The False Marking Statute, 35 U.S.C. § 292, Imposes Penalties Based on a Per Article Basis

Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009)

Holding:

The false marking statute, 35 U.S.C. § 292, imposes penalties based on a per article basis, not each decision to mark. Slip op. at 14.

Relevant Facts:

The patentee marked products with a patent number after knowing that the products were not covered by the patent number based on the summary judgment of noninfringement in a related case. Slip op. at 5. The district court fined the patentee $500 for a single offense of false marking based on one decision to mark. Id. The Federal Circuit vacated this ruling and remanded for further proceedings. Id.

Comments:

The Federal Circuit clarified that “the false marking statute explicitly permits qui tam actions” and Congress allowed the members of the public to help control false marking by permitting them to sue on behalf of the government. Slip op. at 13.

Section 292(b) provides that “[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.” 35 U.S.C. § 292(b).

The Federal Circuit also notes that although the statute provides a fine of up to $500 for every such offense, the penalties can be a fraction of a penny per article for inexpensive mass-produced articles. Slip op. at 13.

To Preserve Rights to Appeal, Appellant Must Move for Pre-Verdict JMOL Motions

i4i L.P. v. Microsoft Corp., No. 2009-1504 (Fed. Cir. Dec. 22, 2009):

Holding:

A party must file a pre-verdict JMOL motion on all theories, and with respect to all prior art references, that it wishes to challenge with a post-verdict JMOL. Slip op. at 14.

When a party has waived its right to challenge the factual findings underlying the jury’s implicit obviousness verdict because it did not file a pre-verdict JMOL on obviousness for certain prior art references, the Federal Circuit is limited to determining whether the district court’s legal conclusion of nonobviousness was correct, based on the presumed factual findings. Id. at 14-15.

When a party did not a pre-verdict JMOL on the reasonableness of the other side’s damages calculation, the party has waived this argument for appeal. Id. at 36.

Relevant Facts:

i4i accused that the custom XML editor in certain versions of Microsoft Word infringed i4i’s patent. Slip op. at 1. The jury found Microsoft liable for willful infringement, rejected Microsoft’s argument that the patent was invalid, and awarded $200 million in damages to i4i. Id. The district court awarded $40 million in additional damages for willful infringement. Id. at 2. The district court denied Microsoft’s JMOL motions and motions for a new trial, finding that Microsoft had waived its right to challenge the validity of the patent based on all but one prior art and the sufficiency of the evidence supporting the jury’s damage award. Id. The district court also granted i4i’s motion for a permanent injunction. Id. The Federal Circuit affirmed the issuance of the permanent injunction, though it modified its effective date to accord with the evidence, and affirmed all other rulings. Id.

Comments:

In this case, it appears that Microsoft made several procedural missteps and did not file several pre-verdict JMOL motions including the one on the reasonableness of the damages calculation.

As a neutral observer and former IT consultant, I think the damages award seems unreasonably high for an XML editor. Had Microsoft preserved this issue for appeal, the Federal Circuit would have had a chance to weigh the evidence and might have reduced the damages award.

So what is the lesson? One may say that a party needs to move for pre-verdict JMOL motions on all issues that may be appealed. However, this is easy to say, but hard to do in terms of knowing what issues would be important. Instead, for a high profile case, one should include an appellate specialist in the trial preparation and trial to preserve issues in preparation for the potential appeals.

Happy Holidays

Happy Holidays! After a short delay, we will resume our posting today.

The Ordinary Observer Test Is the Test for Invalidity for Design Patents

Int’l Seaway Trading Corp. v. Walgreens Corp., No. 2009-1237 (Fed. Cir. Dec. 17, 2009):

Holding:

The ordinary observer test is the test for invalidity for design patents. Slip op. at 6.

Relevant Facts:

The design patents are directed to footwear designs. The parties disputed whether the district court erred by basing its invalidity determination solely on the ordinary observer test and by failing to apply the point of novelty test. The Federal Circuit affirmed the district court’s application of the ordinary observer test, but remanded for further proceedings because the district court failed to compare the insole patterns in Seaway’s patented designs to the prior art as part of an overall comparison of the designs.

Comments:

The Federal Circuit extended the ordinary observer test for infringement in Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc) to invalidity inquiries. In addition, the Federal Circuit clarified that although Contessa Food Prods., Inc. v. Conagra, Inc., 282 F.3d 1370, 1377 (Fed. Cir. 2002) requires a court to consider only those portions of the product that are visible during normal use, normal use includes, not excludes, the point of sales.

The Federal Circuit Continues to Order Cases to be Transferred Out of the Eastern District of Texas

In Re Nintendo Co., Ltd., Misc. No. 914 (Fed. Cir. Dec. 17, 2009) (granting Nintendo’s petition for a writ of mandamus to direct the Eastern District of Texas to vacate its order denying Nintendo’s motion to transfer venue and to direct the Texas district court to transfer the case to the Western District of Washington).

See the previous post here.

Declaratory Judgment Jurisdiction Found Even Though The Patentee Avoided Words Such As “Litigation” and “infringement”

Hewlett-Packard Co. v. Acceleron LLC, No. 2009-1283 (Fed. Cir. Dec. 4, 2009):

Holding:

Although a communication from a patentee to another party, merely identifying its patent and the other party’s product line, without more, is insufficient to create declaratory judgment jurisdiction, conduct that can be reasonably inferred as demonstrating intent to enforce a patent can. Slip op. at 5, 7.

Relevant Facts:

Acceleron acquired U.S. Patent No. 6,948,021, and shortly after that, it contacted HP specifically identifying the ’021 patent and HP’s product line, but its correspondence with HP did not contain language threatening to sue for infringement or demand a license. HP proposed a 120-day stand-still period, for which Acceleron rejected. HP filed the DJ action, and Acceleron moved to dismiss the case for lack of DJ jurisdiction. The district court granted Acceleron’s motion and the Federal Circuit reversed.

Comments:

The Federal Circuit recognized that there is no bright-line rule for analyzing DJ jurisdiction, but the facts of this particular case, when viewed objectively and in totality, including a patentee’s affirmative step of twice contacting a potential infringer directly, making an implied assertion of its rights in a patent, mentioning a specific product, and the disagreement from the potential infringer, could create DJ jurisdiction. Slip op. at 8-9.

It appears that after MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007), to safely avoid a DJ action, all the patentee can do is to merely identify its patent and the other party’s product line, without more, in the first communication, and then request a confidentiality agreement for the future discussions.

The lowering of the standard for filing a DJ action, however, is not economical for the patentees and potential infringers alike. In some situations, the potential infringers may not pay sufficient attention to the matter if the patentee merely identifies its patent and the product line, and ignore the patentee’s initial communications. If the patentee uses stronger languages, the potential infringer could now run to the court to file a DJ action. Consequently, this may force more and more patentees to sue first, and then negotiate a license in the future. As a result, this may increase transaction costs for the parties and the burden for the court system, especially if the parties could resolve the disputes without resorting to the court.

