Is the Enfish Case “A New Hope” For Software Patents?

Since the Supreme Court’s Alice¹ decision in 2014, the courts have found many software patents to be invalid as simply being “abstract ideas.” The Patent Office has also been rejecting many new software patent applications as being abstract ideas. Such Patent Office rejections are coming both at the initial examination stage and under various post-grant review systems. Many software patent owners have been feeling rather defeated and frustrated at the odds they have been facing.

A new hope may have arisen. On May 12, 2016, a three-judge Federal Circuit panel offered much needed good news for software patent holders in the case of Enfish LLC v. Microsoft². The issue (as seemingly always for software patents) was whether the claims were patent eligible subject matter under S.101.

The Court held the claims to be patentable subject matter, and this was particularly important since Enfish, the patent applicant, simply claimed a “self-referential” database. There was no physical structure claimed. However, the Court held that this non-physical structure was not simply an abstract idea. The Court in Enfish stated: “[w]e do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract…”

To date, a common strategy among patent practitioners when writing software patent applications has been to try to claim a physical component of the surrounding computer system or otherwise try to make the claims look as “physical” or as “structural” as possible in an attempt to slip through Alice’s fingers.

Importantly, the Court found that the claims were directed to an improvement to computer functionality versus being directed to an abstract idea. The Court was both influenced by claim language and evidence in the patent’s detailed description that the claimed self-referential table functions differently than a conventional database. The specification described the specific advantages of faster search times, smaller memory requirements and improved flexibility in database configuration. Basically, the Court was convinced that the claimed database structure functioned differently from existing database structures. Moreover, the advantages all related to solving longstanding software problems. Notably, the described advantages were all technical solutions to computer problems.

Therefore, the takeaway from Enfish for patent drafters is that the specification can be as important as the claims. To the greatest degree possible, the specification should explain how the software invention improves the functioning of the overall computer system in which it operates.

The Court also noted that “fundamental economic and business practices are often found to be abstract ideas.” Therefore, it appears to be important to patentablility to not present claims where a general purpose computer is simply being added to a fundamental economic practice or a mathematical equation. The Court had no appetite for these sorts of claims.

Two days later, the Court in TLI Communications LLC v. AV Automotive³ invalidated software claims to a system of organizing digital images. The Enfish case was distinguished with the Court stating that the claims in TLI were not directed to a specific improvement in computer functionality. The Court pointed out that the “specification fails to provide any technical details for the tangible components”. In addition, the Court held that the claims were not directed to a “solution to a technical problem”. Instead, the claims simply described “physical components [that] behave exactly as expected according to their ordinary use.”

On May 19, 2016, the Patent Office issued a Memo4 to its examiners discussing both the Enfish and TLI cases. The Memo stated that the Enfish decision did not change the framework for determining subject matter eligibility, but instead provided “additional clarity” for identifying abstract ideas.

The Memo seemed to raise the bar for discarding software patents as simple abstract ideas. Specifically, it instructed examiners to first identify the abstract idea in the claim and then why it is considered to be abstract. Examiners should also explain their reasoning by reference to previous judicial decisions. The Memo also warned examiners against making sweeping, overbroad statements and requested that they consider the Applicants’ rebuttals.

The Memo urges examiners to look at “the character as a whole” of the claims, as opposed to dissecting the claims. As such, a claim is not doomed simply because it runs on a general-purpose computer. The Memo specifically notes that software can improve computer technology just as much as hardware can. Therefore, an examiner can determine that a claim is not an abstract idea without having to look at additional elements that would confer patentability in the two-part Alice test5. Importantly, the Memo urged examiners to look at the teachings of the specification. It also reminded them that an improvement does not need to be defined by “physical” components. The Memo stated that TLI only referred to “generalized steps to be performed on a computer”, and that is why it was not patentable.

So where does this leave us now?

When writing patent applications, one should focus the claims on the improvements to the computer functionality itself. Both the claims and the specification should preferably be directed to specific improvements to the way computers operate.

Patentable claims are not required to have a physical hardware component. A data structure may be all the “structure” that is required for patentability. That is the good news. However, one should always avoid claims of undue breadth. Also, the writing of the specification was very important in Enfish. A minimalistic specification that merely describes how the claims are enabled, or simply describes what the claims mean is to be avoided. Instead, the specification should be drafted to list advantages of the invention and show how the claimed software structure makes a computer system operate better. The specification is the place to tell a story. Tell a story about the benefits of the invention. Simple claims to business methods performed on computers with the computer operating in an ordinary capacity are still likely to be rejected.

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1 http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf
2 http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1244.Opinion.5-10-2016.1.PDF
3 http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1372.Opinion.5-12-2016.1.PDF
4 http://www.uspto.gov/sites/default/files/documents/ieg-may-2016_enfish_memo.pdf
5 The Alice case which established a two-step test for patent eligibility, being: (1) determine if a patent-ineligible concept (i.e., law of nature, natural phenomena, or abstract idea) is claimed; and if so, (2) determine whether additional claim elements transform the claim into a patent-eligible application.

