IP Issues to Watch in 2013

With the New Year underway, we will be watching for several interesting decisions from the Supreme Court, Federal Circuit and ITC, as well as rulings that will give guidance on how the AIA is being implemented, particularly the new Inter Partes Review procedure, in which the first two petitions were granted trials, but denied as to some of the challenged claims.

As part of Kenyon’s on-going series of flash reports on topics of interest, below are some of the issues we expect will be of interest in 2013.

• Lessons from the First PTAB Inter Partes Review Decisions 
• Supreme Court and Federal Circuit Cases to Watch in 2013 
• ITC and District Court Litigation Issues 
  • Standards Essential Patents, FRAND, and Injunctive Relief
  • Limits on E-Discovery
  • Public Interest and Domestic Industry Developments at the ITC
  • Reconciling Splits in Authority on Willfulness and Pleading Requirements
  • Legislative Efforts to Rein in Non-Practicing Entities
• Patent Prosecution 
  • Preparing for “First-Inventor-to-File”
  • Post-Grant Loophole Plugged
  • Discovery in Post-Grant Review
  • Crowdsourcing Prior Art Searches to Improve Patent Quality?
  • USPTO International Harmonization Efforts 
• Copyright, Right of Publicity, Design Patents
  • Copyright Termination Interests
  • International Design Patent Application System
  • Social Networks and Right of Publicity

Lessons from the First PTAB Inter Partes Review Decisions

We have our first guidance from the PTAB, which has issued four decisions to institute a trial for Inter Partes Review (IPR), but not for all of the claims the challenger sought to have reviewed. In making the decisions, the PTAB gave claim constructions, and addressed each ground of invalidity proposed by the petitioner on a claim by claim basis. While trials were instituted in all four cases, the PTAB limited the trials to only those grounds (and only those claims) on which the PTAB found the petitioner demonstrated a reasonable likelihood of prevailing. Companies considering filing for IPR should be aware that there will be a high level of scrutiny of each claim-art combination, along with a possible claim interpretation, so clear briefing will be at a premium, especially in light of the 60 page limit on briefs. While some petitioners have filed multiple petitions for IPR for one patent, it remains to be seen how the PTAB will treat that. We expect to learn a great deal as we monitor the PTAB docket and report further throughout the year.

Supreme Court and Federal Circuit Cases to Watch in 2013

The Supreme Court will hear several intellectual property cases this year:

Patent exhaustion: Monsanto Co. v. Bowman
On February 19, 2013, the Supreme Court is scheduled to hear oral arguments on patent exhaustion in the context of plant seeds. Defendant Bowman bought patented genetically altered soybean seeds that were authorized by Monsanto to be sold as feed. Bowman planted the genetically altered seeds without paying additional royalties to Monsanto. Monsanto sued for infringement. In response, Bowman argued that Monsanto’s patent rights were exhausted with the authorized sale of the genetically altered seeds as feed. The district court granted summary judgment of infringement, and the Federal Circuit affirmed.

Are reverse payments anticompetitive? FTC v. Watson 
The Supreme Court is scheduled to hear oral arguments regarding the antitrust implications of reverse payments in Hatch-Waxman litigation on March 25, 2013. Reverse payment, or “pay for delay,” agreements are common in settlements of infringement litigations between branded and generic drug companies. Under these agreements, the generic company agrees to postpone the launch of its product in return for a cash payout from the branded company. The FTC has repeatedly challenged these agreements as unlawful under the antitrust laws, claiming that they are restraints on trade akin to a division of markets among competitors. One circuit court considering the issue has accepted the FTC’s argument that such agreements could be unlawful restraints on trade. Three other circuit courts, including the 11th Circuit in FTC v. Watson, reached the opposite conclusion, holding that, under the appropriate conditions, the patent laws shield such agreements from antitrust scrutiny. The Supreme Court will soon weigh in to resolve this circuit split.

