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Top Ten Plus One Most Important Patent Cases

This is based on my Top Ten Most Important Patent Cases article, and the plus one is Alice v. CLS Corp.

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Is Your Software or Business Method Patentable? The Supreme Court Weighs In

An Article in Schott, P.C.’s IP Law For Start-ups Series
By Stephen B. Schott

Summary
Alice Corp v. CLS Bank Int’l Supreme Court Opinion

Alice

Today, the Supreme Court took a swipe at business method patents that merely take a known abstract idea and implement that idea using a computer. The Alice Court was careful to distinguish between (1) unpatentable known abstract ideas that were the subject of the case, and (2) abstract ideas that contain “something more…thereby ’transform[ing]’ them into patent-eligible subject matter.’”

The Court called the patent claims at issue “known” and “long prevalent,” and characterized their implementation on a computer a “basic function” that was “’well-understood, routine, [and] conventional.’” The Court took pains to point out that not all abstract ideas implemented using a computer are patent-ineligible, but this particular well-known idea was.

The decision may not, however, have widespread consequences for most patent holders. The Court cited one of its earlier opinions to point out what methods could be patentable. In that opinion (Diamond v. Diehr), the Court found that a computer-implemented method was patentable subject matter “because it improved an existing technological process.” This is an important indicator that software remains patentable subject matter in the Court’s opinion.

It’s going to take years for the US Patent and Trademark Office and courts to interpret and implement the Court’s new test that to be patentable subject matter, a patent claim must provide “something more,” a vague requirement no doubt soon to be dubbed the “something more test.” This something more test would be a hit with Alice in Wonderland’s Mock Turtle, who might conclude, “Well, I never heard it before, but it sounds uncommon nonsense.”

In the meantime, patent claims will not be patentable if they merely take a known idea and implement it generically on a computer.

An Enjoyable Conclusion

It’s worth starting at the end of the opinion because the Court hinted at something that most lay readers will agree with: Lawyers are sneaky.

The Court concluded its opinion by noting that the issue of patentable subject matter is not subject to the “draftsman’s art.” The Court then drew a colorful quote from an 1886 patent case: “The concept of patentable subject matter under §101 is not ‘like a nose of wax which may be turned and twisted in any direction….’” This was a snub to some patent attorneys who spent many of the last 10 or more years tacking magic words like “performed on a computer” onto known methods in an attempt to transform the known method into patentable subject matter. The Court said that patent attorneys don’t possess magic words that permit such a transformation.

The Alice Opinion

Justice Thomas introduced Alice’s much-maligned patent claims early in the Court’s opinion, quoting one of them fully in a footnote:

33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and

(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

After reviewing how the case arrived before the Court and its earlier precedent on this topic, the Court quoted the statute regarding patent-eligible subject matter:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. 35 USC 101.

And then it reiterated its two-step test for how to apply this statute:

First, we determine whether the claims at issue are directed to [laws of nature, natural phenomena, or abstract ideas]… [Second,] we then ask “[w]hat else is there in the claims before us? We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

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Applying the first step, the Court concluded that the claims encompass an abstract idea. And in applying the second step, regarding whether the claims contain a combination of elements that distinguish them from a known concept, the Court mixed elements of the 35 USC 102 novelty requirement into its 35 USC 101 patentable subject matter analysis, as it has done in earlier opinions (Mayo v. Prometheus and In re Bilski) and during oral argument. This mix is clear in the Court’s statement that taking a known concept and generically implementing it on a computer is “well understood, routine, [and] conventional” and “one of the most basic functions of a computer.…In short, each step does no more than require a generic computer to perform generic computer functions.”

Lessons for Software Inventors

The bottom line is that software is still patentable subject matter, but it will need to be new—not just an implementation of known concepts. “At some level, ‘all inventions…embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.’…Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept. [Applications] of such concepts ‘to a new and useful end,’ we have said, remain eligible for patent protection.” And the more ties and interaction that the software has with the physical world, the better.

This will be a developing area of law, as it has been for the last 30 years.