A Lasting Impression: Federal Circuit Credits Own Precedent More Than Recent Supreme Court Authority

In Lexmark International, Inc. v. Impression Products, Inc.,1 the Federal Circuit declined to follow the Supreme Court’s recent decisions in Quanta Computer, Inc. v. LG Electronics, Inc.2 and Kirtsaeng v. John Wiley & Sons, Inc.,3 but instead affirmed its long-standing precedent allowing limits on the post-sale use or resale of patented goods and held foreign sales of patented goods do not exhaust the patentee’s rights in the United States.

These questions arose in a dispute between Lexmark, the manufacturer of printers and ink cartridges, and Impression Products, the operator of a refurbished ink cartridge business. Lexmark manufacturers and sells two types of ink cartridges, a full-priced model that includes no use restrictions and a discounted model that limits the consumer’s right to refill and reuse the cartridge. Impression collects the used cartridges—both full-priced and discounted models—and modifies the hardware, allowing them to be reused, then imports and resells them in the United States.

1. Post-Sale Use Limits

In the first portion of its opinion, the Federal Circuit held a patentee’s single-use or no-resale restrictions were permissible limitations on the otherwise presumptive “patent exhaustion” doctrine.4 Specifically, the Court allowed the sales, so long as they were “made under a clearly communicated, otherwise-lawful restriction[.]”5 The Federal Circuit relied heavily on its decision in Mallinckrodt, Inc. v. Medipart, Inc.,6 which paved the way for patentee “single use” restrictions, in part because of the Patent Act’s explicitly grant of a “right to exclude.”7

In reaching its conclusion, the Federal Circuit also declined to follow the Supreme Court’s decision in Quanta.8 The Court noted that Quanta only addressed the sale of patented goods by a manufacturing licensee, not sales by the patentee, “[a]nd the patentee’s authorization to the licensee to make (the first) sales was not subject to any conditions, much less conditions to be embodied in those sales.”9 As such, it did not address a situation where, as here, the sale as made subject to a use restriction. Accordingly, Quanta did not hold an “authorized sale” exhausted patent rights because it, in fact, did not involve any limitations on the buyer’s use. The Quanta decision also implicitly rejected petitioner and amici’s requests that Mallinckrodt be overturned.10

Ultimately, the Federal Circuit rejected the notion that any sale, even when rights are expressly restricted, qualifies as an “authorized sale of a patented item terminat[ing] all patent rights to that item.”11

2. Foreign Sales and U.S. Patent Rights

Next, the Federal Circuit moved to square its decades-old decision in Jazz Photo v. ITC12 with the Supreme Court’s recent decision in Kirtsaeng, and decide if Lexmark’s foreign sales—made without an explicit reservation of U.S. patent rights—granted authorization to import and sell those goods in the United States.13 At the outset, the Court was clear to acknowledge that Jazz Photo held U.S. patent rights are exhausted by a first sale, but only when that initial sale is in the United States.14 Thus, the present situation—where disputed products were sold outside the United States, modified, then imported and sold in the U.S.—was not covered.

The focus then turned to reconciling Kirtsaeng, with the Federal Circuit first noting how patent rights are necessarily different from those granted by copyright.15 The Patent Act, for example, specifically grants a patentee the exclusive right to make, use, sell, or import goods covered by the patent, while no such exclusive right exists the copyright. Therefore, Kirtsaeng was limited because it relied, quite explicitly, on the text of the Copyright Act.16 Although the Copyright Act allows certain actions “without the authority of the copyright owner,” a patent grants its owner broad rights “to exclude.” Accordingly, the Federal Circuit strictly construed the decision, determining “Kirtsaeng is not controlling in this case.”17

Ultimately, patent exhaustion is territorial because “what the statute expressly provides to a U.S. patentee is the reward available from the right to exclude ‘in the United States.’”18 In support of this textual anchor, the Court explained how “American markets differ substantially from markets in many other countries” and, thus, foreign sales of patented goods are inherently different from their domestic counterparts.19 The unauthorized importation of patented articles sold abroad therefore constitutes infringement, because foreign sales do not amount to authority for “the buyer to import the article and sell and use it in the United States.”

3. Implications

Initially, it will behoove all patentees looking to implement post-sale restrictions to use explicit language, but the limitations will only apply to their domestic sales. Next, patentees are urged to keep globalization considerations in mind, but only in so far as foreign customers may be looking to import patented goods purchased abroad. In this regard, other factors may strongly influence the discussion, such as where the first sale actually occurred (i.e. was it domestic or abroad). Finally, caution is warranted for those engaged in foreign transactions because, despite the comprehensive analysis, the Federal Circuit did not address the question of whether U.S. rights may be exhausted by a licensed foreign sale as there was no such licensee before the Court.

