The Supreme Court heard oral arguments on the issue of patent exhaustion — and that doesn’t mean people who are tired of hearing about patents.

No, the patent exhaustion doctrine, commonly referred to as the first sale doctrine, is triggered by an unconditional sale and was set way back in Mitchell v. Hawley in 1873. The doctrine holds that when a consumer purchases a patented product, that consumer owns it outright, and the patent owner may not thereafter invoke patent law to restrict its post-sale use, repair, or resale.

The courts have stated that:

[A]n unconditional sale of a patented device exhausts the patentee’s right to control the purchaser’s use of the device thereafter. The theory behind this rule is that in such a transaction, the patentee has bargained for, and received, an amount equal to the full value of the goods. This exhaustion doctrine, however, does not apply to an expressly conditional sale or license. In such a transaction, it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee.

However, the exhaustion doctrine changed in 1992 when the Federal Circuit declared that the doctrine was merely a unilaterally disclaimable “implied license” and that that the patent exhaustion doctrine reached only “unconditional” sales. In other words, the court held that patent owners could, through the mechanism of a “conditional sale,” impose post-sale restrictions on end-users and enforce those restrictions through suits for infringement. This ruling sent shock waves through the patent community, leading one commentator to exclaim that “a century of law under the exhaustion doctrine was abruptly swept away.”

In a suit for patent infringement, the burden of proving the establishment of an implied license falls upon the defendant. To prevail, defendants were required to establish that the products have no noninfringing uses and that the circumstances of the sale . . . ‘plainly indicate that the grant of a license should be inferred.’

The consequence is the ability of patent-holders to impose over-reaching restrictions on formerly permitted post-sale uses, repairs, modifications and resale with labels marked “single use only” or “modifications prohibited.” These notices can then be used to limit after-market competitors.

In the case between LG Electronics and Quanta Computer Inc., the U.S. Supreme Court will have a chance to decide if it wants to limit patent owners’ right to demand licensing fees after the first sale from those downstream in the manufacturing supply chain.

LG is the owner of patents relating to personal computers (e.g., systems and methods that increase the bandwidth efficiency of a computer’s system bus and a method that controls the access of a device to a bus shared by multiple devices). The patents asserted by LG do not cover the products licensed to or sold by Intel; they cover those products when combined with additional components.

LG sued Quanta for alledgedly infringing these patents when it purchased microprocessors and chipsets from Intel and installed them in computers. Intel is authorized to sell these products to them under an agreement with LG. However, pursuant to this agreement, Intel notified defendants that, although it was licensed to sell the products to them, they were not authorized under that agreement to combine the products with non-Intel products. LG brought suit against defendants, asserting that the combination of microprocessors or chipsets with other computer components infringes LG’s patents covering those combinations. LG did not assert patent rights in the microprocessors or chipsets themselves.

The trial court granted summary judgment of noninfringement of each patent. It determined that there was no implied license to any defendant, but that, with the exception of one patent, LG’s rights in any system claims were exhausted — the exhaustion doctrine did not apply to the method claims.

The trial court issued two orders on patent exhaustion. The first is unclear about which sale the court relied upon in holding LG’s system patent rights exhausted with respect to defendants, but we understand it to be LG’s license to Intel. However, the second order, which reaffirmed the first, clearly relied on Intel’s sale of its microprocessors and chipsets to defendants as the exhausting sale.

In finding the unconditional sale requirement satisfied, the trial court concluded that although “LG is entitled to impose conditions on the sale of the essential components of its patented products does not mean that it actually did so here. To the contrary, defendants’ purchase of the microprocessors and chipsets from Intel was unconditional, in that defendants’ purchase of the microprocessors and chipsets from Intel was in no way conditioned on their agreement not to combine the Intel microprocessors and chipsets with other non-Intel parts and then sell the resultant products.” The Federal Circuit didn’t agree.

At the Federal Circuit, the court held that it is “axiomatic that the patent exhaustion doctrine, commonly referred to as the first sale doctrine, is triggered by an unconditional sale.” But then it added that:

There are two sales at issue here. First, prior to this litigation, LG granted Intel a license covering its entire portfolio of patents on computer systems and components. This transaction constitutes a sale for exhaustion purposes. See United States v. Masonite Corp., 316 U.S. 265, 278 (1942). Second, with LG’s authorization, Intel sold its microprocessors and chipsets to each defendant. Notably, this sale involved a component of the asserted patented invention, not the entire patented system.

The LG-Intel license expressly disclaims granting a license allowing computer system manufacturers to combine Intel’s licensed parts with other non-Intel components. Moreover, this conditional agreement required Intel to notify its customers of the limited scope of the license, which it did. Although Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LG’s combination patents. Cf. N.Y. U.C.C. Law § 2-202 (allowing contracts to be supplemented by consistent additional terms unless the writing is intended to be complete and exclusive). The “exhaustion doctrine . . . does not apply to an expressly conditional sale or license,” B. Braun Med. Inc., 124 F.3d at 1426, so LG’s rights in asserting infringement of its system claims were not exhausted.

