Why being in the middle is the right place
Part 3: Inter Partes and Litigation Issues
This is the third installment of the President’s column on patent law reform. In prior installments I focused on background and patent procurement and operational reforms. This installment addresses inter partes and litigation matters.
Adopting a post grant opposition process, and the problem of the second window
Certain technology sectors have so many patents being filed that many companies claim they simply cannot keep up with all the patents being granted in their fields (the “thicket” problem). Possibly as a result of the sheer number of patent applications, and examination stresses on the USPTO, there are and will be a number of “questionable” patents that have not been examined against the best prior art and that contain vague or ambiguous claims with uncertain potential end use applications. Such questionable patents create a great deal of business uncertainty. In certain technology sectors manufacturing companies view the resulting litigation threats and actual litigation from such “questionable” patents as levying an additional indirect tax on their ability to innovate.
Some companies spend considerable resources and time to develop and implement systems to: monitor patents being granted to others that could possibly impact their businesses, identify valid patents they would like to license, and use the opposition process in the EPO to challenge those patents that could most negatively impact their freedom to operate and that they feel were improperly granted.
Licensing and early and rapidly-concluded oppositions yield greater business certainty than protracted and expensive litigation. Waiting to engage in an opposition
"Licensing and early and rapidly-concluded oppositions yield greater business certainty than protracted and expensive litigation."
until after being notified of infringement may be less expensive than litigation but does not improve business certainty. Instead of monitoring and opposing questionable patents early, other companies have adopted a counter strategy of expanding their own patent portfolios for cross licensing ammunition, or to counter infringement charges by non manufacturing patentees. These companies contend that because of the number and unclear scope of many patents, manufacturers in thicket art areas do not know to which patents they should pay attention, what the patentee may allege is covered by its claims, or how to oppose patents within a short period after grant (first window). These manufacturers desire as an alternative an extended period (second window) to oppose at any time during the life of the patent – when they become aware there is a potential problem and cross licensing is not suitable.
The second window: can the windows coexist?
The second window does not address the same goals as the first window (early challenge to questionable patents, early resolution, and increased certainty), but rather provides a private right of action for manufacturers to challenge questionable patents in the USPTO rather than in court. IPO believes the existence of a second window (even with different and higher thresholds) will substantially reduce or eliminate the incentive for effective use of the first window. The second window eliminates the incentive for rapid elimination of questionable patents and encourages a “wait and see” approach.
Proposed amendments would create a limited second window with heightened thresholds (with a showing of a significant economic impact and/or actual notice of infringement) plus a higher burden of proof to invalidate the patent (clear and convincing rather than a preponderance of the evidence). What exactly is significant economic impact and how difficult would that be to demonstrate? Second, why should a patent that is being opposed at a later point after grant possess a stronger presumption of validity than one being opposed immediately after grant?
IPO supports the existing presumption of validity of a granted patent and does not support reducing the presumption in a first window opposition from the clear and
"IPO supports the existing presumption of validity of a granted patent... We want the public to be able to reasonably rely upon the quality of the examination by the examiner, who is most familiar with the technology..."
convincing to a preponderance of the evidence standard. We want the public to be able to reasonably rely upon the quality of the examination by the examiner, who is most familiar with the technology in a particular area, and not overcompensate for any quality problems in the USPTO by employing a lower evidentiary burden to invalidate the patent.
The problem the second window is trying to address is, in my opinion, better dealt with by encouraging prior art searching, expanding third party submission of prior art during prosecution, and increasing scrutiny of 35 USC 112 issues in technology sectors where thickets and problems with ambiguous patents have been identified. Post grant opposition should have only one fairly short window and with a proceeding that is concluded quickly (within 12 to 18 months). We should not eliminate the incentive for its use by creation of even a limited second window.
Can we fix forum shopping with a revised venue statute?
Companies are routinely being sued in fora that have little to do with either party or the case and the fora may be selected solely because they are perceived by patent owners as patent friendly (patent validity likely to be upheld and high damage awards). Companies understandably are looking for a statute change that would make it harder for them to be sued in such fora. Forum shopping has historically been a problem in U.S. law.
Current bills propose to fix this problem, for example, by limiting a patentee to suing in the plaintiff’s or defendant’s principal place of business or where the plaintiff or defendant is incorporated (with a limitation that incorporation can not be done solely for the purpose of establishing jurisdiction), or where a defendant commits acts of infringement and has a regular and established physical facility. IPO believes this requirement should be symmetrical for those seeking to challenge a patent by a declaratory judgment action.
Problems are created when defendants are differentiated based on whether they are large or small businesses, universities or foreign corporations with US subsidiaries. Why should a foreign corporation be treated differently because it has a US subsidiary? Complicating the venue statute by such special carve outs is extremely problematic.