Are human genes patentable? Association for Molecular Pathology v. Myriad Genetics 
The Supreme Court recently granted certiorari on the issue of “whether human genes are patentable.” The oral argument has not yet been scheduled but is expected to occur this year. Isolated genes and isolated DNA sequences are claimed in numerous patents. In 2010, however, the ACLU and the Public Patent Foundation challenged the patent eligibility of such genes/DNA sequences under 35 U.S.C. § 101. Plaintiffs prevailed in district court, but lost at the Federal Circuit. The Supreme Court granted certiorari after the Federal Circuit’s first decision and remanded for reconsideration in light of the 2012 Supreme Court decision MCS v. Prometheus. On remand, the Federal Circuit reaffirmed its earlier holding. This will be the third case that the Supreme Court will hear on patent eligibility under 35 U.S.C. § 101 since 2010. MCS v. Prometheus, addressing the patent eligibility of a process that helps doctors determine dosage levels after administration of a drug, issued in 2012. Bilski v. Kappos, addressing the patentability of a procedure for instructing buyers and sellers how to protect against price fluctuations, issued in 2010.

First Sale Doctrine: Kirtsaeng v. John Wiley
The Supreme Court will decide one of the most important copyright cases in a decade, over whether works manufactured outside the United States can be resold here without the permission of the copyright owner. The decision could have a huge impact on the $63 billion "gray market" for goods purchased abroad and sold for a higher price in the United States. The question before the Supreme Court is: if someone buys a genuine copyrighted article that was manufactured outside the United States and then imports it without authorization of the U.S. copyright holder, is he is liable to the copyright owner for infringement? While it is difficult to determine how the Court will rule, the losing side is certain to ask Congress for legislation in its favor. [By Jonathan D. Reichman]

Federal Circuit En Banc Hearings are scheduled for February 8, 2013 on:

Whether the Federal Circuit has jurisdiction to hear an appeal of infringement and validity decisions in a bifurcated case when other parts of the case have not yet been decided by the district court? Bosch v. Pylon
In a case to be argued by Kenyon & Kenyon, the Federal Circuit, en banc, will decide whether it has jurisdiction to review infringement and validity decisions in a case where damages and willfulness issues have not yet been decided by the district court, or whether the district court must instead complete damages and willfulness discovery and trial before the case can be appealed.

Patent-eligibility of inventions implemented by computers: CLS Bank v. Alice Corp
The district court had held that the invention, which related to methods and systems for exchanging financial obligations between parties, was an abstract idea—ineligible for patent protection under 35 U.S.C. § 101. A Federal Circuit panel disagreed, holding that the claimed invention complies with § 101 of the patent code. En banc, the Federal Circuit will address two issues:

I. What test should the court adopt to determine whether a computer implemented invention is a patent ineligible “abstract idea;” and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?

II. In assessing patent eligibility under 35 U.S.C. § 101 of a computer implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?

Given the large number of software patents that issue each year, this decision could significantly impact numerous litigations, licensing negotiations, and prosecution practices.

ITC and District Court Litigation Issues

Paul T. Qualey and Aimee N. Soucie

Standards Essential Patents, FRAND, and Injunctive Relief 
We can expect some clarity on the issue of whether an exclusion order is appropriate in cases involving standards essential patents where the owner has promised to license the patents on a FRAND basis. In ongoing investigations between Apple and Samsung, the ITC requested briefing specifically on FRAND-related issues including whether a FRAND obligation precludes issuance of injunctive relief. We can expect an ITC decision in early February which could have a dramatic effect on the future of ITC claims based on standard essential patents.

Limits on E-Discovery 
After several years of escalating costs seeming to rise in exponential fashion, 2013 may see at least a leveling off of those costs. Following a concerted campaign by Chief Judge Rader of the Federal Circuit during 2012, a number of popular courts for patent litigation, including the District of Delaware, the Eastern District of Texas, the Southern District of New York, and the Northern District of California, adopted rules, guidelines, and/or standing orders designed to bring some certainty and place some limits on what parties are required to do to do with respect to electronically stored information in order to comply with their discovery obligations.

