invalidated under § 101, but would also go a long way toward clarifying the law.
Unlike Ms. Ranieri's contentions, this would not "return us to a world where 'do it on a computer' ideas are eligible for a patent." That world never existed. If a claimed invention's sole difference from prior art is to perform a known series of steps on a computer, the invention is probably obvious and can be invalidated on those grounds. In fact, the claims in Alice and many other so-called "overly broad" patents could be invalidated under the patent statute's existing novelty, non-obviousness, and written description provisions. Ms. Ranieri's further statement that the proposed changes to § 101 would mean that "anything is patentable" aside from the aforementioned exceptions ignores the fact that eligible subject matter is just one requirement of many for a patent to be granted.
Furthermore, Ms. Ranieri asserts that "the recent reform proposals seem like little more than a bid by lawyers to create work for themselves." If anything, the opposite will likely be the case. The uncertainty surrounding Alice has been a boon for § 101 focused practice, opening more patent prosecution and litigation opportunities. While some applicants are filing fewer patents as a result of Alice, many are filing more -- attempting to protect multiple narrow inventions rather than one or two broader ones. There are more appeals in the USPTO, as well as more covered business method review proceedings as well.
When there is a gray area in the law, lawyers are needed more than ever to help their clients navigate the ambiguities. If the Intellectual Property Owners Association and the American Intellectual Property Law Association succeed in their efforts, the patent law will be less ambiguous and there will be far fewer billable hours spent determining whether or not a claim is abstract. Even though such a change might have a negative impact on their bottom lines, many patent attorneys would welcome the change because the patent system is broken as long as Alice stands.
Opposition to the Alice test is not based on it making patents easier to invalidate, but that it does so in an unworkable and intellectually dishonest fashion. This has resulted in applicants with limited financial resources being unable to pursue patent protection for legitimate technical inventions. If such a trend is widespread and continuing, small U.S. companies will be reluctant to innovate in certain market segments because of the risk of their U.S.-based or foreign competitors getting a free ride to copying or cloning a product or service.
This is the area that merits academic study -- has Alice actually harmed innovation? As noted above, it may be a while before we can make that determination. But if it is the case, that would be just one more reason of many for discarding the test.
 Eclipse IP v. McKinley Equipment (C.D. Cal. 2014).
 Cal. Inst. of Tech. v. Hughes Commc’ns Inc. (C.D. Cal. 2014).
 As far as we know, the paper has not yet been subject to thorough peer review, and therefore its conclusions should be viewed as preliminary at best.
The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled "On-Sale Bar After Helsinn: What is the Scope?" on June 1, 2017 from 2:00 to 3:00 pm (ET). Prof. Dennis Crouch of the University of Missouri, Deborah Fishman of Arnold & Porter Kaye Scholer LLP, and Jennifer Johnson of DuPont will explore the ramifications of the April decision Helsinn v. Teva, that reversed a lower court by holding that the 2011 America Invents Act on-sale bar provision renders patents invalid if the invention was sold prior to patenting, even if the sale did not publicly disclose the invention.
• What are the implications for ITC investigations when there have already been PTAB decisions?
• How can patent counsel capitalize on favorable PTAB decisions?
• What difficulties do counsel face when challenging or defending patent validity in concurrent proceedings?
Dilworth IP will be offering a live webinar entitled "Laying Your Claim: Best Practices for Patent Claim Construction in a Post-Teva World" on June 14, 2017 from 1:00 to 2:00 pm (EDT). In this presentation, William Reid will summarize current law with respect to claim construction in the post Nautilus, Inc. v. Biosig Instruments, Inc. and Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. world., and arm patent practitioners with current best practices and advice regarding claim construction for their use when drafting patent applications, writing patent infringement opinions, or litigating a case.
Those wishing to register for the webinar can do so here.
