Patent Law Developments and Statistics for 2013

1. Patent Law Developments and Statistics for 2013 June 2013

2. Table of Contents 2 2 9 10 11 12 13 14 20 20 21 22 25 26 27 29 30 31 Case Law .................................................................................................................... § 101 Eligibility ........................................................................................................ Patent Exhaustion .................................................................................................. Burden of Proof ...................................................................................................... ITC Jurisdiction ...................................................................................................... Other Cases ........................................................................................................... Patent Assertion Entities ............................................................................................. Statistics ................................................................................................................. Responses .............................................................................................................. SHIELD Act ......................................................................................................... Patent Abuse Reduction Act ............................................................................... Executive Actions ............................................................................................... International Design Patents ...................................................................................... Business Method Reviews ......................................................................................... ICANN & Trademarks ................................................................................................. After Final Consideration Pilot 2.0 .............................................................................. Global Dossier Task Force ......................................................................................... Statistics ....................................................................................................................

3. § 101 Eligibility:CLS Bank v. Alice (Fed Cir) • 106 U.S.P.Q.2d 1696, May 10, 2013 • Patent for a method employing an escrow, and for software and system implementing the method. • All claims found ineligible, but en banc panel was widely split on reasoning. Tie vote on the system claims. • One point everyone agreed on: claims must be shown § 101 ineligible by clear and convincing evidence.

4. § 101 Eligibility :CLS Bank v. Alice (Fed Cir) • Representative method claim: 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 ones 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.

5. § 101 Eligibility :CLS Bank v. Alice (Fed Cir) • Representative system claim: 26. A data processing system to enable the exchange of an obligation between parties, the system comprising: a communications controller, a first party device, coupled to said communications controller, a data storage unit having stored therein (a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and (b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution; and a computer, coupled to said data storage unit and said communications controller, that is configured to (a) receive a transaction from said first party device via said communications controller; (b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and (c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange.

6. § 101 Eligibility :CLS Bank v. Alice (Fed Cir) • Lourie, Dyk, Prost, Reyna, Wallach: All claims ineligible. • “What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept's every practical application.” • Claim must add a “genuine human contribution to the claimed subject matter”; the limitations must not be “token or trivial … or vague”, or limit the concept to a field of use without more. • Method claims describe abstract concept of escrow, with nothing added. “On a computer” is not concrete, and the added speed is not enough to escape abstraction. “Shadow records” is a fancy term for records of party obligation, which is required in the abstract concept. • Software claims are just nominal rephrasing of method. • System claims add nothing but basic computer components running the software in a predictable way.

7. § 101 Eligibility :CLS Bank v. Alice (Fed Cir) • Rader, Moore: System claims are eligible, software and method are not. • “The relevant inquiry must be whether a claim includesmeaningfullimitations restricting it to an application...” • For computer implementation of an abstract idea, see if the claims “tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something” as opposed to “nothing more than the idea of doing that thing on a computer.” • System claims add meaningful limitations, naming numerous components coupled in a specific manner, with designations which components do each task. None of these elements are inherent to abstract operation of an escrow. Also, some of the claims add specific algorithms in means-plus-function style. • Method claims do not explicitly mention any of the specific elements of the system claims, or even computers at all, but contain only generalized elements of the abstract concept of an escrow. Computer implementation itself is insufficient, without more, to make an abstract method eligibly concrete. • All parties stipulate that software claims rise or fall with method claims.

8. § 101 Eligibility :CLS Bank v. Alice (Fed Cir) • Linn, O’Malley: All claims eligible. • System claims are eligible for Rader’s reasoning. • Method and software are eligible because all parties stipulated to favorable construction for summary judgment purposes; said construction would include not just general computer implementation but all the limitations of the system claims. • Moore, Rader, Linn, O’Malley: • Machine-or-transformation test is still an excellent tool, if not absolute, and a “structurally defined machine” should always pass. • “…if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.” • Newman: All claims eligible. • § 101 has been interpreted too narrowly. SCOTUS should revert its meaning to literally “everything under the sun”, block “abstract” claims on other grounds, affirm that study/experimentation is not infringement (eliminate “preemption” concerns).