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“Hail to the…” Redskins Federal Trademarks Canceled as Disparaging

By Stephen B. Schott

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In a 2-1 split decision, the US Patent and Trademark Appeals Board canceled several trademarks owned by American football’s Washington Redskins today. The marks included: WASHINGTON REDSKINS, THE REDSKINS, several stylized variations of REDSKINS, and one mark whose commercial value seems dubious: THE REDSKINETTES.

The Washington Redskins have been under increasing pressure from activists and even 50 US Senators to change their name, and litigation seeking to cancel the REDSKINS name dates back to 1967. This latest decision is another chapter in this long battle.

In canceling the federal trademarks, the Board concluded that “we decide, based on the evidence properly before us, that these registrations must be cancelled because they were disparaging to Native Americans at the respective times they were registered, in violation of Section 2(a) of the Trademark Act of 1946, 15 U.S.C. § 1052(a).”

The law permits refusal for registration or cancelation of any mark that “consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”

The opinion, including its dissent, weighed in at a Hog-like 99 pages and included a detailed review of testimony, history, media coverage, and third party submissions. For example, Kimberly Whitehead wrote this to former Redskins owner Jack Kent Cooke in 1993:

The Washington Redskins must go! No, not the team, but the name, which is totally demeaning of Native Americans and reinforces a negative stereotype that is unjust and unwarranted. The term “redskins” is out of a period when there was a bounty on the heads of Indians and they were scalped. Eighty cents for a man’s skin, 60 cents for a woman’s skin and 20 cents for a child’s skin. It is a period in our history that every American should be ashamed of and the continued use of such a derogatory and offensive term is an abomination. Ben Nighthorse Campbell, the only Native American in the U.S. Senate, says that “the name Redskins carries the same negative connotation as some terms that blacks and whites find offensive.”

Many people wrote in support of the name as well, and these letters and quotes are also included in the opinion, such as a letter from the Principal Chief of the Seminole Nation of Oklahoma, Jerry G. Haney, who expressed that “the use of the Redskins name by the Washington football team is a source of pride.”

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The Board took note of several facts, including that “[f]rom 1983 on, all dictionary entries…include a usage label indicating the term [REDSKIN] is offensive, disparaging, contemptuous or not preferred.”

Based on the record as a whole, the Board concluded that “In view of the above, petitioners have shown by a preponderance of the evidence that a substantial composite of Native Americans found the term REDSKINS to be disparaging in connection with respondent’s services during the relevant time frame of 1967-1990. Accordingly, the six registrations must be cancelled as required under Sections 2(a) and 14(3) of the Trademark Act.”

Can the Redskins still use REDSKINS? 

Yes, definitely. The Board was careful to note that it cannot deny someone’s use of a trademark, merely its federal registration. “This decision concerns only the statutory right to registration….We lack statutory authority to issue rulings concerning the right to use trademarks.”

And even if it loses its federal registration, the REDSKINS mark can still be asserted against would-be infringers based on the Washington Redskins’ state trademark registrations and common law rights. While this is a substantial loss to the Washington Redskins in losing some valuable intellectual property, the bigger loss may be that the Board validates the protests and heightens pressure on Redskins’ owner Daniel Snyder to change the team name.

What happens next? 

After almost 50 years, this isn’t over. The Washington Redskins can appeal this decision and where it goes on appeal from this divided Board decision is pure speculation, although the media and political pressure might play a role in upholding the decision.

Editor’s Note. The author of this article is prone to bias when it comes to American football teams, especially those that beat his beloved Buffalo Bills in the Superbowl. I don’t care if the Washington Redskins win a football game or court case ever again. By the way, I’m waiting on the Buffalo Bills to get sued by all the Williams of the world for disparaging their good names.

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Tesla Donates Its Patents to the Public: “All Our Patent Are Belong To You”

By Stephen B. Schott

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Yesterday, Tesla Motors announced that it “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” It removed all of its patents from its lobby in Palo Alto and says that “applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in [the market].” Tesla titled its announcement “All Our Patent Are Belong To You” in a variation of the All Your Base Are Belong To Us Internet meme that you can watch below.