Practically, it may have two consequences. First, for a small stake case, especially where the cost of litigating the case outweighs the value of the case, the parties will negotiate regardless of the language used in the correspondence. Second, for a high stake case, the patentee can only identify the patent and the other party’s product line in its initial correspondence. If the other party ignores, file a lawsuit first. If the other party responds, request a confidentiality agreement and then negotiate a license.

A District Court Need Not Construe Undisputed Claim Terms Before Issuing a Summary Judgment of Invalidity

Perfect Web Techs., Inc. v. InfoUSA, Inc., No. 2009-1105 (Fed. Cir. Dec. 2, 2009):

Holding:

A district court need not construe undisputed claim terms before issuing a summary judgment of invalidity. Slip op. at 14.

“Common sense” and “obvious to try” may be used as reasons to combine the prior art references to achieve the patented invention. Id. at 6, 12.

Relevant Facts:

Before it issued a formal claim construction order, the district court granted InfoUSA’s motion, assuming for summary judgment purposes that Perfect Web’s claim constructions were correct. Id. at 3. Perfect Web’s patent (USP 6,631,400) claims methods of managing bulk e-mail distribution to groups of targeted consumers using steps A-D. Id. at 1-2. Perfect Web concedes that the prior art teaches steps A-C, while InfoUSA concedes that step D, a step that repeats steps A-C, does not appear in the prior art. Id. at 5. InfoUSA, however, contends that step D is based on common sense, and it is obvious for one skilled in the art to try step D. Id. at 5-6. The district court agreed with InfoUSA. The Federal Circuit affirmed.

Comments:

Nothing is out of ordinary here. Citing KSR, the Federal Circuit found that it is permissible to use “common sense” and “obvious to try” in an obviousness analysis. Id. at 6, 12.

In addition, procedurally, the Federal Circuit held that although a court may not invalidate the claims of a patent without construing the disputed claim limitations and applying them to the prior art, a district court need not construe undisputed claim terms before issuing a summary judgment of invalidity. Id. at 13-14.

The Federal Circuit Orders Yet Another Case to be Transferred Out of the Eastern District of Texas

In re Hoffmann-La Roche Inc., Misc. No. 911 (Fed. Cir. Dec. 2, 2009):

In this case, the Federal Circuit granted the petitioner’s petition for a writ of mandamus to direct the Eastern District of Texas to transfer the case to the Eastern District of North Carolina. In this year alone, the Federal Circuit has ordered multiple cases out of the Eastern District of Texas, a forum that is generally considered to favor plaintiffs/patentees. How this trend will affect the filing of patent infringement cases in the Eastern District of Texas, however, remains to be seen. Presumably, however, the plaintiffs in the future cases will have to think twice about bringing the lawsuits in the Eastern District of Texas.

An interesting note: the local economy in the Eastern District of Texas is reported to be largely supported by patent litigations. If such cases were to drop in the future, it would have a profound impact on the local economy.

Five Ways U.S. Innovation Can Benefit from China’s $586 Billion Stimulus Plan

IP Law 360 and International Trade Law 360 Article has published an article, Five Ways U.S. Innovation Can Benefit from China’s $586 Billion Stimulus Plan, by Lei Mei of Mei & Mark LLP. The article will appear in the IP Law 360 and International Trade Law 360 newsletter publications on Monday, November 23, 2009.

Click here to download a copy.

The original, unedited version of the article is reproduced below:

Five Ways U.S. Innovation Can Benefit from China’s $586 Billion Stimulus Plan

Lei Mei, Partner, Mei & Mark LLP

China’s aggressive $586 billion stimulus plan has increased its domestic consumption and jump-started China’s economic recovery. In the third quarter, China’s economy, driven by spending and a rise in bank lending, expanded to 8.9%, improving from 7.9% in the second quarter. Rarely known, however, is the fact that U.S. innovations can also benefit from China’s stimulus plan. This article unveils five ways to do so.

As a preliminary matter, one must understand first why China is interested in U.S. innovations and what U.S. innovations are in demand.

China is interested in U.S. innovations because the United States is the leader in technology innovations. The United States is one of the strongest brands and a symbol of technological excellence, at least for Chinese businesses and consumers. Consequently, even in China’s automobile market, Chinese consumers generally favor U.S. cars over Japanese cars, in contrast to their U.S. peers.

It did not come as a surprise, therefore, when in recent years Chinese companies launched a shopping spree to purchase ailing U.S. companies, despite strong opposition from U.S. politicians. For example, in 2008, Chinese consumer electronics giant Huawei Technologies offered to purchase 3Com, but that sale was derailed by U.S. national security concerns. Also, this year, a little known Chinese machinery company, Sichuan Tengzhong Heavy Industrial Machinery Co., offered to acquire General Motors’ iconic Hummer brand, and the deal is currently pending.

Naturally, Chinese companies are most interested in technologies related to consumer electronics and other consumer products. Not only do Chinese companies seek to acquire technologies in tangible form, but they also actively seek to acquire intangible IP rights.

In fact, an increasing number of Chinese companies, assisted by China’s stimulus plan, are seeking to purchase patents, especially in consumer electronics. Presently, they are trying to boost their own patent arsenals for defensive purposes, after years of ignorance of IP management, in case their competitors accuse them of patent infringement in the U.S.

For many U.S. companies – whether cash-strapped or profit-minded – cash-rich Chinese companies’ urgent quest for IP rights provides rare opportunities to extract value from U.S. innovations.

Interestingly, both U.S. and Chinese IP rights are of great value to Chinese companies for defensive purposes. Even if a Chinese company gets hammered with a patent infringement lawsuit by a non-Chinese competitor in the U.S., and does not have any strong U.S. patent to counter the lawsuit, having a Chinese patent in the same technology allows the Chinese company to sue the competitor for patent infringement in China. Because China is such a lucrative consumer market, often the competitor cannot afford losing or having setbacks in China, thus becoming more agreeable to resolving the global patent disputes amicably.

Depending on their respective business goals, then, U.S. companies and their Chinese peers may structure IP deals in various ways to benefit both parties. This article covers five common ways U.S. innovations can benefit from China’s stimulus plan.

First, U.S. companies may choose to sell U.S. IP rights that are not part of their core businesses to Chinese companies. Amidst this global recession, many companies are shifting their business strategies, focusing on core businesses. It does not mean, however, that their investment on innovations in other areas cannot be recouped or rewarded. Chinese companies often asked us to help them locate and acquire well-drafted patents in areas from digital processing to telecommunications. These Chinese companies all have excellent cash positions, making them attractive buyers.