Conversely, the trial court declined to find LG’s asserted method claims exhausted. Several defendants contest this ruling on cross-appeal, and we reject their challenge. Based on the above reasoning, even if the exhaustion doctrine were applicable to method claims, it would not apply here because there was no unconditional sale. However, the sale of a device does not exhaust a patentee’s rights in its method claims. Glass Equip. Dev., Inc. v. Besten, Inc., 174 F.3d 1337, 1341 n.1 (Fed. Cir. 1999) (citing Bandag, Inc., 750 F.2d 903, 924 (Fed. Cir. 1984)). The court was correct.

In Quanta Computer v. LG Electronics, the Supreme Court is being asked whether the Federal Circuit erred by holding, in conflict with decisions of this Court and other courts of appeals, that respondent’s patent rights were not exhausted by its license agreement with Intel Corporation, and Intel’s subsequent sale of product under the license to petitioners.

On January 16, 2008, the Supreme Court heard oral argument on applying the patent exhaustion doctrine and on the limits of a patentee’s downstream control over sold products containing a claimed invention.

Maureen Mahoney, for Quanta, argued that patent exhaustion has always been triggered when two criteria have been satisfied and the district court properly dismissed these claims because it found that they were satisfied here on the undisputed facts. The first is that there must be an authorized sale under the patent that was allegedly infringed. That’s never been in dispute in this case. The Federal Circuit recognized that Intel was authorized to sell these components under the system and method patents at issue in the case that have been allegedly infringed. And the second criteria is that the article sold must be one that falls within the protection of the patent that was allegedly infringed, here the system and method patents.

JUSTICE GINSBURG: Could the patentee say to the licensee, to the Intel, that, I license you to sell only to buyers who have a license from the patentee? Could — could the licensee be limited in that way?

MS. MAHONEY: They could do that, and let me explain the consequences of doing that. If Intel then under those circumstances sold to a buyer who did not have a license, Intel would be liable for contributory infringement because it wouldn’t be an authorized sale, and the buyer would be liable for infringement because it didn’t acquire the goods through an authorized sale. If the buyer instead has the license, has obtained the license from the patent owner, then there has been an authorized sale and any remedies that the owner of the patent would have against the buyer would be those found in contract, because the triggering line under this Court’s cases is has there been an authorized sale.

CHIEF JUSTICE ROBERTS: So the parties are unwilling to spell out exactly how this is going to work out in their contract, and each side, it prefers to take their chances on how the Federal Circuit’s going to rule. It’s easier to sell these things if they’re not encumbered by these additional license requirements and the manufacturer presumably gets a lot more, but there’s a lot of uncertainty, uncertainty that could have been cured by how the contract was drafted, and people prefer to live with that uncertainty and litigate rather than clear it up in the contract.

Deputy Solicitor General Thomas Hungar testified on behalf of the U.S. Government. Hunger argued that an authorized sale removes the particular item sold from the protection of the patent laws and that the trial court erroneously transformed that patent-exhaustion doctrine from a definitional principle that delimits the scope of the patent grant into an optional default assumption

JUSTICE SOUTER: So there could be a restriction in the license which is not a restriction on sale and that could be violated. And the exhaustion doctrine would still apply, and you might have remedies in some another theory, i.e., contract.

MR. HUNGAR: That’s correct. That’s correct. Likewise, what happens in the real world is the patentee, if the patentee wants to restrict what people can do downstream, they say to the licensee, you can only sell if you obtain a contractual promise from the purchaser.

JUSTICE STEVENS: Are you saying that this case would come out differently if instead of just requiring a notice that the — the item should only be used on Intel products, that had been a condition of the license. If the license itself said you may manufacture and sell to only people who agree to use the product exclusively with Intel products?

MR. HUNGAR: Yes. In if those circumstances, if Quanta had — if that — if that license condition -

JUSTICE STEVENS: So the key fact in this case is it was just a requirement of giving notice rather than a condition in the license?

MR. HUNGAR: But let me be clear. The key distinction is between an authorized sale and an unauthorized sale. So if there is an authorized sale, that is, Intel.

Carter Phillips, for LG, tried to shift the focus to what is the “it” that we are talking about?

CHIEF JUSTICE ROBERTS: Well, but there’s nothing to do with these chipsets other than use them in the computers. I mean, you don’t put them on your shelf. They’re not good for anything other than using in the computer. So saying there’s a separate patent for how you use them with the other systems doesn’t seem to be very significant.