• Patent Quality vs. Quantity: The value of a patent, for better or worse, is related to the likelihood that it could be successfully enforced in litigation. That may lead some to think there is a safety in numbers, but are fewer, higher quality patents strategically preferable?
• Why some innovations are no longer worth patenting in the U.S., or if patents are sought, applicants might want to consider waiving publication if they are not going to seek foreign rights.
• Questions about the continued viability and value of legacy patents issued under different legal rules, which together with budget restraints must be factored into consideration when making decisions on which patents to continue to maintain.
• Why changes to patent law have made patents much easier to successfully challenge at the Patent Office and in federal court. And why these changes have made it necessary to file faster, but better and more detailed patent applications that can survive a multitude of new procedural and legal challenges.
On Tuesday, the World Intellectual Property Organization (WIPO) announced a new five-year strategic plan for WIPO Re:Search to guide that initiative's activities in the fight against neglected tropical diseases, malaria, and tuberculosis. WIPO Re:Search is a consortium of public and private sector organizations that was established in 2011 by WIPO and BIO Ventures for Global Health (BVGH) (see "Public/Private Consortium Seeks Treatments for Neglected Tropical Diseases"). The consortium allows member companies and organizations to share their intellectual property, compounds, expertise, facilities, and know-how royalty-free with qualified researchers worldwide to promote the development of new drugs, vaccines, and diagnostics for the treatment of neglected tropical diseases, malaria, and tuberculosis. In addition to WIPO and BVGH, a non-profit organization that seeks to accelerate the development of novel drugs, vaccines, and diagnostics addressing the unmet medical needs of the developing world, the consortium now consists of 126 members in 35 countries.
The new strategic plan includes new research, capacity building, and outreach efforts. According to BVGH President Jennifer Dent, the new strategic plan will allow BVGH to "prioritize and provide enhanced support to the most promising product development collaborations within the WIPO Re:Search portfolio," as well as support the development of research and IP management capacity at member organizations in low- and middle-income countries, and increase public visibility around the role of WIPO Re:Search in global health innovation.
1. Use IP assets to advance R&D for NTDs, malaria, and TB through collaborations.
2. Accelerate the advancement of promising compounds or leads.
3. Enhance global capacity for IP management and biomedical R&D.
4. Communicate the beneficial role of IP in innovation for NTDs, malaria, and TB.
The consortium notes that "[t]o implement this Strategic Plan, WIPO Re:Search will need to substantially expand [its] funding base," with the initiative having 2016 expenditures of 1.7 million Swiss Francs. According to the strategic plan, funding for those expenditures came from allocations from WIPO's regular budget, contributions from Member States through the Funds-in-Trust program (Governments of Australia and Japan), and substantial contributions from the funding Members of WIPO Re:Search: Eisai, GlaxoSmithKline, Johnson & Johnson, Merck KGaA, MSD, Novartis, Pfizer, Sanofi, and Takeda.
Today, in TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court reversed the Federal Circuit and held that the word "resides" in the patent venue statute, 28 U.S.C. § 1400(b), "refers only to the State of incorporation" of the alleged infringer. As simple as that pronouncement sounds, the Court's decision will likely have profound implications for all patent litigation. If alleged infringers only "reside" in their state of incorporation, as opposed to anywhere they are subject to personal jurisdiction, patent holders will no longer necessarily get to choose the venue in which they may file a patent infringement lawsuit. This could potentially result in the loss of "home court" advantage, and will likely make it more difficult to sue multiple infringers located in different states. Accused infringers, on the other hand, will be less likely to be sued in remote locations that are otherwise unrelated to the case. The so-called "patent trolls" should be particularly impacted by this decision. The business model for these entities often entails suing alleged infringers in patent-friendly venues like the Eastern District of Texas in an attempt to extort settlements from accused infringers. The outcome of this case should severely curtail such activity. This will also hopefully be the final swing of the pendulum away from the rights of patent holders, and will hopefully diminish the recent enthusiasm for patent reform legislation in Congress.