9. § 101 Eligibility :AMP v. Myriad (SCOTUS) • Slip Opinion No. 12–398, June 13, 2013. Unanimous decision. • Patent for specific, isolated DNA sequences; also for complementary DNA (cDNA), which are sequences “edited” in a lab to remove introns (portions that do not code for proteins). • Regarding the isolated DNA: • Ineligible product of nature. Genetic information in the DNA was not artificially created or altered. • That isolated DNA, due to breaking of chemical bonds, is a “nonnaturallyoccurring molecule” is not relevant. The claims “are simply not expressed in terms of chemical composition, nor do they rely in any way on the chemical changes that result from the isolation of a particular section of DNA, [but are] concerned primarily with the information contained in the genetic sequence…” • Regarding the cDNA: • Eligible as it does not occur naturally, “except insofar as very short series of DNA may have no intervening introns to remove when creating cDNA.” • Decision does not address eligibility of claims to, e.g.: • “an innovative method of manipulating genes”; • “new applications of knowledge about the BRCA1 and BRCA2 genes”; • “DNA in which the order of the naturally occurring nucleotides has been altered”; or • applications of the genes such as diagnostic methods

10. Patent Exhaustion:Bowman v. Monsanto (SCOTUS) • 106 U.S.P.Q.2d 1593 (May 13, 2013) • Patent for genetically-altered soybeans. • Plaintiff sells soybeans with license: purchaser may plant once and sell resulting crop for food purposes. • Defendant purchased soybeans from a crop grown under license and replanted. • 9-0 vote: Patent exhaustion does not apply; Defendant’s crop was a new copy of the patented invention. • Exhaustion applies only to the purchased article, not anything new made therefrom. • “Planting is a common use of soybeans” is not an argument; soybeans may also be eaten (and the purchased beans were meant for this). • Policy concern: Plaintiff would not be able to benefit from patent if everyone could replant and grow more without infringement. • Holding does not apply to all cases of self-replicating technology, only those where Defendant deliberately acts to replicate (here, by planting, tending, caring for, etc.) and where replication is not a required part of basic use (e.g. software that needs to be copied for installation).

11. Burden of Proof:Medtronic v. Scientific Corp. (SCOTUS) • MedImmune v. Genentech(549 U.S. 118, 2007): SCOTUS ruled that, for purposes of “case or controversy”, a patent licensee need not break the license before seeking declaratory judgment that a product does not infringe. • In such suits, the patent holder does not have an opportunity to counter-claim for infringement. • Question: Who has the burden of proof regarding (potential) infringement in a MedImmune declaratory judgment suit? • Standard rule is that the patent holder always has the burden, either in regular suit or when counterclaiming in declaratory action. • Federal Circuit said, because patent holder is neither plaintiff nor counter-plaintiff in a MedImmune suit, licensee bears the burden (see 695 F.3d 1266). • SCOTUS accepted cert in May 2013.

12. ITC Jurisdiction:Interdigital; Motiva (Fed. Cir.) • May sue in ITC to enjoin infringing imports if patent holder has or is developing a “domestic industry”. • InterDigital v. ITC and Nokia 103 U.S.P.Q. 2d 1610): • A “substantial investment” in licensing the patent within the US qualifies as a “domestic industry”. • (Newman dissent: domestic manufacturing is required.) • Motiva v. ITC and Nintendo(106 U.S.P.Q.2d 1816): • Legal expenses of the ITC lawsuit, without more, cannot be the “substantial investment”. • Presence of infringing article must interfere with Plaintiff’s attempt to commercialize patent. • Plaintiff investment must be occurring at the time of the ITC suit. • Evidence showed that, in this case, Plaintiff was not aiming to encourage licensed adoption of the technology, but merely to sue for settlement; therefore no investment in an industry.