MR. PHILLIPS: It would be — and that’s why you would ordinarily — you don’t deal with this as an exhaustion issue. That’s why you would deal with this as an implied licensing issue. The assumption would be, in the absence of clear evidence to the contrary, that if I’m selling you something that only has a single use and that’s in a separate patent, that you in fact are being licensed to go and use it that way. But what’s absolutely critical in this case is that both the district court and the court of appeals specifically rejected the notion that there was any implied license. And it’s important to realize this.-

JUSTICE BREYER: Imagine that I want to buy some bicycle pedals, so I go to the bicycle shop. These are fabulous pedals. The inventor has licensed somebody to make them, and he sold them to the shop, make and sell them. He sold them to the shop. I go buy the pedals. I put it in my bicycle. I start pedaling down the road. Now, we don’t want 19 patent inspectors chasing me or all of the other companies and there are many doctrines in the law designed to stop that. One is the equitable servitudes on chattel. Another is the exhaustion of a patent. And now you talk about implied license. I would say, why does it make that much difference? What we’re talking about here is whether after those pedals are sold to me under an agreement that the patent — you know, you have a right to sell them to me — why can’t I look at this as saying that patent is exhausted, the patent on the pedals and the patent for those bicycles insofar as that patent for the bicycles says I have a patent on inserting the pedal into a bicycle. Call it exhaustion, call it implied license. Who cares?

MR. PHILLIPS: I don’t have any problem with your hypothetical because it’s not this case. Your hypothetical deals with the situation of what would have happened if you had bought the chip. Would we be in a position to say, even though you bought the chip, we nevertheless want to retain some right to come out — to come after you claiming we still have a patent in that chip? And the answer is no. We exhausted — that was exhausted by the sale of the chip. The question is if you buy a pedal, can you then take that pedal that was designed for a bicycle, put it into a Stair Master -

JUSTICE BREYER: Yes. Of course, I think the answer to that is no, probably no, but, but, but, but. Now you can clarify this because I may be off on a wrong track. I thought we’re talking about using the sold item in those mechanisms which account for virtually almost the only logical use of the sold item. Thus, if you took the bicycle blanks — not the bicycle blanks; they are eyeglass blanks. I’m mixed up between bicycles and eyeglasses, there we are. But if you took the eyeglass blanks and you use them for the purpose of growing plants instead of inserting them into eyeglasses, I guess we’d have had a different case.

And I take it here they are using those chips in those mechanisms that the chips are almost exclusively designed for and there isn’t much else to use them for. Am I right or wrong?

MR. PHILLIPS: That is true. But the — but the point here is that that’s not the relevant distinction. It’s not whether or not this is in some sense an essential use. What this Court said in Univis is that this would be a very — that would have been a very different case if there had been a separate patent on the grinding and finishing of those lenses. And that is precisely our case. There is a separate patent when you take those components and you then put them into our separate system.

And from my perspective, Your Honor, the better way to analyze this is not as a question of exhaustion. Let’s keep the exhaustion doctrine where it fits. It’s a first sale component. You buy it, you exhaust. Let’s use the implied licensing as the mechanism for dealing with related patents. But the beauty of that in this case, obviously, is that — is that the implied license in this case the courts below have flatly said doesn’t exist. And it goes to the point that you made, Justice Breyer, as well when you said, you know, I buy this and I sort of assume that I’m going to be able to use it in a particular way. These — this is a $10 billion company that at the time they bought these components, these chips, received explicit and specific notice that the one thing they could not do was use these chips to build new systems and then sell those systems, obviously, beyond — you know, under a completely separate patent.

A ruling in the LG-Quanta suit is expected by July.

Read the whole transcript here.

Posted January 31st, 2008 by Stephen Albainy-Jenei in IP Litigation
| | 1 Comment »

If you’re like most people, you come across a lot of documents in your life. Many go into the trash — and deservedly so — but many just can’t seem to find a home. You want to keep them for reference or for sharing but you don’t know where to put them.

Enter docstoc.com. Aptly labeled beta, docstoc is touted as a “community of users sharing their professional documents.” docstoc allows users to upload their documents for anyone to share and is free for both those uploading and those downloading. Apparently, they make it up on volume. One downside is that you have to register to be able to upload or download.

The site is quite diverse in topics and in document types. Currently, it supports .doc, .pdf, .xls, .ppt, .ppt, and .txt file types. More amazingly, users can upload an unlimited amount of documents. I’m not sure how long free, unlimited storage can last.

I had a chance to speak with the CEO, Jason Nazar, about docstoc.com to get a better understanding of the site. Here are some of the highlights about docstoc:

• 55,000+ free legal forms, business documents, excel templates, free real estate forms, sample business plans.
• Backed by the co-founders/investors of MySpace, Baidu, Mp3.com, and Lowermybills.com.
• Launched about three months ago and has 30,000+ registered members.

I had some difficulty navigating the site but that is mainly because it’s a little different from traditional sites with lists of links. The docstoc site allows you to view entire documents through a viewer window, you don’t have to open any applications.