Tesla makes electric cars like its sporty Roadster that has a base model price of $100,000. But with the all-electric and even hybrid market still struggling to gain footing against cheaper gas alternatives, Telsa hopes that promising not to sue for patent infringement will spur competition and demand.

Tesla’s promise is vague and leaves open some questions. It won’t sue someone who develops an infringing technology but that doesn’t mean Tesla is adopting an open source model. In true open source, people and companies open their technology vault. Tesla, however, is not making its blueprints, drawings, chemical compounds, circuit diagrams, computer code, etc. freely available to anyone. In fact, according to a Forbes article, Tesla is currently in talks to license its technology to BMW, a license that BMW would not need if Tesla just gave its technology away.

And Tesla is taking advantage of its IP rights in other ways. A TIME article got it wrong when it said, “Tesla wants to share its secret sauce with everyone.” Gas 2.0 made an even more egregious error when it said “With Tesla having the best battery packs in the business, opening their trade secrets could be a major boon to the EV world.” Tesla is not in any way giving away its secrets related to its technology. It merely agreed not to sue for infringement of the 160 patents it currently owns.

Trade secrets, such as the Coca Cola recipe, can often be more valuable than patents. The government awards a patent on the premise that you publicly display your idea in exchange for a 20-year monopoly. Society at large benefits by (1) the limited 20-year protection and (2) the innovation that other inventors must undertake to avoid the publicly disclosed patent. Trade secrets, in contrast, are never made public and thus are the opposite of open source.

Coca Cola Lineup Of Bottles With Dates

A trade secret has its own risks but also some rewards. A trade secret, unlike a patent, never expires. Ever. A company can keep a trade secret monopoly going indefinitely. So far, that’s worked well for products like Coca Cola and WD-40 that dominate their markets. If Coca-Cola had revealed its secret recipe in a patent under the current law, the patent would have expired in 1886. The trade secret risk, however, is that if someone reverse-engineers the secret, it’s theirs. Also, if the secret ever becomes public through some disclosure, the trade secret protection expires. And even if someone figures out a trade secret independently, there is no way to prevent their use of the secret.

Tesla is not the first company to promise not to sue under its patents. In 2005, IBM dedicated 500 patents to the open source communitySun Microsystems gives away patents and Google keeps a running list of patents it will not assert.

How this plays out remains to be seen but if it puts a Tesla Roadster in my driveway sooner, I applaud it.

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Schott P.C. Sponsors World Cup Contest

By Stephen B. Schott

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The World Cup starts on Thursday and even more exciting for soccer/football fans here, the US plays on Monday. I may not like the new Bomb Pop uniforms but I do hope for the best Monday in an early must-win game against the team that eliminated the US in 2010: Ghana.

In honor of the World Cup, Schott, P.C. has sponsored a contest for the Hunter Cheetahs U13 girls soccer team. Each player has a national team and if their team wins the World Cup, they win the contest: A simple way to invest the players in the beautiful game of soccer and the World Cup.

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More to come and let’s hope the winner is the United States, although honestly, it’s a lot safer to bet on the US next year in the Women’s World Cup in Canada.

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Supreme Court Issues Two Patent Opinions

By Stephen B. Schott

On Tuesday, the Supreme Court issued two patent-related opinions.

Inducement—Direct Infringer Needed (Limelight Networks v. Akamai Tech.)

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The law at issue in this case revolves around induced infringement. In layman’s terms, induced infringement arises when one actor does not itself perform all of the steps in a claim. Consider an example where a patent claim requires 39 steps. An accused infringer performs 38 steps but another party performs the 39th. Can the patent owner sue the accused infringer for infringement? What if the accused infringer told the third party how to perform the 39th step? This example illustrates the induced infringement issue.

Turning to the Limelight case, the Federal Circuit held that Limelight did not perform all of the patent’s steps because its users performed some of them, and these users “did not act as agents of, or under the direction or control of, Limelight.”

The Supreme Court overturned this holding, leaving the Federal Circuit a Cubs-like 0-45 for Justices supporting its decisions this term. Like a parent who had a bad day at the office, it took the Federal Circuit to the woodshed for several errors not actually present in the Federal Circuit’s decision.