Second, U.S. companies may consider creating a joint venture in the U.S. with their Chinese counterparts as partners. In some cases, Chinese companies may be willing to purchase or become major shareholders in U.S. companies, based partly on the U.S. companies’ IP assets. For many hi-tech start-ups in the U.S., not only will teaming up with a Chinese partner improve their chances of survival, but such a partnership may also provide them a shortcut to China’s lucrative consumer market.

Third, U.S. companies may consider selling Chinese IP rights to their innovations to Chinese companies. Frequently, U.S. companies obtain patents in China and other countries to protect their innovations abroad. If U.S. companies prefer not to sell U.S. IP rights for any reason, selling or licensing Chinese IP rights may be a good option, especially if the U.S. companies do not have the capability or plans to enter the Chinese market.

Fourth, U.S. companies may consider creating a joint venture with their Chinese partners in China. This approach may be more attractive than creating a joint venture in the U.S. in certain situations. Specifically, the Chinese government at all levels has policies in place to support the joint ventures that bring leading technologies to China. If the right technologies are in place, these joint ventures have been known to receive millions of dollars in incentives from the central and/or local governments of China.

Fifth, U.S. companies may attract venture capital for China-related hi-tech projects. Because of the recession, venture capital and private equity firms have become more reluctant to provide funding for start-up companies in the U.S. China-related projects, however, continue to attract investment from both the U.S. and China. Specifically in China, government-backed investment funds, such as Chinese Social Security Fund, have excess cash waiting to be invested in the right technologies.

Finally, while this article does not address U.S export control laws, U.S. companies must consider the implications of such laws before transferring technologies to China.

As China’s economy leads the recovery from this global recession, U.S. innovations can also benefit from China’s $586 billion stimulus plan. U.S. companies, however, must have the technologies that are in demand in China. U.S. companies must also know how to navigate through many complex political and cultural aspects of doing business in China or with Chinese partners. If advised properly, both U.S. and Chinese companies can benefit from the cross-border IP transactions.

Mei & Mark LLP Files an Appeal Brief in the Federal Circuit on Behalf of an Intervenor in Pass & Seymour v. ITC.

The Intellectual Property & Litigation law firm Mei & Mark LLP today filed an appeal brief in the United States Court of Appeals for the Federal Circuit on behalf of Intervenor Wenzhou Trimone Science and Technology Electric Co., Ltd., in Pass & Seymour v. ITC, Case Nos. 2009-1338, -1369. The case is on appeal from the United States International Trade Commission in Investigation No. 337-TA-615. The client retained Mei & Mark LLP for post-ITC proceedings, including appeals, after it lost at the Commission. A copy of the brief is available for download.

Mei & Mark LLP's appellate team consists of registered patent attorneys who possess both exceptional academic credentials in law, science, and technology, and a rare combination of patent law experience covering patent prosecution, licensing, and litigation. The brief is authored by Mr. Lei Mei, a magna cum laude graduate of Duke Law School, where he was elected to the Order of the Coif, and Mr. Reece Nienstadt, a Stanford graduate who holds a J.D. degree, cum laude, from Georgetown University Law Center.

The US Supreme Court Heard the Oral Argument for Bilski v. Kappos on November 9, 2009

Click here for the argument transcript.

Does A Patent License Cover All Future Subsidiaries?

Imation Corp. v. Koninklijke Philips Electronics, N.V., Nos. 2009-1208, -1209 (Fed. Cir. Nov. 3, 2009):

Holding:

The use of the phrase “now or hereafter” in the “Subsidiary” definition precludes an implicit, temporal limitation in a patent license. Slip op. at 20.

The “agrees to grant and does hereby grant" language creates singular, present grant of rights to existing and future patents that fall within the definition of “Licensed Patents.” Slip op. at 10.

Relevant Facts:

Philips entered a paid-up cross-license agreement with 3M, which later spun off Imation. The agreement continues between Philips and Imation, in which Philips “agrees to grant and does hereby grant to [Imation] and its SUBSIDIARIES a personal, non-exclusive, indivisible, nontransferable, irrevocable, worldwide, royalty-free license under PHILIPS LICENSED PATENTS.” The term “SUBSIDIARIES” is defined as “business organization as to which the party now or hereafter has more than a fifty percent (50%) ownership interest.” Imation later formed or acquired two subsidiaries after the expiration of the agreement (note that the license is still valid for the life of the patents despite the expiration of the agreement). The dispute is whether these two new subsidiaries are covered by the license agreement. The Federal Circuit sided with Imation.

Comments:

This case illustrates the risks of any patent license agreement (or, really, any agreement). The risks arise because the drafters cannot possibly anticipate all future disputes. As a result, the agreement will inevitably fail to anticipate some scenarios. Accordingly, the drafters must try to minimize the risks by (i) learning from prior cases and (ii) considering as many scenarios as possible.

Because most lawyers never worked in the business world before, it could be difficult for them to fully understand business risks. The knowledge can only come from experience, in practicing law or otherwise.

In this case, the parties must have failed to consider the situation whether one party acquires subsidiaries after the agreement expires.

On the one hand, it appears that the definition of “subsidiaries” is ambiguous, and should be decided by the jury. Because the parties likely failed to anticipate this scenario, however, I doubt any extrinsic evidence exists or can guide the jury.

On the other hand, the Court cleverly found that the language is not ambiguous and made a ruling as a matter of law. It makes sense from a law and economics standpoint. It would have been such a waste of resources if the jury has to decide this issue and the relevant extrinsic evidence either does not exist or does not help.

One thing for sure, however, is that after this case, the drafters will know to further define “subsidiaries” in response to this decision.

DTV Patent War Watch (8)

According to a Vizio press release on October 28, 2009, Vizio has licensed its digital TV patent portfolio to Sony, thereby resolving ongoing patent disputes with SONY. Vizio also becomes a licensee under Sony's digital television patent portfolio.

Note that Vizio acquired the digital TV patents at issue from Motorola, and Motorola acquired the same patents from General Instrument Corp.

Mei & Mark LLP Files an Appeal Brief in the Federal Circuit on Behalf of an Appellant in General Protecht Group v. ITC.

The Intellectual Property & Litigation law firm Mei & Mark LLP today filed an appeal brief in the United States Court of Appeals for the Federal Circuit on behalf of Appellant Wenzhou Trimone Science and Technology Electric Co., Ltd., in General Protecht Group v. ITC, Case Nos. 2009-1378, -1387, -1434. The case is on appeal from the United States International Trade Commission in Investigation No. 337-TA-615. The client retained Mei & Mark LLP for post-ITC proceedings, including appeals, after it lost at the Commission. A copy of the brief (excluding the addendum) is available for download.

Mei & Mark LLP's appellate team consists of registered patent attorneys who possess both exceptional academic credentials in law, science, and technology, and a rare combination of patent law experience covering patent prosecution, licensing, and litigation. The brief is authored by Mr. Lei Mei, a magna cum laude graduate of Duke Law School, where he was elected to the Order of the Coif, and Mr. Reece Nienstadt, a Stanford graduate who holds a J.D. degree, cum laude, from Georgetown University Law Center.