My biggest problem with docstoc is its very scope. Since the site is populated by user-uploaded materials without any selection or moderation process, the range of materials is all over the map. This makes it difficult to find the documents you need.

When I did a quick search, I came up with a list of documents that had an LLC agreement next to a university press release next to a PowerPoint about nanotechnology next to a calendar of women in bathing suits next to a university biology exam study questions list. All using a narrow search query. Using a more generic search term gets you someone’s resume next to a reference manual for a wireless server next to document labeled “Why I Got Fired” next to a set of blonde jokes. You get the idea.

You can drill down through menus at the top to get from all documents to legal to contracts but the effect is still the same. It is one big collection of documents of whatever anyone wants to upload.

Even though I liked the idea of having access to a large portfolio of documents, I couldn’t shake a nagging uncomfortable feeling about downloading documents that were mostly uploaded by someone named Anonymous.

The Terms of Use require the users to agree that “You acknowledge that you are responsible for the information, documents, messages, comments, photos, videos, graphics, sounds and other content or material that you submit … and that you, and not DOCSTOC, have full responsibility for each such Submission you make, including its legality, reliability, appropriateness, and trademark and copyright ownership.” But is Anonymous really trustworthy?

Note: docstoc does include a fake public service video: “Don’t Steal Documents.”

The site has some unique features to make things easier such as the ability to mouse over a link and get a preview window with the whole document. To help wade through documents, each document has listings showing the number of views and downloads and users can rate the documents to alert you to the usefulness. Users can also form groups, such as “LA Investor Group“, so that like-minded users can collaborate.

Jason explained that users can gain lots of exposure by uploading quality documents that potential contacts may want so there is an incentive to upload only worthy materials. One nice feature for bloggers is an embed feature - you can embed documents into your blog after uploading them to docstoc. Another feature allows users to make a request for a document to see if another user has it and would upload it onto the site.

I think docstoc may still be a little too beta on the Web 2.0 curve but it has a lot of potential for users to share documents, spread the word about their talents or services and to gain feedback. In addition, users can store their documents in their own personal online folders for anytime, anywhere access.

Decide for yourself at docstoc.com.

———

When you’re done uploading, check out Relatip™, billed as the first and only online social community tailored exclusively to the unique requirements of intellectual property (IP) attorneys.

Posted January 30th, 2008 by Stephen Albainy-Jenei in Cool Tools
| | 5 Comments »

Jon Gowshall, a UK patent attorney at Forresters, has just let us know that the French ratification of the London Agreement was deposited yesterday, 29th January 2008.

The Agreement will come into force on 1st May 2008, and will apply to all European Patents granted after that day.

What is the London Agreement?

The London Agreement is an international agreement designed to reduce the cost of validating a European patent by reducing the translation requirements at the grant stage, in states which are parties to the Agreement.

At present a European patent application must be prosecuted before the European Patent Office in any one of the three official languages, English, French or German and, on grant, translations of the claims of the other two languages must be filed to be published with the specification as granted. This procedure will remain as before.

In order to validate the European patent in the designated states, it is necessary to file a translation of the entire specification in an official language of the national patent office.

In what countries does this apply?

With the implementation of the London Agreement, this will no longer be necessary in a number of countries. Instead, assuming that the application is in English, only the following translations will be required for the countries indicated which have signed the Agreement:

(a) United Kingdom, France, Germany, Switzerland, Liechtenstein and Monaco: No further translations required.

(b) Iceland, Latvia, Netherlands and Slovenia: These countries may require:

(i) a translation of the claims only into their national languages;

(ii) the entire specification to be available in one of English, French or German (most countries have opted for English).

Note: Sweden and Denmark are expected to join the Agreement in the foreseeable future. Other countries may later.

What does this mean for the immediate future?

Since the validation stage represents a large proportion of the total cost of obtaining a European patent, the implementation of the Agreement will result in major savings.

How does the Agreement work?

Under the Agreement, if a party state has an official language in common with the EPO, then any translation requirements for validation (Art 65(1) EPC) are removed, meaning that no translation at all will be needed.

If a state does not have an official language in common with the EPO, that state may designate one of the three official EPO languages as its “preferred” language (known as the “prescribed” language). In these states, the need to translate the description will be removed if the European patent was granted in the prescribed (official EPO) language of that state.

Otherwise, it will be necessary to supply a translation into the prescribed language of that state as part of the validation process. States falling into this category may still request a translation of the claims into one of their official (nonEPO) languages. States that are parties to the Agreement can apply more liberal translation requirements, if they wish.

We expect a number of additional states to ratify the Agreement after it has entered into force.

More: London Calling: What the London Agreement Means to You

Posted January 30th, 2008 by Stephen Albainy-Jenei in EPO News
| | 2 Comments »

Monsanto sued Bayer Bioscience claiming that four Bayer patents relating to chimeric genes, including U.S. Patent Nos. 5,545,565, are invalid and not enforceable. After the district court declared the four patents unenforceable for inequitable conduct Bayer appealed. The U.S. Court of Appeals for the Federal Circuit agreed after finding their researcher was less than forthcoming on her notes. Monsanto Co. v. Bayer Bioscience N.V. (07-1109).

