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. You can save significant money by doing some preliminary research to clearly describe product ideas before engaging into patent attorney services by using a patent database search solution.

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.

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.

The Benefits of an Intellectual Property Value Assessment

Every established company and start-up business should have an intellectual property value assessment performed by a patent attorney.  This assessment should be done by an attorney and firm that the company does not regularly use.  There are three primary reasons:

First, a company’s regular attorney must avoid offending anyone in management and must avoid being accused of wasting management’s time.

Second, a different pair of eyes will see property rights that could be overlooked without a fresh appraisal.

Third, it is not realistic to expect an attorney to find fault with his or her own work.

To be assured of a neutral appraisal, a company should consider a contract that prohibits the appraisal attorney from soliciting the company’s ongoing IP work.

Intellectual property is a higher percentage of the value of most companies today and with an IP assessment this value can become part of a private company’s pro forma balance sheet.  This increases the incentive for and value of an IP appraisal.

Invariably there are areas of IP that are overlooked.  For example, few companies regularly register copyrights in the copyrightable materials they produce or others produce for the company.   A company’s website is often not protected.  This is an asset of considerable value, which is vulnerable without a copyright registration. While copyrightable material can be protected after the fact of infringement, the remedies available are severely limited.   A company employee can be trained in a matter of hours to recognize copyrightable material, make sure contracts with third parties assign their copyrightable content to the company, and prepare and file copyright applications on all significant copyrightable property.  An electronically filed copyright application can be filed in minutes for a $30 filing fee.  Other examples of unprotected IP assets are legion.  An IP appraisal will expose many of these areas and propose solutions.

An IP appraisal that adds to a company’s pro forma balance sheet requires close cooperation with an existing or specialized CPA knowledgeable about intellectual property valuation.

An effective IP appraisal requires close cooperation by company personnel.  This is best obtained by giving a high-level employee authority to request research and records from the company’s departments.  That employee can also decide when the IP appraisal raises questions that require a strategic decision by the company’s management committee or a body with equivalent decision-making power.

The initial IP assessment requires a significant allocation of personnel time and attorney’s fees.  To avoid nasty surprises, the assessment should be done in two phases.  The first phase will identify existing protected assets and all areas where IP assets are not protected.  At that point it should be possible to ask the appraisal attorney to perform the assessment and deliver the complete report and recommendations for a fixed fee. Once the initial assessment report is complete it should be updated at least annually, but the incremental cost should be modest.  To the extent the appraisal recommends additional IP protection – as an example, for patent applications — the cost typically can be fixed in an advance retainer agreement. The company can then decide on a case-by-case basis whether the cost is justified by the value of the protected intellectual property.

The Curse of the Storage Mediums That Didn’t Foreclose Signals

If you thought you understood patent eligibility of software patents after Alice Corp., think again. Those who draft software patents should be sure to include “non-transitory” when referring to storage mediums in both the specification and the claims.

In a precedential Patent Trial and Appeal Board (PTAB) opinion decided in August, Ex Parte Mewherter, IBM claimed the concept of software that converted a slide from a slide show application into a raster image with a title in a nonpresentation application.  The Examiner deemed claims directed toward this software embedded in a computer readable storage medium patent ineligible because the claimed storage medium could encompass transitory media.  Specifically, IBM was claiming a machine-readable storage medium and during prosecution and appeal argued that its storage medium was for permanently storing information (i.e. non-transitory) as opposed to a machine-readable medium that could include transitory media such as signals.  The Examiner would have bought this, were it not for the fact that the claims did not specifically include a non-transitory limitation and the specification did not expressly define “machine-readable storage medium” as excluding transitory media such as signals.

The PTAB agreed with the Examiner, finding the claim at issue patent ineligible because (1) the common understanding of the claimed storage limitation did not necessarily exclude signals or other transitory media; and (2) the specification failed to define “storage medium” as excluding signals/non-transitory media. Accordingly, the broadest reasonable claim construction of IBM’s storage medium could include signals or transitory media.  This was the nail in IBM’s proverbial coffin.

Transitory media and signals have long been a thorn in the side of applicants looking to claim machine-readable storage mediums (which in recent years has increased for software applicants seeking to satisfy the machine-or-transformation test post-Bilski).  Software applicants have few options but to affirmatively disclaim transitory media in their disclosure by adding the non-transitory limitation into the claims as well as the specification.  For example, if “storage medium” is described in the specification, Mewherter makes fairly clear that transitory media (i.e. signals) must be excluded to avoid patent eligibility rejections notwithstanding the fact that this has little to do with the substance or pioneering nature of an invention.  Since signals are fairly pervasive in modern technology, practitioners should proceed cautiously in making sure these limitations are included in applications as filed.

If you are confused by this rule, you are in good company.  The U.S. Court of Appeals for the Federal Circuit (CAFC) set forth this transitory media axiom in In re Nuijten where it established that signals encoded in any particular manner were ineligible subject matter even if the invention was just the sort society seeks to encourage with a patent system and even if the signal was tangible.  Why? Because the signal was transitory as opposed to being non-transitory as required by the CAFC (i.e. not by statute).

Nuijten and Mewherter leave on the table the question: If IBM had claimed a storage medium with a more pioneering invention such as Chakrabarty’s oil eating organisms or Edison’s incandescent lightbulb, would the PTAB have found a way to look past Nuijten to find eligibility?

Regardless, in Mewherter, if there had been express language in the specification or claims that excluded transitory media, the PTAB concedes that the invention would likely be eligible.  Accordingly, IBM has heeded the PTAB’s advice and amended its claims, meaning, an answer insofar as these facts is not far off.

Until then, the larger question as to the sensibility of this transitory versus non-transitory distinction remains.