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1 Nos. 14-1617, 14-1619, 2016 U.S. App. LEXIS 2452 (Fed. Cir. Feb. 12, 2016)
2 553 U.S. 617 (2008)
3 133 S. Ct. 1351 (2013)
4 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-32.
5 Id. at *32.
6 976 F.2d 700 (Fed. Cir. 1992)
7 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-40.
8 Id. at *36-40.
9 Id. at *37 (citing Quanta Comp., Inc., 553 U.S. at 636-37) (emphasis in original).
10 Id. at *40.
11 Id. at *41-42.
12 264 F.3d 1094 (Fed. Cir. 2001)
13 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *80-82.
14 Id. at *82-85.
15 Id. at *86-89.
16 Id. at *89 (quoting Kirtsaeng, 133 S. Ct. at 1370) (noting the Supreme Court “stressed that it was determining ‘the best reading of [15 U.S.C.] § 109(a).”) (emphasis in original).
17 Id. at *98.
18 Id. at *98 (quoting 35 U.S.C. §§ 154(a)(1), 271(a)).
19 Id. at *100-03.

For Whom the Bell Tolls: The End of Rule 84 (and Form 18 Patent Pleading Standards)

December 1, 2015 marked the end of Rule 84 of the Federal Rules of Civil Procedure and the use of Forms, including various litigation documents, such as summonses, complaints, and answers in civil actions. Rule 84 was enacted in 1937 and simply stated, “The forms contained in the Appendix of Forms are intended to indicate, subject to the provisions of these rules, the simplicity and brevity of statement which the rules contemplate.” Rule 84 was amended in 1946 and 2007 to its current language, “The forms in the Appendix suffice under these rules and illustrate the simplicity and brevity that these rules contemplate.” But all good things must eventually come to an end. On April 29, 2015, the Supreme Court signed an order abrogating Rule 84, effective December 1, 2015.

Rule 84 and its Forms assisted many parties to bring suit under a simplified pleading as exemplified in Form 18. Using Form 18, a patent holder wishing to file a suit for direct patent infringement only needed to identify the infringing party, the infringed patent, the infringing device, and provide statements of jurisdiction and patent notice. Many have argued against the sufficiency of Form 18 based on the standard set out in Bell Atl. Corp. V. Twombly[1] and Ashcroft v. Iqbal.[2] Under Twombly and Iqbal, the Supreme Court held that to “survive a motion to dismiss a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”[3] Further, “a claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[4]

Nevertheless, the sufficiency of Form 18 has been upheld by the Court of Appeals for the Federal Circuit in K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc.[5] and In re Bill of Lading Transmission and Processing System Patent Litigation.[6] Specifically, the Federal Circuit stated in those cases that “a proper use of a form contained in the Appendix of Forms effectively immunizes a claimant from attack regarding the sufficiency of the pleading,”[7] and “to the extent the parties argue that Twombly and its progeny conflict with the Forms create differing pleadings requirements, the Forms control.”[8] This double standard has allowed a patent holder to file a “bare bones” complaint through the use of Form 18 and use discovery to fill in the details. While most “bet the company” litigation probably would not rely on a bare bones infringement complaint, the simplified pleadings benefitted smaller companies or solo inventors who did not have the same resources as larger companies. The abrogation of Rule 84 may make it more difficult and expensive for a small company / solo inventor to bring a suit against an infringer, perhaps even making it impossible.

With the abrogation of Rule 84 and subsequently Form 18, the default patent pleading standard will be the standard set out in Twombly and Iqbal. However, the amount and type of factual matter needed to allow the court to draw the “reasonable inference” or “plausibility” for liability remains unclear. Prior to K-Tech and Bill of Lading, the district courts already varied in their pleading standards.  For example, the District Court for the Central District of California in Medsquire LLC v. Spring Medical Systems Inc., et al.[9] dismissed a Form 18 complaint for failing to recite any facts as to how the accused device infringed the patent. The court stated, “a complaint must contain sufficient factual matter to make its allegations plausible.” Furthermore, the court in Medsquire alluded to a different standard required for pleadings drafted by attorneys as opposed to pleadings drafted by pro se plaintiffs.[10] In contrast, the District Court for the Eastern District of Texas in Traffic Information, LLC v. Yahoo! Inc.[11] held that “Twombly and Iqbal have not affected the adequacy of complying with Form 18.” Yet, even after K-Tech and Bill of Lading, the District Court for the Eastern District of Virginia in Macronix International Co. Ltd. v. Spansion Inc.[12] dismissed a complaint for failing to meet the Twombly and Iqbal standards. The Macronix Court stated:

[B]efore filing a complaint, counsel must ascertain exactly what claims should alleged to be infringed and how they are infringed. That can be done with brevity and clarity if counsel know at the outset their theories of infringement and what can, and cannot, be said about allegedly infringing conduct.  That, in turn, may well, indeed likely will, require expert assistance. And, it will mean taking great care when crafting a succinct, but sufficient, patent complaint. But, that is not asking too much. Indeed, it is high time that counsel in patent cases do all of that work before filing a complaint.[13]

Additionally, the Federal Circuit in K-Tech alluded to a “sliding scale” standard based on the complexity of the case. Specifically, the K-Tech Court stated, “[t]he adequacy of the facts pled depends on the breadth and complexity of both the asserted patent and the accused product or system and on the nature of the defendant’s business activities.”[14] This opens the door for the Courts to implement their own standards. For example, the standard could vary depending on the technology field, claim type (e.g. composition, device, or method), or number of infringed claims. Some Courts could require infringement charts or other detailed analysis of the alleged infringement.