The ’565 patent claims chimeric genes comprising (a) a truncated Bt toxin gene encoding an approximately 60 kD to 80 kD Bt toxin of a specific amino acid sequence, and (b) the regulatory region of a gene “naturally expressed in plant cells,” which enables the gene to be transcribed in plants, i.e., a plant promoter.

Certain strains of bacteria (Bacillus thuringiensis or Bt) produce proteins, known as Bt toxins, that are harmless for humans and most animals but are toxic to certain insects.

At district court, a jury found the asserted claims of the ’565 patent not infringed and invalid for obviousness and prior invention by Monsanto. In a 99-page opinion, the district court found materiality and intent for two separate acts relating to the ’565 patent and concluded that inequitable conduct made the ’565 patent unenforceable.

Here, Bayer argued that prejudicial evidence was admitted during the jury trial, that there was insufficient evidence to sustain the jury findings of prior invention and obviousness, that the district court erred in finding the ’565 patent unenforceable for inequitable conduct.

To hold a patent unenforceable for inequitable conduct, a district court must find by clear and convincing evidence that a patent applicant breached its duty of candor and good faith to the United States Patent and Trademark Office by failing to disclose material information, or submitting false material information, with an intent to deceive the PTO.

During the prosecution of the ’565 patent, Bayer disclosed as prior art an abstract by Dr. Wayne Barnes from a conference at which Barnes had a poster presentation.

After the Examiner rejected all claims as obvious over various prior art references including the Barnes Abstract, Bayer argued:

Barnes et al. fails to identify which Bt toxin gene should be utilized and also fails to show that the fusion gene would work in plants. Also, if the “second half” of the Bt gene would be deleted, as Barnes et al. suggests, the remaining part would encode a protein of 576 amino acids, which is not toxic.

Although Bayer disclosed the Barnes Abstract during patent prosecution, it did not disclose the notes taken by one of its employees, Dr. Mariani, who viewed the Barnes Poster. The poster contained much more information in showing a truncated Bt toxin gene at or near the restriction enzyme site xho and that this gene fragment encoded a N-terminus 67 kD truncated Bt toxin which retained toxicity.

The Mariani notes were “widely circulated” among Bayer’s Bt group and the intellectual property department. The patent attorney handling the cases, Meulemanns, conceded that “if [the Mariani] notes would add anything of reliable information which could add to the abstract, that could be important” to a patent examiner.

One troublesome point for Bayer was that Bayer argued that its disclosure of a chimeric gene with one version of a truncated Bt gene was sufficient to enable the genus of all chimeric genes with any truncated Bt toxin gene. The court said Bayer can’t have it both ways – that is, they can’t now argue that only those prior art references disclosing the particular Bt toxin described in the specification can be material.

The district court concluded: “[I]t is very obvious that the poster notes, if they were disclosed to the patent examiner, which they were not, would stand in sharp contradiction to the Bayer argument before the patent examiner . . .”

Finding this material, the court explained:

[I]is clear that the Barnes notes coded for the same 67 Kd toxic protein Bayer wanted to claim, that the Barnes gene was 3.4 kb for the full length, that because of the identified xho site, it would be easy to determine the identity of the Bt gene being used, and the chimeric gene used was toxic to insects by the drop. There is a substantial likelihood that a reasonable examiner would have considered the Barnes notes important in deciding whether to allow the application to issue as a patent. . . .

Bayer argued that the district court’s determination that the Mariani notes were material was based on the conclusion that the Barnes construct “coded for the same 67 kD toxic protein Bayer wanted to claim” and “that because of the identified xho site it would be easy to determine the identity of the Bt gene being used.”

Bayer argued that these were unsupported speculations and that without this “erroneous finding of fact, there can be no materiality.”

The Federal Circuit thought differently holding that the district court didn’t need to find that Barnes used the identical Bt toxin to be material:

First, at the time of the Examiner’s rejection, Bayer was not limiting its claim to one species of Bt toxin protein but was broadly claiming a chimeric construct encoding any 60-80 kD N-terminal fragment of a Bt toxin protein. Thus, any species of chimeric gene created by Barnes within this genus would directly implicate the allowability of Bayer’s claims.

Second, none of the Examiner’s rejections, including his rejections of the sequence specific claims, nor any of Bayer’s arguments to overcome these rejections, relied on the exact sequence of Bt toxin used by Barnes.

The court noted that Bayer’s failure to disclose the Mariani notes to the PTO, even if highly material, is not sufficient to prove inequitable conduct. This requires clear and convincing evidence showing an intent to deceive the PTO.