About Mei & Mark LLP

Mei & Mark LLP provides clients high quality legal services in a flexible, cost-effective manner, focusing on the full range of IP practice including Patent Prosecution, IP Licensing, and Litigation. Our attorneys possess exceptional credentials and have substantial legal and industrial experience. Mei & Mark LLP is a minority-owned law firm based in Washington, DC. For more information, visit www.meimark.com.

DTV Patent War Watch (7)

On October 6, 2009, the United States Court of International Trade ("CIT") issued an opinion dismissing Funai's complaint of the US Customs' earlier rulings that the limited exclusion order issued by the United States International Trade Commission ("ITC") in Inv. No. 337-TA-617 does not cover the redesigned DTV products of Vizio and other companies. Funai Elec. Co. v. United States, No. 09-00374, slip op. at 14 (Ct. Int'l Trade Oct. 6, 2009).

Notably, the CIT held that it does not have subject-matter jurisdiction under 28 U.S.C. §1581(h) & (i) for "a party plaintiff in Funai’s current circumstance." Slip op. at 11-13.

28 U.S.C. §1581(h) is reproduced below:

(h) The Court of International Trade shall have exclusive jurisdiction of any civil action commenced to review, prior to the importation of the goods involved, a ruling issued by the Secretary of the Treasury, or a refusal to issue or change such a ruling, relating to classification, valuation, rate of duty, marking, restricted merchandise, entry requirements, drawbacks, vessel repairs, or similar matters, but only if the party commencing the civil action demonstrates to the court that he would be irreparably harmed unless given an opportunity to obtain judicial review prior to such importation.

It appears that because Funai, as a patentee and ITC complainant, cannot invoke subject matter jurisdiction at the CIT, because it is not the importer who requested the US Customs' ruling, and thus cannot demonstrate that it "would be irreparably harmed unless given an opportunity to obtain judicial review prior to such importation." 28 U.S.C. §1581(h) (2006).

Note that Funai also brought an enforcement proceeding before the ITC, so it appears that the ITC should be the more appropriate forum for this dispute.

US Copyright Office Registration Does Not Qualify As a “Printed Publication” under § 102

In re Lister, No. 2009-1060 (Fed. Cir. Sept. 22, 2009):

Holding:

US Copyright Office’s automated catalog alone is insufficient to support a finding of public accessibility due to an inadequate index, because the automated catalog is not sorted by subject matter and could only be searched by either the author’s last name or the first word of the title of the work. Slip op. at 12-13.

Facts:

The inventor filed a copyright registration more than one year before filing a patent application. The PTO rejected the patent application under § 102 based on the submitted manuscript for the copyright registration. However, US Copyright Office’s automated catalog was not sorted by subject matter and could only be searched by either the author’s last name or the first word of the title of the work. Westlaw and Dialog obtained the automated catalog data from the Copyright Office and entered it into their own databases. Users of the Westlaw and Dialog databases could perform keyword searches of the titles, but not the full texts, of the works.

Comments:

This case makes clear that because US Copyright Office’s automated catalog is not adequately indexed to qualify as a “Printed Publication” under § 102. However, because Westlaw and Dialog obtained the automated catalog data from the Copyright Office and entered it into their own databases, and allow users to perform keyword searches of the titles, Westlaw and Dialog databases may qualify as a “Printed Publication” under § 102. In this case, however, the PTO did not prove when the reference became available in the Westlaw and Dialog databases, and therefore cannot prove that the reference is a § 102 reference.

Standing to Sue: When Must an Exclusive Licensee Join the Patentee?

AsymmetRx, Inc. v. Biocare Med., LLC, No. 2009-1094 (Fed. Cir. Sept. 18, 2009):

Holding:

When a patentee retains substantial control over the patent rights it was exclusively licensing such that it did not convey all substantial rights under the patents, it did not make the license tantamount to an assignment, and the exclusive licensee must therefore be considered a licensee, not an assignee, and thus cannot sue for patent infringement without joining the patentee. Slip op. at 12.

Relevant Facts:

The AsymmetRx License effected a broad conveyance of rights to AsymmetRx by Harvard, but Harvard retained substantial interests under the patents, including that (1) if AsymmetRx elects not to exercise its right to sue, Harvard has the right to bring its own infringement action, (2) Harvard retained the right to make, use, and license the invention for academic research purposes, (3) Harvard retained a great deal of control over aspects of the licensed products within the commercial diagnostic field, and (4) AsymmetRx was required to grant sublicenses suggested by Harvard.

Comments:

It is well settled that whether an exclusive licensee has the standing to sue on its own (i.e., without joining the patentee) depends on whether the transfer of a particular right or interest constitutes an assignment or license. Of course, “whether a transfer of a particular right or interest was an assignment or license did not depend on the name applied to it, but on the intention of the parties as revealed by the record.” Slip op. at 7.

Determining whether the transfer of a particular right or interest constitutes an assignment or license, however, is fact intensive and can be complicated.

The cases whether the courts have found the standing to sue:

Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed. Cir. 1991): Here, the right to sue was granted in its entirety, subject only to the obligation to inform the patent owner of the existence of the suit. The only rights under the patent that the patent owner retained were a veto right on sublicensing, the right to obtain patents on the invention in other countries, a reversionary right in the patent in the event of bankruptcy, and a right to receive infringement damages.

Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir. 2000): The license grant was not subject to any prior-granted licenses or to any retained rights by the licensor to practice the patent. It did not grant the original patent owners “the right to participate in an infringement action brought by [the licensee], nor [did] it limit [the licensee’s] management of any action.” In addition, the Federal Circuit found that a clause allowing the patent owners to bring their own infringement action if the licensee failed to do so within three months was an “illusory” retention of the right to sue because the licensee could “render that right nugatory by granting the alleged infringer a royalty-free sublicense.”

The cases whether the courts have found no standing to sue:

Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995): The Federal Circuit found that the patent owner had retained too great an interest in the patents to enable the licensee to sue for infringement on its own. Those interests included “a limited right to make, use, and sell products embodying the patented inventions, a right to bring suit if [the licensee] declined to do so, and the right to prevent [the licensee] from assigning its rights under the license to any party other than a successor in business.” The agreement also stated that if the patent owner asked the licensee to bring suit against an alleged infringer and the licensee declined to do so, the patent owner had the right to bring its own infringement action. In addition, even if the licensee did exercise its option to sue for infringement, it was obligated under the agreement not to “prejudice or impair the patent rights in connection with such prosecution or settlement.”

Key Question?

Is your case more similar to Abbott or to Vaupel or Speedplay in terms of what rights the patentee retained under the patents?