13. Other Federal Circuit Cases • Means-Plus-Function: Function Media v. Google (708 F.3d 1310) • Software means must provide a corresponding algorithm in the specification that defines how a given function is performed. • A “means for transmitting” cannot be made definite by disclosing “a program that transmits”, without more. • That a PhOSitA could come up with an algorithm addresses enablement, but not 112 definiteness. • Public Use: Dey v. Sunovion Pharmaceuticals (2012-1428, May 20, 2013) • A prior art public use under § 102 (old version) must be accessible to the public or commercially exploitative. • A clinical trial of a drug, with confidentiality expectations, can be “sufficiently controlled and restricted” to be considered non-public, notwithstanding self-administration of the drug at issue or occasional loss of drug vials. (Remanded for further factual findings.) • Ruling could allow patentees to bypass the harder “experimental use” exception.

14. Patent Assertion Entities (PAEs) • Sometimes called Non-Practicing Entities (NPEs) or “Patent Trolls” • Plaintiffs who center their business model around purchasing patents, then suing others for infringement. • “NPEs”, strictly defined, may also include individual inventors who have yet to monetize, and universities or technology transfer organizations. • Characterized by (or at least viewed as) having meritless and frivolous cases, due either to enforcing invalid patents or applying valid patents in an overly broad fashion. • Strategy is to force a settlement from defendant due to cost of going forward. • Has led to recent discussion in Congress and the administration.

15. Patent Assertion Entities (PAEs) PAE plaintiffs vs. Other NPE plaintiffs From Patently-O Blog

16. Patent Assertion Entities (PAEs) Infringements suits: PAE vs. non-PAE (2012 increase may be in part due to AIA’s new misjoinder rules: see next slide) From Patently-O Blog

17. Patent Assertion Entities (PAEs) Infringement defendants: PAE suits vs. non-PAE suits From Patently-O Blog

18. Patent Assertion Entities (PAEs) “High-impact” patent assertion From Patently-O Blog

19. Patent Assertion Entities (PAEs) From Patently-O Blog

20. Patent Assertion Entities (PAEs) • Other statistics: • 55% of unique defendants in PAE suits now make $10M or less annually. • 23% of PAE suits that go to trial are successful, compared to 34% for non-PAE infringement suits. • PAEs are responsible for ~35% of ITC complaints. • (All statistics and graphs in this section from http://www.patentlyo.com/patent/2013/03/chien-patent-trolls.html )

21. Responses to PAEs: SHIELD Act • “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013”, HR 845 (pending legislation). • Defines a PAE as a plaintiff that cannot show any of the following: • Is the inventor, joint inventor, or original and filing assignee. • Can document “exploitation of the patent through production or sale of an item covered by the patent”. • Is an institution of higher education, or a technology transfer organization “whose primary purposes” is to commercialize technology for one or more such institutions. • Defendant may move to define plaintiff as a PAE at any stage of the lawsuit, including before discovery and after final judgment. • Plaintiff files response within 90 days, court makes determination within 120 days. • A plaintiff determined to be a PAE must post a bond in the expected amount of full litigation costs of the defendant. • In the event the defendant succeeds at trial, the court “shall” award full attorney’s fees to the defendant barring exceptional circumstances.

22. Responses to PAEs: SHIELD Act • Moves burden from defendant showing exceptional circumstances for attorney’s fees, to plaintiff showing exceptional circumstances for no attorney’s fees. • Bond requirement forces the PAE to put forth resources. • Some PAEs take the strategy of having only the patents as assets; thus, even when attorney’s fees are awarded, the PAE merely declares bankruptcy, sells all assets to another PAE, and dissolves. • Questions: • How are full costs determined in advance? • What companies will provide SHIELD Act bonds, and under what collateral?