In October, the ITC also issued a set of proposed rules for e-discovery (and in some respects discovery in general) in ITC investigations. While not expected to be finalized until later this year, these rules may help reduce discovery costs, particularly given the fast schedule and short discovery deadlines characteristic of ITC investigations.

Public Interest and Domestic Industry Developments at the ITC 
Public interest and domestic industry issues continue to be at the forefront of the ITC. For example, the Commission recently implemented a procedure by which a Complainant must provide specific information regarding the public interest by filing, concurrently with the complaint, a separate statement of public interest addressing how issuance of the requested relief, i.e., a general exclusion order, could affect public health and welfare, competitive conditions, and the production of like or directly competitive articles in the U.S., or U.S. consumers. 

In 337-TA-753, the Commission reversed the initial determination that Rambus satisfied the economic prong of the domestic industry requirement, finding that Rambus did not meet its burden of proving a "substantial investment" in the exploitation of the asserted patents. Specifically, the Commission determined that circumstantial evidence of Rambus’s licensing revenues and the number of its licenses, standing alone, were insufficient meet the domestic industry requirement. 

It is expected that the Administrative Law Judges and Commission will pay close attention to these topics again this year, and we will be reporting on developments on a regular basis.

Reconciling Splits in Authority on Willfulness and Pleading Requirements 

Sheila Mortazavi

Willfulness: While the Federal Circuit recently confirmed that the objective recklessness prong of the Seagate willfulness test is an issue to be decided as a matter of law by the judge, even if predicated on underlying mixed questions of law and fact, it remains unclear at what stage this legal determination must be made, and what issues relating to willfulness may be submitted to a jury. At least one court in the Eastern District of Missouri has chosen to address the willfulness issue only after completion of the jury trial. Several other district courts have decided the issue pre-trial, including on summary judgment, including Delaware, South Carolina, the Southern District of California, the Northern District of Illinois, the Northern District of New York, and the Eastern District of Wisconsin, which granted summary judgment of non-willfulness on the objectively reckless prong. One court in the Southern District of New York has granted summary judgment of objective recklessness and, as a result, has limited arguments that a defendant subsequently can make to the jury on the objective reasonableness of its defenses. We can expect to see more decisions that will inform us as to whether courts will hold pre-trial willfulness hearings (akin to Markman hearings), and what courts will only decide willfulness issues after trial.

Challenges to indirect infringement pleadings: In the wake of Twombly and Iqbal, there remains a split in authority on how to address the required pleading standards for indirect infringement. While compliance with the bare bones pleading of Form 18 is adequate for direct infringement, indirect infringement allegations must be scrutinized more closely to determine if they state a plausible claim for relief. In cases where the complaint does not allege pre-suit knowledge of the asserted patents, courts are split as to whether knowledge of patents derived solely from the filing of the complaint can sustain indirect infringement claims for post-filing activities. Courts in Florida, Massachusetts, Colorado, and some in California, have found that it cannot, whereas other courts in California, as well as those in Delaware and Illinois, have found that it can. In 2013, litigants can expect to receive more clarity as courts continue to grapple with the level of detail required for pleading indirect infringement, particularly with respect to the actual knowledge/specific intent elements.

Legislative Efforts to Rein in Non-Practicing Entities 

Under § 285 of the Patent Act, courts may award attorney fees to the prevailing party only in “exceptional cases” – a high standard which – for baseless litigation, for example – requires that the case have no objective foundation and have been brought in subjective bad faith. As a result, courts rarely award attorney fees. Faced with the high costs of defending a patent case and the low chances of recovering those costs, many defendants settle even in cases with very strong defenses. Addressing the concern that non-practicing entities extract unjustified settlement payments out of companies in the computer industry, in August 2012, a bill was introduced in the House of Representatives to lower the standard for cost reversal. The “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012” (SHIELD Act) provided that in cases involving a computer hardware or software patent, a court may award costs, including attorney fees, if the party alleging infringement “did not have a reasonable likelihood of succeeding.” The bill did not make it to the floor for a vote, and it will be interesting to see whether this bill is reintroduced in the 113th Congress, and whether any other legislative efforts targeting non-practicing entities gain traction in Congress.