In addition, as a practical note, if the exclusive licensee does not have the standing to sue on its own, it should try to join the patentee. However, if the patentee, being within the jurisdiction, refuses or is unable to join an exclusive licensee as co-plaintiff, the licensee may make it a party defendant by process and it will be lined up by the court in the party character which he should assume. Slip op. at 8.

Double Patenting: The § 121 Safe Harbor Protects Patents Descending from Divisional Applications, but not from Continuation Applications Exclusively

Amgen Inc. v. F. Hoffmann-La Roche Ltd, Nos. 2009-1020, -1096 (Fed. Cir. Sept. 15, 2009):

In the 80-page decision, the Court addressed many issues. Instead of covering the entire opinion, we choose to focus on a couple of notable holdings.

Notable Holdings:

The 35 U.S.C. § 121 safe harbor protects patents descending from divisional applications, but not from continuation applications exclusively. Slip op. at 18.

An accused infringer cannot show patentable indistinctiveness by relying on evidence up to the filing date of the secondary application; rather, it must rely on evidence up to the filing date of the first application because of the priority claim under 35 U.S.C. § 120. Slip op. at 23.

Comments:

Section 121, entitled “Divisional applications,” provides in its third sentence:
+++
A patent issuing on an application with respect to which a requirement for restriction under this section has been made, or on an application filed as a result of such a requirement, shall not be used as a reference either in the Patent and Trademark Office or in the courts against a divisional application or against the original application or any patent issued on either of them, if the divisional application is filed before the issuance of the patent on the other application.
+++
35 U.S.C. § 121.

The Court’s holding that the § 121 safe harbor does not protect patents descending from continuation applications exclusively is consistent with its earlier decisions that § 121 protects patents which issued directly from continuation applications that descended from divisional applications that were filed as a result of restriction requirements. Slip op. at 18.

***
Regarding patentable indistinctiveness, the Court rejected Roche’s interpretation of Takeda Pharmaceutical Co. v. Doll, 561 F.3d 1372 (Fed. Cir. 2009), that both the patentee and the accused infringer can show patentable indistinctiveness by relying on evidence up to the filing date of the secondary application. Because of 35 U.S.C. § 120, the Court held that only the patentee may do so, but not the accused infringer.

However, if the patentee pursues that course, the accused infringer will be free to rely on subsequent developments in the art up to the filing dates of the second application to prove that any alternative processes put forth by the patentee do not render the claims of both applications patentably distinct. Slip op. at 25.

All-In-One: Direct Infringement, Contributory Infringement, and Damages

Lucent Techs., Inc. v. Gateway, Inc., Nos. 2008-1485, -1487, -1495 (Fed. Cir. Sept. 11, 2009):

Holdings:

Direct infringement may be found based on circumstantial evidence. Slip op. at 20-21.

To prove contributory infringement, a patentee may focus the “substantial noninfringing use” inquiry under 35 U.S.C. § 271(c) on the specific infringing feature or component rather than the entire product. Id. at 26-27.

A lump-sum royalty agreement may, during the license negotiation, consider the expected or estimated usage or production of a given invention. Id. at 38.

For a jury to use a running-royalty agreement as a basis to award lump-sum damages, some basis for comparison must exist in the evidence presented to the jury. Id. at 43.

Relevant Facts:

Lucent asserted U.S. Patent No. 4,763,356, which is generally directed to a method of entering information into fields on a computer screen without using a keyboard, against Microsoft. The jury returned a verdict that the patent is not invalid and infringed by Microsoft, and awarded more than $357 million to Lucent. Microsoft appealed, and the Court affirmed the validity and infringement findings, but vacated and remanded the damage award to the district court for further proceedings.

Comments:

Regarding the point that direct infringement may be found based on circumstantial evidence, the Court distinguished other cases on the basis that the patentees in these other cases failed to present any circumstantial evidence while Lucent noted that “Microsoft not only designed the accused products to practice the claimed invention, but also instructed its customers to use the accused products in an infringing way.” Slip op. at 21.

It is still desirable, however, to present at least one instance of infringing activities. Relying on circumstantial evidence should only be the last resort.

Regarding contributory infringement, the Court again rejected the argument that an otherwise infringing product may automatically escape liability merely because it contains a noninfringing staple ingredient. Id. at 26.

Regarding damages, the Court illustrated the difficulties in applying the Georgia-Pacific factors. Really, there is no easy way to calculate the damages, but any reasonable calculation must be legally sound and logical in order to be upheld on appeal.

Means-Plus-Function in the Prior Art Context

Fresenius USA, Inc. v. Baxter Int'l, Inc., Nos. 2008-1306, -1331 (Fed. Cir. Sept. 10, 2009):

Relevant Holding:

“[A] challenger who seeks to demonstrate that a means-plus-function limitation was present in the prior art must prove that the corresponding structure—or an equivalent—was present in the prior art.” Slip op. at 16.

Relevant Facts:

Among many issues and facts in this case, the challenger neither identified the structure in the specification that corresponds to the means at issue nor compared it to the structures present in the prior art.

Comments:

Regarding means-plus-function limitations, the Court requires a structure analysis and a functional analysis to prove infringement as well as invalidity.

“Just as a patentee who seeks to prove infringement must provide a structural analysis by demonstrating that the accused device has the identified corresponding structure or an equivalent structure, a challenger who seeks to demonstrate that a means-plus-function limitation was present in the prior art must prove that the corresponding structure—or an equivalent—was present in the prior art.” Slip op. at 16.

Claim Preclusion: The Focus of the “Material Differences” Test May Be on the Claim Limitations at Issue

Nystrom v. Trex Co., No. 2009-1026 (Fed. Cir. Sept. 8, 2009):

Holding:

The accused infringer may assert claim preclusion when the sole claim limitations at issue in the first suit remain unchanged in the second suit. Slip op. at 6-7.

Facts:

In the earlier case, the patentee sued the accused infringer for patent infringement and lost, during which the district court found that the patentee waived the doctrine of equivalents (DOE). In the present and second case, the patentee alleged that the accused infringer’s second generation products infringe the same patent under the DOE. The Court held that claim preclusion applies.

Judge Rader’s Additional Views

Judge Rader issued a separate opinion to present interesting and insightful additional views, explaining the differences between DOE and claim vitiation.

In short, Judge Rader explained that “the vitiation doctrine is really subsumed within the test for equivalents itself” because “the all elements rule is simply a circular application of the doctrine of equivalents.” Slip op. at 2. (J. Rader). The only difference is that “the identical equivalents and vitiation tests are made by different decision makers,” as the determination of equivalency is a question of fact, while application of the all elements rule (claim vitiation) is a question of law. Id. at 3.

Comments:

To apply claim preclusion, an accused infringer must show that the accused product or process in the second suit is “essentially the same” as the accused product or process in the first suit. Slip op. at 6.

Previously, the Court has emphasized that the focus for claim preclusion should be on “material differences” between the two accused devices, but has not addressed directly whether the focus of the “material differences” test is on the claim limitations at issue in each particular case. Slip op. at 7.