The TC Heartland case stemmed from a lawsuit brought by Kraft Foods Group Brands LLC against TC Heartland, LLC and Heartland Packaging Corp. in the U.S. District Court for the District of Delaware. TC Heartland is incorporated in Indiana, and has its headquarters in Carmel, Indiana. As a result, it moved to either dismiss the action on venue grounds (among others) or transfer venue to the Southern District of Indiana. On August 13, 2015, Magistrate Judge Burke had recommended denying the motion, and Chief Judge Stark subsequently adopted the report in all respects. TC Heartland petitioned the Federal Circuit for a writ of mandamus to either dismiss or transfer the case, which it denied. As suggested above, the Federal Circuit's interpretation of 28 U.S.C. § 1400(b) provided that the venue of the District of Delaware was proper if that court could exercise personal jurisdiction over TC Heartland. The Supreme Court subsequently granted certiorari.
28 U.S.C. § 1391(c). In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that the general statute does not override the specific statute, and therefore the residence of an accused infringing corporation was its place of incorporation. Importantly, the patent venue statute had not changed since that decision. Nevertheless, in 1988, Congress amended the general venue statute to add the language "[f]or the purposes of venue under this chapter" before the beginning of the above-quoted language. This was enough to convince the Federal Circuit that § 1391(c) now governs the definition of "resides" in 1400(b). Thus, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), that Court held that essentially any forum was available for a patent infringement action, provided the district court had personal jurisdiction over the defendant. Congress did subsequently pass the Federal Courts Jurisdiction and Venue Clarification Act of 2011, which made two changes relevant to this statute. First, the newly added language above was changed to remove "under this chapter," and second, § 1391(a) was amended to include the language: "Applicability of section. -- Except as otherwise provided by law."
The Supreme Court narrowed the question it was deciding down to "whether Congress changed the meaning of §1400(b) when it amended §1391." In answering the question in the negative, the Court pointed out that Congress ordinarily provides a clear indication of its intent in the text of the amended provision. This clear indication was missing from § 1391, according to the Court. The current version does provide a default rule, but so did the version back when Fourco was decided. Moreover, the argument that "'all venue purposes' means 'all venue purposes' -- not 'all venue purposes except for patent venue'" was advanced by both Kraft and the plaintiff in Fourco. It was not successful then, and it was not successful today. In fact, the argument was found to be even weaker today, because the current statute includes the language "otherwise provided by law." Finally, even though Congress amended § 1391 after the Federal Circuit's VE Holding decision, there was no indication that it meant to ratify that decision. To the contrary, Congress actually delated the phrase "under this chapter" in 2011; language that was heavily relied upon in the earlier Federal Circuit decision.
In this decision, the Court did not consider a few related questions. First, in footnote 2, the Court pointed out that it was not addressing the question of what venue was proper for foreign corporations. Second, in footnote 1, the Court made clear that its analysis related to proper venue for corporations. It was suggested during the briefing that TC Heartland might instead be an unincorporated entity, but the Court left this consideration to the courts below on remand. Finally, the Court made no pronouncement related to the second prong for conferring proper venue under the statute. Thus, even though it will still be possible to sue alleged infringers: "where the defendant has committed acts of infringement and has a regular and established place of business," the Court did not comment on what that meant. The contours of this provision should continue to take shape in the lower courts in the months and years to come.
This case should have a profound impact on the so-called "patent trolls." These entities will no longer be able to take advantage of patent-friendly courts, such as the Eastern District of Texas, that otherwise have no significant connection to the lawsuit. In fact, because any lawsuit will likely need to be filed in a venue in which the accused infringed has the advantage, patent trolls may find it more difficult to extort settlements from their victims.