Patent Prosecution

Preparing for “First-Inventor-to-File”

Early in 2013, patentees will need to consider the impact of the first-inventor-to-file provisions of the AIA on their portfolios - particularly, whether any invention would benefit from examination under the first-to-invent system and more limited prior art availability under old § 102 - so that applicants have time to get patent applications on file by March 15, 2013.

The new § 102 expands what is prior art to include anything available to the public before an applicant’s earliest effective filing date, and provides for grant of a patent on the first filed application (rather than to the first true inventor); except where there is derivation from a first inventor who also filed an application.

When evaluating a portfolio, a few important things to keep in mind are:

Filing as soon as possible is best (a “race to the patent office” has been created). 

New § 102 eliminates the following provisions of old § 102:

§ 102(a) patents or printed publications anywhere or knowledge or uses in the U.S. before the invention date; 
§ 102(b) one year grace period for patents or printed publications anywhere or public uses or sales in the U.S.; 
§ 102(c) abandonment of the invention; 
§ 102(d) foreign patents on applications filed more than twelve months before the U.S. filing date; 
§ 102(e) swearing behind earlier U.S. applications of others;
§ 102(f) first true inventor requirement; and

§ 102(g) interferences / prior invention prior art.

New § 102 excludes certain prior art publicly disclosed less than one year before the effective filing date or subject to common ownership. 

Post-Grant Loophole Plugged 

Post-grant review under AIA will be available for patents issuing on applications filed after March 15, 2013 (when the first-to-file provisions of 35 U.S.C. § 102 become effective). Post-grant review will enable invalidity challenges that are broader than for ex parte reexamination or inter partes review. It will be possible to contest patent validity in the USPTO for reasons other than published prior art. 

Post-grant review will only be available in the first nine months after patent issuance, and only for "first-to-file" patents. After that, inter partes review will be available. However, because of the nine-month post-grant review carve out in the AIA as originally enacted, for all other patents, there was a nine-month “limbo period” during which no inter partes review would be available. 

On January 14, 2013, President Obama signed HR 6621. This “technical corrections” bill for the AIA includes language to allow inter partes review in the first nine months after issuance of patents not filed under the first-to-file provisions. Consequently, that nine-month patent challenge gap now is filled.

Discovery in Post-Grant Review

Patent challengers using the post-grant review, inter partes review, and covered business method patent review provisions of the AIA, and patentees whose patents are being challenged, now will be able to engage in limited discovery which was unavailable under the prior inter partes reexamination statute. While the Federal Circuit currently has an appeal pending in which a patent challenger seeks discovery in an inter partes reexamination, it appears unlikely at present that the Federal Circuit will grant such discovery.

While discovery scope in post-grant and inter partes review under the AIA will be limited, the PTAB will allow certain categories of document discovery. At present, it appears that before the PTAB decides whether to institute a trial, requests for general classes of documents will be denied without prejudice. This last point may be important when a patent challenger wants to rely on its own product(s) as prior art, and the patent owner wants to see the range of documentation on which the patent challenger might rely.

Protective orders also are a subject of potential dispute among contestants in the USPTO. Where there is parallel litigation, parties would be well advised to try to coordinate the scope of usage of pleadings and documentation produced in litigation to permit usage in related post-issuance proceedings.

USPTO International Harmonization Efforts

This year will see the results of USPTO efforts over the past two and a half years to harmonize the US and global patent systems. On January 2, 2013, the USPTO announced the launch of the Cooperative Patent Classification (CPC) System, a new classification system to be used by the USPTO and reportedly 45 other patent offices, which will establish the CPC as the global standard. This more specific classification system enables patent examiners and users worldwide to conduct more efficient searches of patent documents for a variety of uses. More information can be found at: www.cooperativepatentclassification.org.