The patent pleading standards under Twombly and Iqbal in the aftermath of Rule 84’s abrogation will undoubtedly take years, if not decades, to develop. Until then, it would be prudent to do a little more homework before filing your patent infringement complaint, especially if you are filing in districts where the heightened pleading standards of Twombly and Iqbal have been applied to patent infringement complaints.


[1] Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
[2] Ashcroft v. Iqbal, 556 U.S. 662 (2009).
[3] Id. at 663.
[4] Id.
[5]K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., 714 F.3d 1277 (Fed. Cir. 2013).
[6] In re Bill of Lading Transmission and Processing System Patent Litigation, 681 F.3d 1323 (Fed. Cir. 2012).
[7] K-Tech, 714 F.3d at 1283.
[8] In re Bill of Lading, 681 F.3d at 1334.
[9] Medsquire LLC v. Spring Medical Systems Inc., et al., Case No. 2:11-cv-04504-JHN-PLA, Order granting Motion to dismiss, (C.D. Cal. August 31, 2011).
[10] Id. at 5. The Court stated, “McZeal dealt with a narrow circumstance, which is not at issue here: a lawsuit brought by a pro se plaintiff, who the Federal Circuit held to ‘less stringent standards than formal pleadings drafted by lawyers.’”
[11] Traffic Info., LLC v. Yahoo! Inc., Case No. 2:09-CV-246-TJW-CE, Magistrate Judge Report and Recommendation (E.D. Tex. Apr. 13, 2010).
[12] Macronix International Co. Ltd. v. Spansion Inc., 4 F. Supp. 3d 797 (E.D. Va. Mar. 10, 2014).
[13] Id. at 803.
[14] K-Tech, 714 F.3dat 1287.

Trade Dress and the Functionality Doctrine

The Fourth Circuit in McAirlaids Inc. v. Kimberly-Clark Corp., held this year that ownership of a utility patent does not necessarily preclude a claim in trade dress rights, particularly where the patent does not specifically cover the asserted trade dress.

This decision is of importance as it reviewed the Supreme Court’s holding in TrafFix Devices, Inc. v. Marketing Displays, Inc., stating that the presence of a utility patent is strong evidence of functionality, thus defeating a trade dress claim.

McAirlaids filed suit in the Western District of Virginia against Kimberly-Clark for trade dress infringement and unfair competition after Kimberly-Clark started using a similar pattern on one of its products.

The Fourth Circuit reversed the district court’s decision granting summary judgment after it found that McAirlaids had presented sufficient evidence to create genuine factual question as to whether its selection of pattern was purely an aesthetic choice among other options the company had considered.

The Circuit Court held that the existence of a utility patent is only one of several factors that the district court should have considered in evaluating the functionality of the dot pattern. Unlike TrafFix, where the dual-spring mechanism at issue was not registered as a trade dress, in the present case the pinpoint dot pattern allegedly infringed was subject to trade dress federal registration, thus shifting the burden to defendant to show functionality by preponderance of evidence.  Another distinguishable element is that the utility patent held by McAirlaids does not mention the specific dot pattern as a protected feature.

This latest decision on the subject shows that the crossroads of trademarks and patents are as interesting as ever, and that many different factors may ultimately determine the fate of a trade dress.

Routine Patent Litigation Giving Rise to Antitrust Liability

On Aug. 6, in Tyco Healthcare Group LP v. Mut. Pharm. Co., Case No. 2013-1386, the Federal Circuit looked at whether antitrust liability can arise from routine patent litigation and suggested that a patent owner can face antitrust liability resulting from bringing patent infringement claims and administrative petitions.

In Tyco, the patent owner of a drug, Tyco Healthcare Group, filed a claim for patent infringement against a generic drug manufacturer, Mutual Pharmaceutical Co., after Mutual filed an application with the Food and Drug Administration (FDA) to manufacture and sell a generic version of Tyco’s drug.  In response, Mutual filed antitrust counterclaims against Tyco.

In 2009, the district court entered a judgment of non-infringement and the following day, Tyco filed a Citizen Petition with the FDA urging the FDA to change the criteria for evaluating the bioequivalence of the proposed generic product to ensure therapeutic equivalence of the generic drug to the brand name drug.  Ultimately, the FDA approved Mutual’s application to manufacture and sell the generic drug and denied Tyco’s Citizen Petition.