23. Responses to PAEs:Patent Abuse Reduction Act • S. 1013 (pending legislation). • Form of Complaint: • Must name all parties “with a direct financial interest in the outcome of the action”. • Must link particular claims to accused products, with explanation as to the applicable construction of the claims. • Attorney’s fees: • Fees may be awarded to either plaintiff or defendant. • Will not be awarded if the losing side’s “position and conduct … were objectively reasonable and substantially justified.” • If party cannot pay attorney’s fees, the other interested parties shall do so. • Discovery is limited until claim construction is completed.

24. Responses to PAEs: Executive Actions • Issued June 4, 2013. • USPTO is ordered to: • Implement rules requiring patent applicants and owners to name, and keep updated, the “ultimate parent entity”. • Give greater scrutiny to functional claims. • Publish advice about the rights and possible strategies for those sued for infringement. • Begin a new series of outreach workshops to collect data about litigation and its abuses. • ITC is ordered to: review its exclusion order procedures to ensure they are “transparent, effective, and efficient.” • Both organizations have yet to respond, but USPTO rulemaking can be expected in the coming months.

25. Responses to PAEs: Executive Actions • Legislative Recommendations: • Require any infringement suit or threat thereof to include the name of the “real party in interest.” • Require public filing of demand letters. • Expand discretion of courts to grant attorney’s fees for infringement cases. • Widen the scope of the business method review to cover more “computer-enabled” patents. • Protect consumers against infringement liability when they purchase an item from another source and for its intended use. • Change ITC standards for injunction to match that of eBay. • Give ITC flexibility in hiring qualified judges. • Details at http://www.whitehouse.gov/the-press-office/2013/06/04/fact-sheet-white-house-task-force-high-tech-patent-issues

26. International Design Patent • Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs. • 60 signatories including the EU (and several individual nations thereof) and OAPI (but not Japan, China, or South Korea, at present). • Enacted in the US by the Patent Law Treaties Implementation Act of 2012 on December 18, 2012. • Creates an “international design patent application” (IDA). • For US applicants, filed with the USPTO. • IDA is effective prior art in all designated countries as of filing date. • May claim priority to any design application in any signatory country so long as there is not overlap of applicable (designated) countries. • May contain up to 100 different designs in the same art classification. • Unlike a PCT utility application, the IDA may proceed to grant without “national stages” and creates basic rights in other signatory countries. • Term of 25 years. Maintenance fees required every five years. • The Act also extends the term of US design patents from 14 to 15 years.

27. Business Method Reviews: S. 866 • Post-Grant Review is available for patents with an effective filing date after March 16, 2013, for the first nine months after issuance. • Exception: Patents for “covered business methods” may be challenged by Post-Grant Review at any time and for any issued patent, until September 16, 2020. • Covered Business Method: “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” • Using CLS Bank’s standards, an effective attack against non-specific claims in the business world. • S. 866: Patent Quality Improvement Act of 2013 (pending legislation) • Eliminates the September 16, 2020 sunset provision. • Expands the definition of “covered business method” to eliminate the “financial” limitation and add “management of an enterprise”.

28. ICANN Developments in Trademarks • ICANN: Internet Corporation for Assigned Names and Numbers. Manages the organization of the Internet. • gTLD: Generic Top-Level Domain • Formerly limited to .com, .net, etc. • ICANN is introducing new top-level domains like .sports, .llc, or . 世界 • Can also register top-level domains of your own mark (.disney, .pepsi). • ~1900 applications filed as of end of May; ~600 granted. • A list of granted applications is at https://gtldresult.icann.org/applicationstatus/viewstatus

29. ICANN Developments in Trademarks • Trademark Clearinghouse • ICANN will allow submission of any mark into a centralized database. • Validates the mark ownership through existing national/multi-national registration, court validation, or statute/treaty protection. • Will notify a validated mark owner of any domain infringing on the mark. • Will also grant priority for registering a gTLD in the mark, and for “second level domains” of the mark (e.g. “espn.sports”) as each gTLD is opened to the public. • URS: Uniform Rapid Suspension • Faster and cheaper alternative to Uniform Domain Name Dispute Resolution, when infringement is clear. • Both processes are administered by ICANN arbitrators.