We have held that absent a credible reason for withholding the information, “[i]ntent may be inferred where a patent applicant knew, or should have known, that withheld information would be material to the PTO’s consideration of the patent application.”

Having found that Bayer intentionally withheld material information when it failed to disclose the Mariani notes despite taking a position at the PTO that was refuted by the information contained in the notes, the Federal Circuit affirmed the district court’s discretion to hold the ’565 patent unenforceable for inequitable conduct.

Posted January 26th, 2008 by Stephen Albainy-Jenei in BioAg, Biotech, IP Litigation
| | 5 Comments »

The Secretary of Commerce has delegated responsibility for administering the National Medal of Technology and Innovation to the United States Patent and Trademark Office (USPTO).  The Medal, presented each year by the President of the United States, is the nation’s highest honor for technological achievement.

The Medal is awarded to innovators whose efforts have made profound and lasting contributions to the U.S. economy and quality of life.  In its new role, the USPTO will replace the Technology Administration, which was abolished by Congress on August 9, 2007.

Established by the Stevenson-Wydler Technology Innovation Act of 1980, the Medal was first awarded in 1985.   On August 9, 2007, the President signed the America Creating Opportunities To Meaningfully Promote Excellence In Technology, Education, And Science Act (America COMPETES).

This abolished the Department of Commerce Office of Technology Administration, which gave out the award previously.  The COMPETES Act does double the funding for the National Science Foundation (NSF), to “encourage scientists to explore promising and critical areas such as nanotechnology, supercomputing, and alternative energy sources.”

The Act also changed the name of the Medal from “National Medal of Technology” to the “National Medal of Technology and Innovation.” Not to be confused with the National Medal of Science or the National Medal of Arts.

No word yet on how this changes the scope of the award.

tech·nol·o·gy [tek-nol-uh-jee] 1. the branch of knowledge that deals with the creation and use of a technological process, invention, method, or the like.

in·no·va·tion [in-uh-vey-shuhn] 1. something new or different introduced; 2. the act of innovating.

In 1992, the National Science and Technology Medals Foundation became the meta-organization over both the National Medal of Science and the very similar National Medal of Technology.  Who knew medals were this big?

Since 175 individuals, teams (of up to four individuals) and companies have received the Medal including Bill Gates, Steve Jobs and Herbert Boyer and Stanley Cohen. 

More about the National Medal of Technology and Innovation here.

Summary of the America Competes Act of 2007

Posted January 25th, 2008 by Stephen Albainy-Jenei in USPTO
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In Biomedical Patent Management v. State Of California, the U.S. Court of Appeals for the Federal Circuit held that a state’s initial waiver of Eleventh Amendment sovereign immunity – when it intervened in an earlier, related action that was dismissed for improper venue — doesn’t mean that it waived sovereign immunity under the Eleventh Amendment in a later case.

Biomedical Patent Management sued the state’s Department of Health Services claiming the state was infringing U.S. Pat. No. 4,874,693, which claims a method for screening birth defects in pregnant women. BPMC alleges that DHS performs laboratory services, and induces others to perform services, that infringe the ‘693 patent.

At the district court, Judge Marilyn Hall Patel dismissed the lawsuit but expressed concern over the fact that California could sue for patent infringement on one hand while using sovereign immunity to keep from being sued for patent infringement itself:

“The court is indeed troubled by the University of California’s ability to reap the benefits of a patent system without being exposed to liability for infringement,” she wrote. “Similarly situated private universities enjoy no such advantage.”

The Federal Circuit held that, where a waiver of immunity occurs in an earlier action that is dismissed, or an entirely separate action, the waiver does not extend to the separate lawsuit:

By distinguishing Lapides, Gunter, Vas-Cath, and Ramsey, on one hand, and City of S. Pasadena and Tegic, on the other, we do not mean to draw a bright-line rule whereby a State’s waiver of sovereign immunity can never extend to a re-filed or separate lawsuit.

After considering the general unfairness of the issue, the Federal Circuit held:

In sum, we conclude that any unfairness or inconsistency that would arise from permitting DHS to assert sovereign immunity in the present case is not so substantial as to cause us to diverge from the general principles of waiver that we have laid out in this opinion: that a waiver generally does not extend to a separate lawsuit, and that any waiver, including one effected by litigation conduct, must be “clear.”

Many of the largest universities and research institutions are state-owned and their inventions are often patented. In recent years, states have increasingly used the federal courts to enforce these patents.

While they use federal jurisdiction when it helps them to enhance their patent revenue streams, states simultaneously avoid federal jurisdiction when they themselves are faced with claims of patent infringement; in those circumstances, they assert sovereign immunity under the Eleventh Amendment.

The Eleventh Amendment to the United States Constitution provides:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.

Although state officials acknowledge that this asymmetry is unfair — and although it distorts the market for inventions — they contend that the jurisprudence of sovereign immunity entitles them to the risk-free windfall of suing without being sued.