Mutual moved for summary judgment on its antitrust counterclaims against Tyco, arguing Tyco was not immune from liability.  The district court held Tyco was not liable for antitrust violations as alleged by Mutual, however, on appeal, the Federal Circuit vacated the district court’s ruling in part and remanded it for further consideration as to whether Tyco’s patent infringement claim and Citizen Petition were shams.

Ordinarily, a party is exempt from antitrust liability for bringing a lawsuit against a competitor under the Noerr-Pennington doctrine.  This doctrine is not limited to just lawsuits, but can also apply to administrative petitions.  There is an exception to immunity for sham litigation.  In determining whether litigation is a “sham,” a court will look at objective and subjective elements: (1) the litigation must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits; and (2) the litigation must be motivated by a desire to interfere directly with the business relationships of a competitor.

In its decision, the Federal Circuit concluded that Tyco may not be immune from antitrust liability because there are issues of factual dispute as to whether Tyco’s patent infringement claim was objectively baseless and whether the Citizen Petition was objectively baseless and intended to interfere with the FDA approving Mutual’s application to manufacture and sell the drug.

So what does this mean for patent enforcement?  There is concern that the Federal Circuit has inserted antitrust liability into patent litigation, which could result in antitrust penalties for routine patent enforcement.  Further, the case could have a possible chilling effect on patentees’ communications with administrative agencies, such as the filing of a Citizen Petition with the FDA.  However, because the Noerr-Pennington doctrine continues to live, patentees are still protected unless the party alleging antitrust violations can present facts to show the litigation activity was a sham.

Lawfully Taking Your Competitor’s Technology: Optimize the Design Around

When a party is sued for patent infringement, an alternative for avoiding infringement is to develop design around technology not covered by the subject patent.  Even if there is no lawsuit, often a company has competitors that make products or offer services that include attributes and features you would like to include in products and services.

As a general rule it is completely proper to take advantage of any aspect of a competitor’s device and include it in your device unless it is protected under the U.S. patent laws.  (Other countries also have patent laws that must be considered if manufacture or sales are made in those countries.)

In some cases there may be other intellectual property rights, such as trade secrets, copyright and trademark laws, that must be considered, but these circumstances are rare and easier to avoid than the patented features.

Non-Patented Features

Often the desired feature is NOT protected by patent, meaning you can add that feature to your device as long as you do not create a “look alike” device.  Non-patented features are public and available for anyone to use.  You may want to consult with patent counsel to help determine that this particular feature is not the subject of a pending patent application, which would cause an important interruption to this plan (see discussion below), but if the feature is a couple years old most likely there will be no pending or issued patent complications.

The next step in taking your competitor’s technology is to consider your device, which now includes the additional feature, and enhance it in some new, useful and non-obvious way.  It is best for this new feature to have some market appeal but now you have the basis for seeking a patent on your enhanced device with the additional feature.

Under this plan you can provide your customers a patented enhanced device.

Patented Features

If the competitor device is patented in whole or as it relates to a particularly desired feature, you must determine the date of the patent application directed to the protected feature knowing that patents last for 20 years from the earliest application in the patent family.

You should determine if the patent can be invalidated.  Securing an invalidity search and the advice of patent counsel will assist in this evaluation.  What you are looking for is a piece of prior art the examiner did not consider during his examination that is directed to the novel feature(s) in the application that were cited by the examiner as the basis for allowance of the application.  Invalidity searches are readily available in most technology-based countries.

Once new prior art is located, you must determine the most efficient method to challenge the patent: declaratory relief action for invalidity (assuming a reasonable apprehension), or a request for re-examination (the patent may be fixed in this process).  These invalidity activities can be time-consuming and expensive.

The alternative is to identify the oldest patent that covers the desired feature.  Analyze the structure of this technology and conceive an enhancement feature that employs the desired feature and offers an enhancement that avoids all patent coverage and has market desirability.  File an application for your enhancement of the old technology.

To find a new enhancement, dissect the device into its components and analyze each component to see how current technologies can be used to enhance the device.  Typical areas of attention include materials; computer control; display features; ease of use; ease of manufacture; report functions; inclusion of multiple dependent attributes; specific limitations to a desired attribute; and ascetic nonfunctional features.

Once you have sought patent protection on your enhanced version, identify a migration plan for further enhancements and seek sequential patent protection on these continuing developments.

When the competitor’s patent ultimately lapses you will have a family of patents on enhancements, thereby limiting the competitor from making his device with your new market-desirable enhancements.

In addition, you may be able to immediately make, use and sell your enhanced device outside the United States unless the competitor has patent protection in the other country.

This method, in a relatively short period of time, permits you to properly design around and take your competitor’s technology.

Does Your Business Need a Patent Audit?