So what will be the likely outcome of this case? Clearly, the number of lawsuits being filed in the Eastern District of Texas should fall precipitously. But will those cases be evenly distributed across the country? According to one of the amicus briefs, filed on behalf of 22 law, economics, and business professors, the distribution might not change dramatically. Currently, around 60% of lawsuits are filed in five districts -- the Eastern District of Texas, the District of Delaware, the Central District of California, the Northern District of California, and the District of New Jersey. This case would still likely leave approximately 60% of patent cases in these same five districts. The main difference is that most cases would shift out of the Eastern District of Texas, but two other districts would see a potentially commensurate uptick in filings -- the Northern District of California and the District of Delaware. This shift, as the amici pointed out, would unfortunately not result in a meaningful distribution of cases. Only time will tell.
On a final note, it is somewhat ironic that the TC Heartland case was initially filed in the District of Delaware, even though the alleged infringer was incorporated in Indiana. With today's outcome, the Delaware court may have gotten rid of this one case. However, that Court will now will likely face a deluge of patent infringement filings. So much for "winning" at the Supreme Court.
Earlier this month, in Biscotti Inc. v. Microsoft Corp., U.S. Magistrate Judge Roy S. Payne of the U.S. District Court for the Eastern District of Texas issued a Report and Recommendation on two motions related to Microsoft's invalidity defenses to Biscotti's infringement action. In particular, Magistrate Judge Payne recommended that Plaintiff's Motion for Summary Judgment of Improper Incorporation by Reference be denied and that Plaintiff Biscotti Inc.'s Motion For Summary Judgment of Estoppel of Defendant Microsoft's Invalidity Art and Theories Based on a Final Written Decision in Microsoft's Inter Partes Review Petitions be granted-in-part. This post addresses the recommendation regarding Biscotti's second motion ("IPR Estoppel Motion"), which concerns the extent to which Microsoft's IPR challenge of the patent at issue in the district court litigation should estop Microsoft from raising certain invalidity defenses at trial.
Magistrate Judge Payne's Recommendation is related to a patent dispute initiated by Biscotti, which filed suit against Microsoft, alleging that Microsoft's Xbox One and related services, including Xbox Live, infringed Biscotti's U.S. Patent No. 8,144,182. After Biscotti filed suit against Microsoft, Microsoft petitioned the Patent Trial and Appeal Board for inter partes review of the '182 patent. The District Court stayed the infringement action pending the IPR, and the PTAB instituted IPR on 31 of the 53 claims in the '182 patent, declining to institute IPR on the remaining 22 claims. Microsoft responded to the denial of IPR on the 22 remaining claims by filing three additional IPR petitions (bringing the total of Microsoft's IPR petitions challenging the '182 patent to six), but the PTAB refused to join the latter three petitions to the first three petitions, finding the latter three petitions to be time-barred. The PTAB ultimately upheld the patentability of the 31 claims for which IPR was instituted, and the District Court lifted its stay and scheduled trial to begin next month. Biscotti moved for partial summary judgment on the two matters related to Microsoft's invalidity defenses.
Citing 35 U.S.C. § 315(e)(2), Magistrate Judge Payne notes that "[a]fter a final IPR decision from the PTAB, 'the real party in interest or privy of the petitioner' is barred from later asserting in district court that a claim challenged in IPR is 'invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.'" Magistrate Judge Payne also notes that "[t]he legislative history of this provision suggests that Congress intended to prevent the same party from challenging the validity of the same patent twice, at least based on patents or printed publications that the PTAB considered."
Shaw and HP can be read in different ways. The broad interpretation suggests that any ground not raised during post-institution IPR proceedings—regardless of whether that ground was included in the petition or not—is exempt from estoppel. This interpretation follows from the Federal Circuit's discussion of the text of the estoppel provisions. Namely, the phrase "during that inter partes review" in § 315(e), according to Shaw, suggests that if a ground of unpatentability was not raised in the post-institution phase of the IPR proceeding, estoppel does not apply . . . . Although it is not clear from § 315(e)'s text that "inter partes review" necessarily includes only the post-institution portion of the IPR, as opposed to also including the petition phase, some courts appear to have literally applied the Federal Circuit's discussion in Shaw and exempted any ground from § 315(e) not raised during the post-institution phase of the IPR.