This case presents a slightly new angle because it presents the latter issue. The two “material differences” tests are really not that different. Indeed, “material differences” between the two accused devices may be further analyzed through “material differences” on the claim limitations at issue.

Note that the “colorable changes” do not alter the application of claim preclusion. In this case, the addition of wood grain or a change in color does not alter this limitation either in any way material to the infringement inquiry.

On another practical note, here, in the first case, the parties stipulated to non-infringement without reference to equivalents. As a result, the Court held that the patentee had waived the DOE argument. To avoid this pitfall, in the future, the parties should clearly indicate whether the DOE is waived when stipulating to non-infringement.

An Abandoned Patent Application May Be Evidence of Conception, but not Reduction to Practice

Martek Biosciences Corp. v. Nutrinova, Inc., Nos. 2008-1459, -1476 (Fed. Cir. Sept. 3, 2009):

Relevant Holdings:

An abandoned patent application is evidence of conception, but it is insufficient to corroborate testimony that an alleged prior inventor reduced the invention to practice. Slip op. at 18.

“[A] patent claim is not necessarily invalid for lack of written description just because it is broader than the specific examples disclosed.” Slip op. at 9.

Relevant Facts:

Lonza argues that the district court improperly excluded its evidence that the claimed invention is not patent eligible because it was previously made by another inventor, Dr. Long. To corroborate Dr. Long’s testimony that he had reduced the claimed invention to practice prior to Martek’s date of invention, Lonza offered: (1) Dr. Long’s 1987 abandoned patent application and (2) evidence that the examples originally disclosed in that abandoned application were later reproduced, generating the results described in the application. The Court affirmed the district court's ruling on this issue.

Comments:

Regarding prior inventorship evidence, the Court recognizes that when a party seeks to introduce the testimony of an alleged prior inventor under § 102(g) for the purpose of invalidating a patent, that party is required to produce evidence corroborating the alleged prior inventor’s testimony. Slip op. at 15.

The case law is unequivocal that an inventor’s testimony respecting the facts surrounding a claim of derivation or priority of invention cannot, by itself, rise to the level of clear and convincing proof. Id. at p. 16. When determining whether an alleged inventor’s testimony is sufficiently corroborated, the Court applies a rule-of-reason analysis and consider all pertinent evidence. Id.

An alleged prior inventor must provide independent corroborating evidence in addition to his own statements and documents, such as testimony of a witness, other than the inventor, to the actual reduction to practice or evidence of surrounding facts and circumstances independent of information received from the inventor. Id. at 17-18.

“Documentary or physical evidence that is made contemporaneously with the inventive process provides the most reliable proof that the inventor’s testimony has been corroborated.” Id. at 18.

Therefore, it is desirable for a company to implement a R&D procedure that preserves contemporaneous documentary or physical evidence for any inventions, such as including a witness in the lab notebook. Certainly, this should not come as a surprise, as the case law has always been very clear on this point.

DTV Patent War Watch (6)

Relevant Timeline for 337-TA-617:

November 15, 2007: ITC instituted Investigation No. 337-TA-617 based on Funai’s complaint.

April 10, 2009: ITC terminated the investigation and issued a limited exclusion order.

July 8, 2009: The United States Customs and Border Protection agency (“CBP”) issued a ruling that all current models of VIZIO televisions do not infringe U.S. Patent No. 6,115,074 (‘074) held by Funai.

August 5, 2009: CBP issued a ruling holding that three semiconductor chip samples submitted by Amtran Logistics, Inc., TPV International (USA), Inc., and Envision Peripherals, Inc., are not subject to Exclusion Order 337-TA-617.

August 14, 2009: Funai filed a complaint seeking enforcement proceedings under Commission Rule 210.75, 19 C.F.R. § 210.75.

September 1, 2009: Fuani sued CBP before the US Court of International Trade (CIT).

September 4, 2009: ITC instituted the enforcement proceeding.

DTV Patent War Watch (5)

ITC Investigation No. 337-TA-617 continues to be the case to watch.

On September 4, 2009, the U.S. International Trade Commission (ITC) issued a notice instituting a formal enforcement proceeding relating to the limited exclusion order and cease and desist orders issued in ITC Inv. No. 337-TA-617 (Certain Digital Televisions and Certain Products Containing Same and Methods of Using Same).

This ITC notice is in response to Funai’s complaint filed on August 14, 2009, alleging that Respondents have violated the limited exclusion order and/or the cease and desist orders and seeking enforcement proceedings under Commission Rule 210.75.

DTV Patent War Watch (4)

Following recent US Customs’ rulings on the scope of the exclusion orders issued in ITC Investigation No. 337-TA-617 that allows importation of redesigned DTV products, Funai, the Complainant in the ITC investigation, sued US Customs on September 1, 2009 in the US Court of International Trade, seeking to enjoin US Customs from allowing the importation of the redesigned DTV products.

See also DTV Patent War Watch (1).

Section 271(f) Does Not Apply to Method Patents

Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., Nos. 2007-1296, -1347 (Fed. Cir. Aug. 19, 2009) (en banc):

Holding:

“Section 271(f) does not apply to method patents.” Slip op. at 29.

Notes:

“In sum, the language of Section 271(f), its legislative history, and the provision’s place in the overall statutory scheme all support the conclusion that Section 271(f) does not apply to method patents.” Slip op. at 29.

Section 271(f):

(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

Chief ALJ Luckern Issues Initial Determination Finding No Violation Of Section 337 In Certain 3G Mobile Handsets (337-TA-613)

On August 14, 2009, Chief ALJ Luckern issues Initial Determination finding no violation Of Section 337 In Certain 3G Mobile Handsets (337-TA-613). Specifically, InterDigital's asserted patents were found valid, but not infringed by Nokia. In addition, a domestic industry exists.

Click here for the notice.

DTV Patent War Watch (3)

On August 12, 2009, British Telecom, CIF Licensing, GE, Fujitsu, LG, Mitsubishi, Samsung, Thomson, Columbia University, Philips, and Victor Co. of Japan sued Haier America, Haier Group, and HAIM LLC in the United States District Court for the Southern District of New York, asserting 37 patents related to MPEG-2 and digital television technology.

Haier is one of the largest Chinese consumer electronics company.

Click here to view the complaint.

DTV Patent War Watch (2)

On August 12, 2009, LG Electronics, Inc. filed a new ITC complaint, requesting that the International Trade Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Video Displays, Components Thereof, and Products Containing Same. The proposed respondents are: Funai Electric Company, Ltd., Osaka, Japan; Funai Corporation, Inc., Rutherford, New Jersey; and P & F USA, Inc., Alpharetta, Georgia.

Click here to view the complaint.