A patent audit evaluates and reports on the status of your business’ technology protection program.  A patent audit outlines considerations relevant to your ability to secure, protect and enforce your patent rights and, if desired, provides an appraisal of the value of these rights.

To know if you need a patent audit, consider:

  • Does your business have a portfolio of patents and do you have the original patents?
  • Does your business have a migration plan for expanding its technology and do you manage the protection of the new technology?
  • Does your business use its patented technology out of the country and is this technology patented where it is used?
  • Does your business use patented technology of others and do you have copies of these authorizations?
  • Does your business permit others to use your patented technology and do you have copies of these authorizations?
  • Does your business rely upon employees or independent contractors to create improved technologies and do you have the agreements that cover these relationships?

Your answers to these questions will indicate if it is time to contact an IP audit specialist to ask about a patent audit.

Federal Circuit Weighs In on Step One of Two-Step Inter Partes Review Procedure

In St. Jude Medical, Cardiology Div. v. Volcano Corp., 749 F.3d 1373, 110 U.S.P.Q.2D (BNA) 1777 (Fed. Cir. Apr. 24, 2014), the Federal Circuit, almost predictably, declined to consider a denied petition to institute an inter partes review (IPR) filed by St. Jude Medical.  In rendering its decision, the Federal Circuit followed the language of 35 U.S.C. § 314(d), which states that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”

While Section 314(d) might have been the only reasoning needed to decide the case, the Federal Circuit included additional discussion regarding the two-step nature of IPRs: step one comprising the U.S. Patent and Trademark Office Director’s decision whether to institute the IPR; and step two comprising a decision under § 318(a) by the Patent and Trial Appeal Board regarding patentability after conducting the IPR proceeding (i.e., a final written decision).  See, e.g., Belkin Int’l, Inc. v. Kappos, 696 F.3d 1379, 104 U.S.P.Q.2D (BNA) 1348 (Fed. Cir. 2012). (It may be noteworthy that Belkin involved an inter partes re-examination, yet the Federal Circuit used this case as the basis for the two-step nature of IPR.)

Under 35 U.S.C. § 319, the Board’s decision under § 318(a) (i.e., after the Director’s decision and the IPR is in motion) is appealable.  It appears that the Federal Circuit included this discussion to highlight its view that the Director’s decision whether to institute an IPR is not considered to be a “final written decision” of the Board under § 318(a).  Moreover, to clear up any confusion, the court observed that 28 U.S.C. § 1295(a)(4)(A) (jurisdiction of the Federal Circuit after appeal from, inter alia, IPR) did not provide jurisdiction to review the Director’s decision.  Rather, § 1295(a)(4)(A), similar to 35 U.S.C. § 319, refers to final Board decisions under 35 U.S.C. § 318(a), according to the court.

The court was careful to point out that its decision followed the Director’s decision regarding a formality issue of a late IPR petition, but would likely apply to all decisions of the Director on whether to institute an IPR.

Interestingly, on the same day, the Federal Circuit also denied petitions for mandamus related to the Director’s decisions regarding IPR requests by two different parties – Dominion Dealer Solutions, and Procter & Gamble Co.  Dominion sought review of the Director’s decision not to institute several of its IPR requests.  See In re Dominion Dealer Solutions, LLC, 749 F.3d 1379, 110 U.S.P.Q.2D (BNA) 1780 (Fed. Cir. Apr. 24, 2014).  Conversely, Procter & Gamble, as patent owner, sought mandamus for review of the Director’s decision to institute an IPR request.  See In re Procter & Gamble Co., 749 F.3d 1376, 110 U.S.P.Q.2D (BNA) 1782 (Fed. Cir. Apr. 24, 2014).  In its denial of mandamus of these cases, the Federal Circuit cited similar reasoning as was set forth in the St. Jude Medical decision.  It is noteworthy that Dominion Dealer Solutions had concurrently sought review of the Director’s decision not to institute an IPR in the Eastern District of Virginia in addition to its mandamus petitions.  See Dominion Dealer Solutions, LLC v. Lee, 2014 U.S. Dist. LEXIS 54350 (E.D. Va. April 18, 2014).  This District Court action failed as well.

In light of the St. Jude Medical decision, it is important to ensure that IPR petitions are timely filed, complete and accurate, and meet § 314(a) subject matter threshold limitations (i.e., “a reasonable likelihood” of prevailing on at least one of the challenged claims).  A variety of guidance is available on threshold issues in the form of representative Board decisions to institute IPR proceedings, though detailed discussion of this guidance is beyond the scope of this article.  See, e.g., Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026 Decision to Institute, Paper 17, Dec. 21, 2012; Garmin Int’l, Inc. v. Cuozzo Speed Techs LLC, IPR2012-00001 Decision to Institute, Paper 15, Jan. 9, 2013; Microstrategy, Inc. v. Zillow, Inc., IPR2013-00034 Decision to Institute, Paper 22, Apr. 22, 2013.