However, the Recommendation cites a Western District of Wisconsin case, Douglas Dynamics, LLC v. Meyer Prod. LLC, which also observes that "Shaw’s narrow view of § 315(e) estoppel undermines the purported efficiency of IPR, [and that u]nder this approach, IPR is not an alternative to litigating validity in the district court, it is an additional step in the process." The Wisconsin court notes that the Douglas Dynamics case had been filed in December 2014, set for trial in September 2016, and then returned to court in April 2017, and "it is not at all clear that the issues have been meaningfully narrowed [as a result of inter partes review]." According to the Recommendation, "[t]he same could be said of this case, which was filed in 2013, and after Microsoft's entirely unsuccessful IPR campaign involving six different IPR petitions, Microsoft has returned to the Court in 2017 hoping to continue litigating invalidity arguments similar to those that it litigated (and lost) at the PTAB."
Returning to the ways in which Shaw and HP can be read, the Recommendation notes that a "narrower interpretation is that only grounds raised in a petition but not instituted for procedural reasons (such as redundancy) are exempt from estoppel," which the Recommendation states would be "consistent with due process—if the petitioner tries to raise a ground but is precluded from further pursuing that ground during subsequent IPR proceedings solely because of PTAB procedures, then the petitioner should not be barred from asserting the merits of that same ground in a later PTAB or district court proceeding." The Recommendation indicates, however, that "[i]f . . . the petitioner simply does not include a prior art reference in the petition that reasonably could have been included, the petitioner should be estopped from asserting that reference in a subsequent proceeding" (citing Douglas Dynamics, which states that "[i]f the defendant pursues the IPR option, it cannot expect to hold a second-string invalidity case in reserve in case the IPR does not go defendant's way"). Magistrate Judge Payne therefore recommends that the narrow view of Shaw and HP be adopted, noting that "the Court reads Shaw and HP to exempt an IPR petitioner from § 315(e)'s estoppel provision only if the PTAB precludes the petitioner from raising a ground during the IPR proceeding for purely procedural reasons, such as redundancy."
In the context of the instant case, Magistrate Judge Payne recommends that because the PTAB instituted IPR of claim 36 of the '182 patent under § 103(a) based on the combination of Kenoyer, Briere, and Hurley, Microsoft should be estopped from asserting the combination of Kenoyer and Briere as a basis for obviousness at trial because Microsoft raised or could have raised that combination during IPR proceedings. Magistrate Judge Payne also recommends that Microsoft should be estopped from asserting Kenoyer alone as a basis for finding claim 36 obvious because Kenoyer is a subset of Kenoyer, Briere, and Hurley. With respect to Microsoft's use of certain systems as prior art to the asserted claims, the Recommendation notes that IPR is limited to invalidity grounds "that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications," and therefore, suggests that it is possible that Microsoft could not have raised a prior art "system" during IPR proceedings. However, if it turns out that "Microsoft's purported system prior art relies on or is based on patents or printed publications that Microsoft would otherwise be estopped from pursuing at trial, e.g., patents or printed publications that a 'skilled searcher conducting a diligent search reasonably could have been expected to discover,' then Microsoft should be estopped from presenting those patents and printed publications at trial."
• How have recent Federal Circuit decisions affected application of the obviousness standard?
• What level of "unexpected results" is needed to demonstrate patentability in light of recent decisions?
• How can practitioners leverage recent decisions in which the Federal Circuit has insisted upon more thorough, reasoned explanations of the PTO’s obviousness conclusions?
• What are the most effective strategies for both patentees and petitioners in prevailing on obviousness assertions in an IPR proceeding, and how will that strategy play out at the Federal Circuit?

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