If [,as the Federal Circuit holds,] a defendant can be held liable under §271(b) for inducing conduct that does not constitute infringement, then how can a court assess when a patent holder’s rights have been invaded?

As Jason Rantanen put it over at Patently-O, the Supreme Court handled this criticism “clumsily” because the Federal Circuit made no such holding.

Setting this squabble aside, the Supreme Court remanded the case with the guidance that  “there [can be] no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person.”

Whether an accused infringer “provid[ing] instructions and offer[ing] technical assistance” to its customers regarding how to perform a claim step is infringement under this standard is a decision that the Federal Circuit will have to make on remand, but it seems unlikely.

Claim Indefiniteness Requires Reasonable Uncertainty (Nautilus v. BioSig)

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The Patent Act requires that a patent specification “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as [the] invention.” Setting aside a painful that vs. which error in the statute, a claim that fails to meet the statute is unpatentable in an application or invalid in a patent.

The Federal Circuit standard until yesterday was that a claim was not indefinite unless it was “insolubly ambiguous” and not “amenable to construction,” or interpretation by a court. The Supreme Court rejected this standard and inserted in its place a new indefiniteness test.

A patent is invalid for indefiniteness if its claims, read in light of the patent’s specification and prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

This “reasonable certainty” standard is a new test and it will take a chain of cases to flesh out what it means and how it differs from the old “insolubly ambiguous” standard. This Nautilusdecision may make it easier to invalidate patent claims but the shift in standard seems more about the language that will now be quoted in future opinions than a change with widespread consequences.

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Adam Corolla Fights Patent Trolls But Anti-Troll Legislation is Back Under the Bridge

By Stephen B. Schott

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Comedian and podcast host Adam Corolla recently visited Capitol Hill to complain about patent trolls. Discussing a patent infringement lawsuit targeting his podcast’s technology, Corolla stated “I’m just a small business … I understand wanting to protect your innovation, but this is run amok.” He also complained that in spending money to fight the litigation, he was losing out on an opportunity to buy a new Lamborghini.

There’s worse news for the former Man Show host, however. Yesterday, Senate Judiciary Chairman Patrick Leahy shelved patent reform legislation, including the anti-troll reforms that had been brewing for months. Despite pressure from the public, companies like Google, andThe White House, Leahy noted that there was “not sufficient support behind any comprehensive deal.”

The groups opposing the legislative reform had been arguing that the reforms would hurt small inventors, stifle innovation, and come just a few years after the most comprehensive patent reform in 40 years. Further, they argued, curbing patent trolls should be the job of the US Patent and Trademark Office and courts.

I will keep you updated on the reforms if they resurface in 2015.

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Show ‘Em What You Got: Patents and the Duty of Disclosure

An Article in Schott, P.C.’s IP Law For Start-ups Series
By Stephen B. Schott

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Have you ever found out about something that you wish you could forget? The forgetting presents a particular conundrum for inventors with applications at the US Patent and Trademark Office. Inventors are often the most knowledgeable people about their inventions and what others are doing in the competing industry. And sometimes an inventor stumbles across a material reference that could decrease his chance of securing a patent. In such a case, what must the inventor do?

The Statute: 37 CFR 1.56 Duty to Disclose

The US Code of Federal Regulations creates a duty to disclose that is defined in part as “a duty to disclose to the Office all information known to that individual to be material to patentability….  [I]nformation is material to patentability when it is not cumulative to information already of record or being made of record in the application, and (1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or (2) It refutes, or is inconsistent with, a position the applicant takes in (i) Opposing an argument of unpatentability relied on by the Office, or (ii) Asserting an argument of patentability.”

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The inventor thus has a duty to disclose that he cannot ignore. The rational for this is also given in the regulation, which reminds us that patents are affected with the public interest and “the public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability.”

Consequences of Failing to Meet The Duty of Disclosure 

To inventors, the duty of disclosure often seems counterintuitive. Why should an inventor “help” the patent office do its job? If an inventor finds the public interest rationale to be wanting, he should understand the consequence of failing to meet his obligations.