Biomedical Patent Management has now filed a Petition for a Writ of Certiorari to the U.S. Supreme Court. They have asked the high court to weigh in on the inconsistencies.

Questions Presented:

1. Whether a state’s waiver of Eleventh Amendment immunity in one action extends to a subsequent action involving the same parties and the same underlying transaction or occurrence

2. Whether a state waives its Eleventh Amendment immunity in patent actions by regularly and voluntarily invoking federal jurisdiction to enforce its own patent rights.

When a state voluntarily invokes federal jurisdiction, it is settled that the state’s Eleventh Amendment immunity is waived. However, the scope of the state’s waiver is not settled. The courts of appeals have taken different approaches and so there is no uniform principle governing the scope of a state’s waiver of Eleventh Amendment immunity

This petition looks at whether a waiver is confined to the case in which it is initially made or instead extends to other cases involving the same parties and the same underlying transaction or occurrence; and, whether a state’s repeated invocation of federal jurisdiction to resolve issues of patent infringement effects a waiver that extends to suits in which the state is sued by a party seeking to resolve a patent dispute.

The the rule governing voluntary invocations of federal jurisdiction has created problems of inconsistency and unfairness when a state waives its immunity in one case and then attempts to assert immunity in a case involving the same parties and the same underlying transaction or occurrence.

It’s hard to feel sorry for the University of California. The university has generated about $500 million in revenue in the past five years. As a plaintiff in patent infringement suits, the university settled a claim against Genentech Inc. for $200 million, secured a payment of $185 million from Monsanto Co., and won a $30 million settlement from Microsoft Corp.

Not a bad haul even by today’s patent award standards.

See the petition here: Biomedical Petition for Cert

Posted January 22nd, 2008 by Stephen Albainy-Jenei in IP Litigation
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Abbott Labs had one of those days. The Court of Appeals for the Federal Circuit affirmed the District Court’s finding that Abbott infringed Innogenetics’ patented Hepatitis C Virus genotyping technology, U.S. Patent No. 5,846,704.

The Federal Circuit did reverse and remande the earlier judgment that claim 1 of the ‘704 patent was not anticipated by U.S. Patent No. 5,580,718 (the Resnick patent). The Federal Circuit also upheld the jury’s finding that Abbott has to cough up $10 million in damages to the Belgian biotech company as well as sanctions for making a baseless claim against Innogenetics.

The technology in this case pertains to diagnostic tools that detect and classify hepatitis C virus (HCV) genotypes in a biological sample, which facilitates tailoring the treatment of patients with different genotypes.

The ‘704 patent claims a method of genotyping HCV based on distinct genetic sequences that can be found in the 5 prime untranslated region (5′ UTR) of the HCV genome.  Abbott’s genotyping assay kits also involve specifically hybridizing probes to the nucleic acids of the HCV’s 5′ UTR.

Claim 1, the only independent claim on appeal, reads in its entirety as follows:

A method of genotyping HCV present in a biological sample comprising hybridizing nucleic acids in a biological sample with at least one probe and detecting a complex as formed with said probe and said nucleic acids of HCV, using a probe that s pecifically hybridizes to the domain extending from the nucleotides at positions -291 to -66 of the 5′ untranslated region of the HCV.

The district court granted Innogenetics’ motion to exclude testimony on obviousness by Abbott’s witness, Dr. Patterson. However, the written order commemorating the conference rulings inaccurately stated that defendant was precluded from entering any evidence of obviousness at trial. Abbott never moved for correction or reconsideration of the written order.

In a footnote, the CAFC took the Abbott team to task noting:

This case aptly demonstrates the pitfalls of playing fast and loose with rules of discovery. Conclusory expert reports, eleventh hour disclosures, and attempts to proffer expert testimony without compliance with Rule 26 violate both the rules and principles of discovery, and the obligations lawyers have to the court. Exclusion and forfeiture are appropriate consequences to avoid repeated occurrences of such manipulation of the litigation process.

The jury concluded that claim 1 of the ‘704 patent was not anticipated and awarded $7 million in damages to Innogenetics plus found Abbott’s infringement to be willful.

The Federal Circuit also did not buy Abbott’s defense that Realtime PCR was not known to the ordinary artisan at the time of the filing of the ‘704 patent application:

[T]he district court deemed this issue forfeited because Abbott “did not raise this issue before trial when it could have been given thorough consideration. Instead it raised the issue for the first time at 9:30 p.m. on the night before the start of trial and did so simply by submitting a proposed jury instruction, rather than by bringing the matter directly to the attention of the court and opposing counsel.”

Absent extraordinary circumstances, the Seventh Circuit has stated that it rarely reaches forfeited arguments in civil litigation. Ocean Atl. Dev. Corp. v. Aurora Christian Sch., Inc., 322 F.3d 983, 1005 (7th Cir. 2003). Abbott’s belief that “there was no need to raise [its argument] prior to the court adopting a claim construction not proposed by either party” falls well short of extraordinary.