IPO is on record favoring venue reform and is interested in other approaches such
"IPO is on record favoring venue reform and is interested in other approaches such as the establishment of specialized patent trial courts and the random assignment of judges."
as the establishment of specialized patent trial courts and the random assignment of judges, as steps in addressing the forum shopping problem.
Would mandatory interlocutory appeals of claim construction delay litigation?
Since the Markman decision, most patent cases have one or more claim construction hearing. Often the entire case revolves around interpretations of claim language, and when that is finally completed, the case may be ripe for either summary judgment or settlement. Claim construction involves both factual and legal determinations, although the final claim construction made by the trial judge has been held to be a question of law. There may be numerous claims at issue and multiple Markman hearings at different times during the litigation, resulting in multiple claim construction determinations. Since the issue is a matter of law when the case goes on appeal to the CAFC, there is a significant possibility that the CAFC will reverse the claim construction determination of the district court judge.
Currently interlocutory appeals are discretionary, and the CAFC in nearly all cases has chosen not to exercise its jurisdiction to hear such appeals. Making such appeals mandatory would significantly delay conclusion of litigation because of inevitable multiple appeals. However, there are benefits from judges making a record of their findings of fact and conclusions of law in support of a claim construction. I believe the Court of Appeals for the Federal Circuit might be able to give greater deference to the trial court’s claim constructions when the trial court’s findings of fact are not clearly erroneous.
Damages apportionment: Georgia Pacific factors, excessive damages and combination patents
What invention does not include some elements from the prior art? Other than a new chemical entity, most inventions are composed of combinations of prior art elements in new and useful ways. When a claim to a combination of elements is infringed, how should reasonable royalty damages be determined? Should damages be apportioned between new features and prior art elements and how should that be done?
This is an old issue but it seems to be one of, if not the most, controversial portion of the new patent reform bill. Some contend that the courts have adequate existing
"This is an old issue... The debate centers on how to properly apportion damages in determining a reasonable royalty when the entire market value rule does not apply to the facts of the case."
guidance for damages assessment, such as for example the 15 factors contained in the Georgia Pacific decision. Others argue, however, that despite such guidance, some courts have not applied the test properly, and juries are awarding excessively large damages not related to the contribution of the claimed invention to the device or product as a whole. The debate centers on how to properly apportion damages in determining a reasonable royalty when the entire market value rule does not apply to the facts of the case.
Some believe the proposed reform legislation codifies the Georgia Pacific factors but there is debate concerning the proper means for establishing “the economic value properly attributable to the patentee’s specific improvement over the prior art.” How should the court exclude from the analysis the economic value properly attributable to the prior art and other features or improvements, whether or not themselves patented? Is it possible to effectively subtract all prior art elements from a claimed combination? What is left, if anything, when all of the claim elements were each separately present in the prior art and the invention resides in their formulation or assembly together? Does the current apportionment language simply lead to patent owners not recovering adequate damages in some cases and excessively large damages in other cases?
A second issue with the apportionment issue is who should bear the burden of proof on limiting the royalty to the novel contribution? After the plaintiff or patentee has proven infringement, does it make sense for the plaintiff to also prove the economic value attributable to the improvement over the prior art, or should the burden then switch to the defendant to introduce evidence in support of lowering the amount of damages that the patentee equitably deserves? There are recent decisions (subject to appeal) where it appears the reasonable royalty determination resulted in unreasonably high damage awards, but legislation will not guarantee that all future cases will be decided correctly. IPO has endorsed some draft language, posted on the web site, that we believe gives clearer guidance than the current bill.
Conclusion: Time to act
It’s been more than 50 years since Congress made sweeping changes to the patent laws. During this period the importance of intellectual property rights to the US economy has increased. We have seen new technologies emerge and grow. Years of user fee diversion away from the USPTO coupled with annually increasing numbers of new patent applications have stretched the capability of the USPTO. New business models using intellectual property and technology transfer licensing have grown. Litigation has become more complex, costly and frequent. We may not be able to cure all the problems we have identified at once by this patent reform legislation, but it is important for us to fix what we can now, do no harm to the system, and continue to examine and propose solutions to the issues that remain.
Patent owners are plaintiffs one day and defendants another. Patent reform legislation needs to maintain a balance between improving patent quality, defending
"In the middle is the right place to be at a time when many are taking positions from the perspective of being only the plaintiff or only the defendant."
strong patent rights, and limiting abusive litigation behaviors. In the middle is the right place to be at a time when many are taking positions from the perspective of being only the plaintiff or only the defendant. I hope Congress fully considers IPO’s positions on patent reform. We remain engaged, willing and able to assist in any way possible to help improve the patent system for the 21st century.