30. After Final Consideration Pilot 2.0 • Will run from May 19 to September 20, 2013. • Builds off the first Pilot, which closed May 18. • Available if: • You are filing a response to a Final Office Action; and • The response amends at least one independent claim without broadening its scope in any way; and • You include a PTO/SB/434 form. • Examiner will then have a certain period of time to: • Consider the response notwithstanding that it will require additional search, if the necessary search can be done within the time allotted. • If the amendment does not place the application in allowance, conduct an interview with the applicant to discuss the Examiner’s reasoning. • Details in 78 FR 29117 and http://www.uspto.gov/patents/init_events/afcp.jsp

31. Global Dossier Task Force • Cooperative project of IP5. Task Force includes representatives of: • Government IP Offices: USPTO, EPO, JPO, KIPO, SIPO, and WIPO. • Industry Organizations: American Intellectual Property Law Association, Intellectual Property Owners Association, Japan Intellectual Property Association, Korea Intellectual Property Association, Patent Protection Association of China, and BUSINESSEUROPE. • Global Dossier would serve as an on-line interface for all six government offices. • Would allow filing, search, and review of patent applications and patents across all offices. • Would allow offices to share data easier, for more efficient and accurate prosecution of related applications. • Task force first met in January 2013. Will meet again in fall. • Details at http://www.aipla.org/globalip/Pages/GlobalDossier.aspx.

32. Statistics: Patent Ownership From Patently-O Blog

33. Statistics: Specification Size/Success Slight increase in size over the years: From Patently-O Blog

34. Statistics: Specification Size/Success From Patently-O Blog

35. Statistics: Issuance • US utility patents issued by year: • 157,772 in 2008. • 167,349 in 2009. (David Kappos took over August 13, 2009.) • 219,614 in 2010. (New record.) • 224,505 in 2011. (See above.) • 253,155 in 2012. (See above.) • USPTO issued 5,633 utility patents first week of 2013 (new record for a single week). • Estimate as of March for 2013: 267,000.

36. Statistics: Issuance Patent Grants Per Year (Estimated for 2013) From Patently-O Blog

37. Statistics: Issuance Possible Cause: Decreasing Pendency From Patently-O Blog

38. Statistics: Allowances From Patently-O Blog

39. Statistics: First Action on the Merits From Patently-O Blog

40. Statistics: Backlog (RCE) From Patently-O Blog

41. Statistics: Backlog (RCE) RCEs Filed vs. RCEs Responded to From Patently-O Blog

42. Statistics: Backlog (Design Patents) From Patently-O Blog

43. Statistics: Backlog (BPAI/PTAB) From Patently-O Blog

44. Statistics: Trials • A recent study concludes: • Plaintiffs faired better before juries (62.9% win rate in jury trials, 51.3% in bench trials). • Trial length advantages neither party (average plaintiff victory: 7.76 days; average defendant victory: 7.74 days). • Also, in terms of venue: • 40% of all infringement trials in the past 10 years happened in either ED Texas, D Del, ND Cal, CD Cal, or D Mass. • All other things being equal, plaintiffs are not more successful in ED Texas to a statistically significant degree. • ED Texas, CD Cal, and D Del have shorter trials. • Source: Lemley et al., Rush to Judgment? Trial Length and Outcomes in Patent Cases (available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2217690 )

45. Thanks • All graphs in the PAE and Statistics sections (and alerts to many of the described legal developments) via Patently-O, at http://www.patentlyo.com/. • Special thanks to Christopher Reaves, attorney at Stein IP, for a significant amount of researching and compiling of this presentation.