St. Jude Medical carries special significance for parties currently accused of infringing a patent in a District Court that are deciding whether to file an IPR request.  In particular, 35 U.S.C. § 315(b) prohibits IPR requests beyond one year after an infringement complaint, including counterclaims alleging infringement.  See St. Jude Medical, Cardiology Division, Inc. v. Volcano Corp., IPR2013-00258 (PTAB 2013); Accord Healthcare v. Eli Lilly and Co., IPR2013-00356 (PTAB 2013).  Passing beyond that one-year threshold is a basis for the Director denying the institution of an IPR; which decision is unappealable.

Accordingly, if you are approaching the § 315(b) deadline for filing an IPR petition, you should carefully craft your petition so that it meets the § 314(a) threshold, and it isn’t determined to be defective due to informalities.  In certain cases a defective petition can be fixed to address formalities, while the filing date of the original petition is accorded.  See, e.g., Macauto U.S.A. v. Baumeister & Ostler GmbH & Co., IPR2012-00004, Notice of Defective Petition, Paper 6, Sept. 21, 2012.  In other situations, where the defect may affect the substance of the petition, a new petition filing date may be accorded when the defect is corrected.  See Ariosa Diagnostics v. Isis Innovation Ltd., IPR2012-00022, Notice of Incomplete Petition, Paper 5, Sept. 27, 2012 (requiring correction of Exhibits).

What Octane Fitness Means for Determining “Exceptional” Patent Cases

While many argue that the U.S. Supreme Court’s recent opinion in Octane Fitness LLC v. Icon Health & Fitness Inc. means bad news for so-called patent “trolls” (i.e., entities that buy patents solely for the purpose of suing others for infringing the claims of the patent), the reality may be that the new, relaxed standard for proving an “exceptional” patent case will result in little change to the legal landscape.

The Patent Act, specifically 35 U.S.C. § 285, authorizes district courts to award attorneys’ fees to prevailing parties in “exceptional” cases.  In 2005’s Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., the U.S. Court of Appeals for the Federal Circuit defined an “exceptional” case as one that involves material misconduct related to litigation, or misconduct related to securing the patent.  Absent such misconduct, sanctions could be “imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”  The parties must also establish the “exceptional” nature of the case by “clear and convincing evidence.”

On April 29, however, the Supreme Court rejected the standard set by the Federal Circuit, finding it unduly rigid.  Instead, the Supreme Court found that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.  District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”

The Supreme Court also rejected the “clear and convincing evidence” burden on the movant, finding that “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.  Indeed, patent-infringement litigation has always been governed by a preponderance of the evidence standard.”

In Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S.Ct. 1744 (2014), a Supreme Court opinion issued the same day that is in line with the notion that district courts are to be given more discretion in determining § 285 issues, the high court found that district courts’ § 285 decisions must be reviewed by appellate courts under an “abuse of discretion” standard rather than a de novo standard.

In Octane Fitness and Highmark, the Supreme Court remanded the cases in light of the new standards.

While the district court presiding over Octane Fitness adopted the prior, more rigid standard under Brooks Furniture, nothing in its Sept. 6, 2011, decision denying attorney’s fees and costs under § 285 indicates that the district court would change its mind under the new Octane Fitness standard.  Although the district court ultimately found the infringement theory unpersuasive, it did not find the claims frivolous.  The district court was unmoved by the fact that the patentee never commercialized the patent at issue (though the patentee appears to have commercialized other fitness equipment). The district court also was unmoved by email records from stray employees stating that the lawsuit would bring a competitive advantage, as patentees are entitled to exclude all infringers, and “[s]imply bringing suit to gain a competitive advantage is not evidence of bad faith.”  Therefore, even under the new, less rigid standard, the court may nevertheless find that the Octane Fitness case is not “one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.”

Indeed, courts, having been given more rather than less discretion, may very well arrive at the same result under the old and new standard.  On May 12, a U.S. District Court in Texas was unwilling to modify its pre-Octane Fitness decision that denied attorney’s fees under § 285.  In Bianco v. Globus Med., Inc., Case No. 2:12-CV-00147-WCB, 2014 U.S.Dist.LEXIS 64805 (E.D.Tex. May 12, 2014), the court had previously found that the plaintiff should not be listed as a co-inventor of certain patents. However, the plaintiff’s claims regarding co-inventorship were not frivolous, nor did the case otherwise “set itself apart”: The plaintiff did provide a set of drawings reflecting his ideas to the defendant, and the defendant admitted receiving and examining them.  Further, the court found that “[i]t is common ground between the parties that the drawings, in the context in which they were submitted, constitute the contribution [plaintiff] made to the development of the disputed products.”  The defendant’s claim for § 285 “exceptional” fees as to the co-inventorship issue also was likely unconvincing given that a jury had found the defendant otherwise liable for misappropriating the plaintiff’s trade secrets.