Representatives from the USPTO and the Patent Offices of Denmark, France, Germany, Japan, and the United Kingdom, and the European Patent Office have formed a group (the Tegernsee Group) to request comments from the public by March 1, 2013, on the patent issues of: (a) grace period for filing patent applications; (b) publication of patent applications; (c) treatment of conflicting patent applications; and, (d) prior user rights. You can provide comment via www.epo.org/law-practice/consultation/ongoing/SPLH.html.

Copyright, Right of Publicity, Design Patents

Copyright Termination Interests

Jonathan D. Reichman and Erik C. Kane

Beginning this year, authors will be able to exercise their right to terminate and reclaim copyright interests which they had transferred or licensed on or after January 1, 1978. 17 U.S.C. § 203 allows a five year recoupment window commencing 35 years after execution of the transfer or license, provided that timely notice of termination is given between two and ten years prior to the termination date. § 203 gives authors the opportunity to reexploit works which they may have improvidently contracted away when they lacked strong bargaining power. There are some limitations to this right. It does not apply to “works made for hire;” to transfers made by authors in their wills; to transfers of rights outside of the U.S.; or to transfers executed by the authors’ heirs. Furthermore, if more than one author executed the grant, a majority of those authors must terminate it. Moreover, prior transferees may continue to exploit any derivative works which they created based upon the authors’ works, notwithstanding termination (e.g., a movie studio may continue to exploit a film which it previously created based on an author’s book).

There have been few court decisions dealing with the termination interests of § 203. From the few reported cases, the disputes frequently arise over technical compliance with the termination provisions, such as who may terminate the rights, and when such rights have been properly exercised or extinguished. Future disputes may focus on whether the work in question qualifies as a “work made for hire,” and is therefore beyond the scope of the termination right. As § 203 becomes applicable to more recent transfers (especially those involving newer media), we can anticipate an increase in exercise of termination interests, and in potential litigation over those works with continuing commercial value.

International Design Patent Application System

On December 18, 2012, the Patent Law Treaties Implementation Act of 2012 was enacted into law. This bill harmonizes U.S. patent law with international intellectual property treaties. The treaties, originally signed by the U.S. in 1992, are intended to promote a system of global design protection by synchronizing and simplifying formalities of design patent applications and by reducing costs for patentees in the U.S. seeking international protection.

The new legislation will be implemented by the USPTO on December 18, 2013. The most significant implication of the new law is the creation of an international design application that will allow a design patent applicant in the U.S. to simultaneously apply for protection in other countries that are signatories to the treaties. This is likely to heighten the appeal of pursuing design patent protection for many American companies, particularly those that do business internationally. The law also increases the term of protection provided by design patents from 14 years to 15 years, which may serve to further enhance the potential value of design patents. Similarly, applicants in foreign member countries will have access to the international application, which may increase prosecution and issuance of U.S. design patent protection to foreign applicants as well.

An increase in the issuance of design patents in the U.S. is likely to result in an increase in enforcement of design patent rights. Critics of the legislation fear that it will have unintended negative consequences, including promotion of frivolous patent litigation and providing yet another tool for patent trolls to harass companies. Supporters of the legislation believe that extension of the international design application system to the U.S. will reduce the costs involved in obtaining global design protection, and thereby empower individuals and smaller companies who until now have not had the resources to compete with large international corporations in the global marketplace.

Social Networks and Right of Publicity

Jonathan D. Reichman and Aaron Johnson

An important “Right of Publicity” issue for 2013 is the use by social networks of their members' names and/or likenesses in advertising. Many social networks have broad Terms of Service which purport to allow them to exploit any content that a member posts on the networks' websites. Social networks take the position that these service terms permit them to use aspects of their members’ identities in advertisements appearing within the social networks. As social networks grow and compete for advertiser dollars, they will naturally want to allow advertisers to create the most effective ads possible. Studies have shown the persuasive potential of an online connection's recommendations (due to the apparent lack of bias), and therefore many advertisers are likely to request advertising that uses the identities of a social network's users.