DTV Patent War Watch (1)

Patent disputes involving digital TV (DTV) have entered the center stage in the world of patent dispute and international trade in recent years. Because so many big players are involved in DTV patent disputes, the complexity of the simmering DTV patent war is unprecedented, and will get worse.

We have been tracking the DTV patent disputes for the last 2-3 years on behalf of some of our clients. Even in this blog, we have posted in two separate occasions regarding DTV patent disputes:

VIZIO Wins U.S. Customs Ruling (July 10, 2009)

US Customs Continues to Rule in favor of Redesigned Products in 337-TA-617 (DTV) (Aug. 11, 2009)

We at Mei & Mark LLP have decided to blog the DTV patent war and track the recent development in the DTV patent war, focusing on the public information. If you are interested in our confidential analysis, please contact Mr. Lei Mei, partner at Mei & Mark LLP, at mei@meimark.com.

US Customs Continues to Rule in favor of Redesigned Products in 337-TA-617 (DTV)

On August 5, 2009, US Customs and Board Protection (CBP) IPR Branch issued a ruling holding that three semiconductor chip samples submitted by Amtran Logistics, Inc., TPV International (USA), Inc., and Envision Peripherals, Inc., are not subject to Exclusion Order 337-TA-617. Therefore, DTVs that contain the above-referenced three semiconductor chips identified as Model BCM35243 (Broadcom), Model MT5382PTR (MediaTek), Model ZR39775HGCF-B (Zoran), and all functional equivalents of the aforementioned models, may be entered for consumption into the United States.

For a copy of the ruling, please click here.

This continues to the trend that CBP allows redesigned products to be imported into the US. See our earlier post regarding Vizio's win before CBP.

ITC Reversed ALJ's Finding of Violation of Section 337 by Sinochem (337-TA-623)

For detailed analysis, please visit ITC 337 Law Blog.

Filing a Patent Application at the USPTO Sufficient to Subject the Filling Attorney to Personal Jurisdiction in a Malpractice Claim

Touchcom, Inc. v. Bereskin & Parr, No. 2008-1229 (Fed. Cir. Aug. 3, 2009):

Holding:

“[T]he act of filing an application for a U.S. patent at the USPTO is sufficient to subject the filing attorney to personal jurisdiction in a malpractice claim that is based upon that filing and is brought in federal court.” Slip op. at 6.

Relevant Facts:

The patentee sued its patent attorney in a federal court in Virginia for malpractice because of missing source code in the PCT application and the resulting US patent. The patent attorney has no other contacts with Virginia other than filing the patent application at the USPTO. The Federal Circuit found that personal jurisdiction exists.

Comments:

The Federal Circuit recognizes that the patent attorney could avoid personal jurisdiction in Virginia by offering a suitable forum under Rule 4(k)(2):

“[I]n federal cases, the purposes of Rule 4(k)(2) are best achieved when the defendant is afforded the opportunity to avoid the application of the rule only when it designates a suitable forum in which the plaintiff could have brought suit.” Slip op. at 16.

Rule 4(k)(2), entitled “Federal Claim Outside State-Court Jurisdiction,” states, in relevant part: “For a claim that arises under federal law, serving a summons . . . establishes personal jurisdiction over a defendant if: (A) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction; and (B) exercising jurisdiction is consistent with the United States Constitution and laws.” Fed. R. Civ. P. 4(k)(2).

PTO Inter Partes Reexamination Statistics: only 5% with all claims confirmed!

USPTO's Inter Partes Reexamination Filing Data - June 30, 2009:

Average pendency: 36.1 months

Certificates with all claims confirmed: 5%
Certificates with all claims canceled: 60%
Certificates with claims changes: 35%

Click here to view the PTO statistics.

Written Description for a Means-Plus-Function Claim: What Is (Not) Sufficient?

Blackboard, Inc. v. Desire2Learn Inc., Nos. 2008-1368, -1396, -1548 (Fed. Cir. July 27, 2009):

Holding:

“[W]hen a computer is referenced as support for a function in a means-plus-function claim, there must be some explanation of how the computer performs the claimed function.” Slip op. at p. 23 (citing Net MoneyIN, Inc. v. VeriSign, Inc., 545 F.3d 1359, 1367 (Fed. Cir. 2008)).

“That ordinarily skilled artisans could carry out the recited function in a variety of ways is precisely why claims written in ‘means-plus-function’ form must disclose the particular structure that is used to perform the recited function.” Slip op. at 26.

Relevant Facts:

Blackboard asserted that the structure that performs the recited “means for assigning” function is the server computer’s software feature known as the “access control manager” or “ACM.”

+++
The entirety of the description of the access control manager in the specification is contained in a single paragraph, which reads as follows:

Access control manager 151 creates an access control list (ACL) for one or more subsystems in response to a request from a subsystem to have its resources protected through adherence to an ACL. Education support system 100 provides multiple levels of access restrictions to enable different types of users to effectively interact with the system (e.g. access web pages, upload or download files, view grade information) while preserving confidentiality of information.
+++
Slip op. at 20.

The Federal Circuit affirmed the district court’s finding that the disclosure of structure described in that paragraph to be inadequate to satisfy section 112, paragraph 6, as it failed to describe “how the levels themselves are assigned to the data files in the first place.”

Comment:

This case shows the difficulty in drafting means-plus-function claims in software-related patents. “[W]hen a computer is referenced as support for a function in a means-plus-function claim, there must be some explanation of how the computer performs the claimed function.” The Federal Circuit explained:

+++
To avoid purely functional claiming in cases involving computer-implemented inventions, we have consistently required that the structure disclosed in the specification be more than simply a general purpose computer or microprocessor. Because general purpose computers can be programmed to perform very different tasks in very different ways, simply disclosing a computer as the structure designated to perform a particular function does not limit the scope of the claim to the corresponding structure, material, or acts that perform the function, as required by section 112 paragraph 6. Thus, in a means-plus-function claim in which the disclosed structure is a computer, or microprocessor, programmed to carry out an algorithm, the disclosed structure is not the general purpose computer, but rather the special purpose computer programmed to perform the disclosed algorithm. Consequently, a means-plus-function claim element for which the only disclosed structure is a general purpose computer is invalid if the specification fails to disclose an algorithm for performing the claimed function.
+++
Slip op. at 23 (citing Net MoneyIN, Inc. v. VeriSign, Inc., 545 F.3d 1359, 1367 (Fed. Cir. 2008)).

Zero CAFC Precedential Patent Opinions in the First Half of July, 2009

For the first half of the month of July, the Federal Circuit has not issued a single precedential opinion in a patent case. We will continue to monitor the Federal Circuit opinions and will blog any new important opinions in patent cases once they become published. Stay tuned!

VIZIO Wins U.S. Customs Ruling

On July 8, 2009, the United States Customs and Border Protection agency (“CBP”) issued a ruling in agreement with VIZIO that all current models of VIZIO televisions do not infringe U.S. Patent No. 6,115,074 (‘074) held by Funai Electric Company, enabling VIZIO to continue importing its televisions without interruption.