Failure to comply with the duty of disclosure may result in a party asserting that a patent was secured through inequitable conduct. Inequitable conduct requires proof of:

  1. an affirmative misrepresentation of material fact, failure to disclose material information, or submission of false material information, and
  2. intent to deceive the patent office by the act under (1).

The consequence of having been found to engage in inequitable conduct is that the patent may be unenforceable, and it may allow an accused defendant to argue that it deserves its attorney fees.

Who Has the Duty to Disclose?

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Every person associated with the filing and prosecution of a patent application—while it is pending—has a duty of candor and good faith in dealing with the patent office and, therefore, a duty to disclose material information. These people include inventors, attorneys/agents, and any other persons substantially involved with the application. 

What is Material Information?

Material information includes references (publications, patents, websites, etc.) thata reasonable examiner would be likely to consider important in deciding whether to allow an application to issue as a patent. These include office actions in related and unrelatedapplications.

Material information extends to representations about entity status (for paying lesser fees) and  statements to speed patent prosecution.

The Manual of Patent Examining Procedure sets forth several categories of references to consider citing to meet the duty of disclosure:

  1. References cited in related foreign applications
  2. Information relating to or from co-pending US applications
  3. Information from related litigation

What is Not Material Information?

It is safest to assume that everything is material, but information that is not as pertinent as that before the examiner or merely cumulative of information already submitted need not be cited.

If you are in doubt about whether to disclose something, contact your patent attorney who will help you decide.

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Patent Haiku

By Stephen B. Schott

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sea of ideas
many watch from the shoreline
inventors fishing

invent software program
sweat build stress hire build business
Court in Alice says ____

A invents before
B files application first
A’s AIA pain

subject matter test
machine or transformation
incomplete says Court

file wrapper tells tale
estoppel treasure’s the goal
interview hides all

20120403-072403Obama hunts trolls
Congress smells blood in the air
small inventor hurt

Special bonus: Haiku is an invariant noun, that is, a noun that is the same in its singular and plural form. I did not just post several haikus, but instead I posted several haiku.

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Supreme Court Makes it Easier to Penalize Misbehaved Patent Litigants

By Stephen B. Schott

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Yesterday, the Supreme Court invited district courts to use more discretion in awarding attorney fees in “exceptional” patent cases. This 9-0 decision delivered by Justice Sotomayor in a case involving elliptical machines will help judges penalize misbehaving patent litigants.

The law governing exceptional patent infringement cases reads in total:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

Following this statute, in order to get your attorney fees in a patent case, you need to meet two standards:

1. You must win.
2. The case has to be exceptional.

Winning is usually clear. What is less clear is the meaning of “exceptional.”

Before 2005, district courts could find a case exceptional using their discretion to weigh case law and certain factors. But in 2005, the Federal Circuit set the standard for “ exceptional” when the defendant is the prevailing party, holding that a case is exceptional “when there has been some material inappropriate conduct” or when the litigation is “brought in subjective bad faith” and is “objectively baseless.”

This set a high standard for attorney fee awards and made attorney fees particularly hard to secure in a case where a defendant prevailed against a nearly baseless lawsuit.

In yesterday’s Octane Fitness v. Icon Health decision, the Court reviewed the Federal Circuit’s high standard and found it wanting.

The Supreme Court’s Decision

In defining “exceptional,” the Court looked to dictionary definitions, and in particular noted two dictionary definitions before 1952 when Congress wrote the statute.

From these definitions, the Court concluded that district courts should exercise their own discretion to decide when a case is exceptional, and offered this guidance for determining whether a case meets the exceptional standard.

We hold then, 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.

The Court went on to chastise the Federal Circuit’s previous standard as too rigid.

Given the Congressional and Executive push to curb improper patent litigation, this newly found court discretion to award attorney fees should be a welcome decision to patent infringement defendants.

Interestingly, Senator Leahy has suggested an amendment to the exceptional attorney fee award statute:

The court in exceptional cases its discretion may award reasonable attorney fees to the prevailing party.

I am not sure if Congress will pass this but I will watch its progression and report back with updates.

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