It should be noted that, forfeiture aside, Abbott’s argument lacks merit. Essentially, Abbott argues that a patent can never be literally infringed by embodiments that did not exist at the time of filing. Our case law allows for after-arising technology to be captured within the literal scope of valid claims that are drafted broadly enough. See SuperGuide Corp. v. DirecTV Enters., Inc., 358 F.3d 870, 878-80 (Fed. Cir. 2004) (finding that the claim limitation “regularly received television signal” is broad enough to encompass digital signals even though no televisions that could receive digital signals existed as of the filing date).

It also didn’t help that Abbott itself has put in evidence that Realtime PCR did exist by the time the inventors filed their PCT application in 1992. In his expert report, Abbott’s witness stated that “Realtime PCR using 5′ to 3′ exonuclease activity was pioneered around 1991 .. . .”

Nice.

Because two of the three claims found to be infringed are unaffected by this ruling, this reversal will not affect either the determination that Abbott infringed Innogenetics’ HCV genotyping patent or the jury’s determination that Abbott must pay damages for its infringement.

See Innogenetics v. Abbott Laboratories, United States Court of Appeals for the Federal Circuit (07-1145).

Posted January 18th, 2008 by Stephen Albainy-Jenei in Biotech, IP Litigation
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As a source of amusement, Modern Mechanix has a piece about how the Patent Office has become a national disgrace (in June 1930!).

In the article, written for Popular Science Monthly, the author relates how, at the time it was written, there were nearly 118,000 applications for patents piled up in Washington in the greatest jam of history.  And new ones were pouring in at the rate of approximately 2,000 a week.

In the previous four years, the number of applications awaiting action had leaped from about 41,000 to nearly three times that number, about 118,000.  These piled-up applications contained more than twenty-three acres of paper.

At present, the staff of examiners is gaining on this accumulated mass of applications at the slow rate of about 250 a week.  Even if they continue to work at top speed, without vacations, it is estimated that it will take the present staff until 1942 to catch up with their work so they can give the inventor a reasonably prompt decision upon his application.  As it is now, forty-five percent of all patents, or approximately every other one, take longer than two years to obtain. Some take several times that period.

And, talk of patent anarchy was abundant as the “flood” of applications poured in and comparisons are made back 100 years:

During the last ten years, more patents have been granted in the United States than during the 100 years from President Washington’s inaugural in 1789 to President Harrison’s inaugural in 1889.  In 1929, 114,496 applications for patents, trade-marks, and designs poured into the Washington office.  And thus far in 1930, there has been a twelve percent increase over the record-breaking flood of last year.  Besides mechanical inventions, the Patent Office passes on about 5,000 designs and 20,000 trade-marks a year. Recently, the requests for trade-marks has increased 100 percent.

Sound familiar?

It is interesting to note that even then, the Patent Office collected more fees than it spent:

Yet, while the Patent Office has been giving poorer and poorer service and has been losing money for American inventors, it has been piling up for the Government a profit of more than six million dollars!

In fact, it is one of the few Federal bureaus that operates at a profit. Over a long period of years, its income has far surpassed its expenditures, although recently it has been running behind. However, from fees paid by inventors alone, $3,000,000 was collected by this office last year.

If the Patent Office is making money, why doesn’t it hire enough men to do its work? That is a natural question, one of many mystifying angles of this patent muddle for which I have sought the answer.  I have talked with the Commissioner of Patents, Thomas E. Robertson. I have discussed the situation with many men employed at the Patent Office.  I have interviewed lawmakers who have investigated the work of the Office and patent attorneys who have been dealing with it for years. And the result is the belief that the present disgraceful conditions will continue indefinitely unless the readers of Popular Science Monthly and others who are interested demand Congressional action that will give American inventors the service to which they are entitled.

In answer to the question above, I found that not one penny of the millions of dollars profit made by the Patent Office has been available for improving the service of the organization or for providing better equipment.  The law provides that any money surplus at the end of the year must be turned over to the United States Treasury. Thus the Patent Office has never been able to put its profits to work.  It has been dependent upon the whim of Congress for the amount of money it could spend.

The Patent and Trademark Office would receive $1.9 billion in fiscal 2008 under the budget plan by President Bush. This is the fourth year in a row the White House has recommended the Congress allow the agency keep fees collected from patent and trademark applications instead of diverting funding to other government programs.

In fiscal year 2006, the Patent Office received a total of 452,633 applications and granted a total of 196,404 patents. According to PTO, examiners examined 332,000 patent applications — the largest number ever — while achieving the lowest patent allowance error rate (3.5 percent) in more than two decades. At 54 percent, the amount of applications reviewed and approved also was the lowest on record.

All things old are new … again.

See the entire story here.

Posted January 18th, 2008 by Stephen Albainy-Jenei in Patent Reform, Patent News
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