Legal experts and commentators have opined that the relaxed standards of Octane Fitness may apply mostly to lawsuits filed by patent trolls.  Given the White House’s stance on such trolls, and the heightened joinder requirement for patent lawsuits under the America Invents Act (targeting the fact that patent “trolls” were filing one lawsuit against multiple, unrelated defendants), it’s not unreasonable to think that the Supreme Court feels similarly wary (and weary) of patent trolls.  But if the Supreme Court does feel that way, Octane Fitness does little to propel patent troll lawsuits to “exceptional” cases warranting attorneys’ fees.  Cases must still stand out “from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  In other words, what’s at issue is still the strength of the case or other misconduct.  Absent a commercial use requirement for patentee-plaintiffs (which would present its own set of problems), patent trolls appear to be held to the same standards as any other patentee-plaintiffs.

Given the relaxed standards of proof, and the Supreme Court’s reiteration of the district court’s ability to decide § 285 issues with discretion, the real impact of the Octane Fitness decision may simply be that fewer parties will decide to appeal § 285 rulings.  Time will tell if Octane Fitness will affect patent trolls more so than other patentee-plaintiffs.

Software Turns to the Supremes for Guidance

After the U.S. Court of Appeals for the Federal Circuit (CAFC) had two bites at the apple to set forth a useful analytical framework on the proper analysis regarding subject matter eligibility of software patents under 35 U.S.C. § 101 (panel and rehearing en banc decisions here), petitioners have taken their case to the great Supremes and they in turn granted the writ of certiorari earlier this month.

The CAFC’s May en banc decision was so conflicted with differing approaches at odds with U.S. Supreme Court (SCOTUS) and CAFC precedent that it left petitioners little choice but to petition the high court for some meaningful guidance.  It is particularly telling that the U.S. Patent and Trademark Office responded shortly after the May decision to make clear that despite the decision potentially spelling the end of software patents, “no change in examination procedure for evaluating subject matter eligibility” would be incorporated by its examining corps since consensus in the CAFC decision was lacking.

In Alice Corp. v. CLS Bank Intl., SCOTUS is presented with the following question: “Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this [Supreme] Court?”

The specific invention at issue in Alice Corp. relates to computers and hardware configured to run with software to collectively create a computerized trading platform that manages risk between two parties conducting a financial transaction.  The claims utilize variations of this concept through methods, apparatuses, and systems.  After stops at the district court and the CAFC, the methods, apparatus, and systems claims are presently regarded as ineligible subject matter under § 101.

Petitioners argue that CAFC Judge Lourie’s lead opinion in the en banc decision is inconsistent with SCOTUS precedent.  Specifically, Lourie analyzed § 101 by asking (1) whether the subject matter falls within the four classes of subject matter and, if so, (2) whether “the claim pose[s] any risk of preempting an abstract idea[.]”  Petitioners argue that in analyzing prong (2), Lourie picks and chooses portions of a claim in isolation to identify potentially abstract ideas that would prevent the claim as a whole from being eligible subject matter, thereby conflicting with SCOTUS precedent as to the proper § 101 analysis.

Citing CAFC Chief Judge Rader’s dissenting-in-part and concurring-in-part opinion for support, petitioners point out that § 101 is intentionally broad and thus devoid of any reference to software being foreclosed from patent protection.  Accordingly, petitioners argue that the proper analysis focuses on whether the “claim as a whole” as taught by SCOTUS in Diehr (and later confirmed in Bilski) is directed toward “an abstract idea.”  If the opposite were true, isolated portions of a claim that potentially recite an abstract idea would risk rendering the claim on the whole as ineligible subject matter.  Because a claim typically “can be stripped down . . . until at its core, something that could be characterized as an abstract idea is revealed,” Lourie’s standard from the lead opinion threatens to undermine eligibility of not just software but all claims that utilize one or more potentially abstract ideas (nearly every invention arguably builds upon some form of an abstract idea) even if the claims otherwise satisfy §§101, 102, 103, and 112.

In their Opposition Brief, respondents look to Mayo for support arguing that § 101 should be analyzed by “first identifying the abstract idea . . . and then asking, what else is there in the claims?” In other words, each element of a claim is analyzed in isolation as to its “abstractness” and all remaining features are similarly examined in isolation to determine whether the isolated features when combined are “sufficient to transform the nature of the claim.”  On its face, this approach appears to conflict with Diehr in that it “dissects the claims into . . . elements and ignore[s] the presence of the old elements in the analysis.”

Respondents also delve into constructing the inventive concept of petitioners’ claims citing Bilski for justification, which adds further tension to the § 101 analysis and the appropriateness of analyzing the merits of a claimed invention, including novelty and obviousness, in the context of subject matter eligibility.

Interested parties including the software community, practitioners in the field, and even the solicitor general hope SCOTUS will respond decisively to this intra-circuit split with some semblance of a decipherable analytical framework for subject matter eligibility of software patents. Such a decision will resolve the uncertainty in the industry and the concomitant impact such uncertainty caused.