Click here for VIZIO's press release.

Previously, in ITC Inv. No. 337-TA-617, on April 10, 2009, the International Trade Commission issued a limited exclusion order (click here for a copy), ordering VIZIO and other companies not to import any infringing products.

Although we have not seen the CBP decision letter, it appears that CBP essentially rules that VIZIO's new, re-designed products do not infringe Funai's '074 patent, and thus are not within the scope of the ITC's limited exclusion order.

The CBP ruling is even more remarkable because the '074 patent was purportedly an essential patent covering an ATSC standard that every Digital TV sold in the US must comply with under a FTC requirement. Therefore, by this ruling, it appears that CBP believes that the '074 patent is not an essential patent to the ATSC standard.

We at Mei & Mark LLP have a full analysis on the impact of this CBP ruling on the DTV industry. Please contact Lei Mei, Esq. at mei@meimark.com for more information.

Taiwan's Industrial Technology Research Institute Filed Lawsuits Against Samsung in the US

On June 19, 2009, Taiwan's Industrial Technology Research Institute ("ITRI") filed two patent infringement lawsuits against Samsung Electronics America Inc. and two other Samsung entities in the U.S. District Court for the Western District of Arkansas (Case Nos. 4:09-cv-04063, 4:09-cv-04064).

ITRI claims that Samsung's i607 and D520 models infringed U.S. Patent Number 6,459,413, entitled “Multi-frequency band antenna," and its SPH-A940, SPH-M220, SPH-M320 and SGH-D307 models infringe U.S. Patent Number 5,208,472, entitled “Double spacer salicide MOS device and method.”

ITRI is a research institute backed by the Taiwanese government, and many Taiwanese high tech companies trace their origins to ITRI. These two cases appear to be the first patent infringement cases brought by a Chinese or Taiwanese patent holding company in the US. We will continue to monitor these cases, as a favorable outcome may be followed by more cases brought by patent holding companies from the greater China region.

IP Law360 Published "Chinese Patent Litigation: Tips For US Companies" authored by Lei Mei, Partner at Mei & Mark LLP.

Click here for a copy of the article.

Standing to Sue to Correct Inventorship in a Federal Court under 35 U.S.C. § 256 Requires Ownership Interest or Direct Financial Rewards if Corrected

Larson v. Correct Craft, Inc., No. 2008-1208, -1209 (Fed. Cir. June 5, 2009):

Holding:

If an alleged inventor lacks an ownership interest or being declared the sole inventor will not generate any other direct financial rewards, the alleged inventor has no constitutional standing to sue for correction of inventorship in federal court under 35 U.S.C. § 256. Slip op. at 12.

Relevant Facts:

An inventor assigned all his rights in a patent to his company. Believing he was misled, however, he sued the company alleging fraud, among other claims, and seeking declaration that he is the sole inventor of the patent.

Because he has no concrete financial interest in the correction of the patents in this case because he has assigned away all of his patent rights, and he claims no purely reputational interest in the patents, the Court held that he has no standing to bring a stand-alone action under § 256, unless and until Larson obtains equitable relief that restores his ownership right.

Comment:

Reputational Injury? The Court leaves open the question of whether a purely reputational interest is sufficient to confer standing for a § 256 claim. Id. at 13. If the opportunity arises, I believe the Court will find that reputational injury is sufficient to confer standing for a § 256 claim. Specifically, the line between financial injury and reputational injury is very superficial nowadays. Obviously, reputation leads to financial rewards, as it allows a person to enhance his resume and thus secure a better paying job.

Patent Interference: Which Specification Informs the Interpretation of the Contested Claims?

Agilent Techs., Inc. v. Affymetrix, Inc., No. 08-1466 (Fed. Cir. June 4, 2009):

Holding:

When interpretation is required of a claim that is copied for interference purposes and the question is whether the copying party’s specification adequately supported the subject matter claimed by the other party, the copied claim is viewed in the context of the patent from which it was copied. Slip op. at 8-9.

Dictum:

When the issue is whether the claim is patentable to one or the other party in light of prior art, the PTO and courts must interpret the claim in light of the specification in which it appears. Id. at 9.

Preliminary Injunction: The Trial Court’s Responsibilities

Titan Tire Corp. v. Case New Holland, Inc., No. 08-1078 (Fed. Cir. June 3, 2009):

Holding:

At the preliminary injunction stage, when analyzing the likelihood of success factor, the trial court, “must determine whether it is more likely than not that the challenger will be able to prove at trial, by clear and convincing evidence, that the patent is invalid.” Slip op. at 12.

Note:

At the preliminary injunction stage, “[i]nstead of the alleged infringer having to persuade the trial court that the patent is invalid, at this stage it is the patentee, the movant, who must persuade the court that, despite the challenge presented to validity, the patentee nevertheless is likely to succeed at trial on the validity issue.” Id. at 7.

“[T]he trial court could understand its task to involve not only examining the alleged infringer’s evidence of invalidity, but also considering rebuttal evidence presented by the patentee and determining whether the patentee can show that the invalidity defense “lacks substantial merit.” Id. at 8.

“[T]he patentee’s rebuttal of the challenger’s invalidity evidence is an important part of the court’s overall evaluation of the evidence.” Id.

Ensnarement, Lost Profits, Reverse Doctrine of Equivalents: All in One Case

Depuy Spine, Inc. v. Biedermann Motech GMBH, No. 2008-1240, -1253, -1401 (Fed. Cir. June 1, 2009):

Holding:

1. “Ensnarement, like prosecution history estoppel, is a legal limitation on the doctrine of equivalents to be decided by the court, not a jury.” Slip op. at 7.
2. The first Panduit factor simply asks whether demand existed for the patented product and the focus on particular features corresponding to individual claim limitations is unnecessary. Id. at 21, 23.
3. “In contrast to such functionally-integrated components that are properly subject to lost profits, ‘there is no basis for extending that recovery to include damages for [unpatented] items that are neither competitive with nor function with the patented invention.’” Id. at 27.
4. “The reverse doctrine of equivalents, like the doctrine of equivalents, is applied to individual limitations of a claim.” Thus, the fact that a party argued on claim limitation under a doctrine of equivalents theory of infringement does not prevent the other party from raising the reverse doctrine of equivalents against the literal scope of a different limitation. Id. at 38.

Notes:

“Ensnarement bars a patentee from asserting a scope of equivalency that would encompass, or ‘ensnare,’ the prior art.” Id. at 6.

“A helpful first step in an ensnarement analysis is to construct a hypothetical claim that literally covers the accused device.” Id. at 11.

“Next, the district court must assess the prior art introduced by the accused infringer and determine whether the patentee has carried its burden of persuading the court that the hypothetical claim is patentable over the prior art.” Id.

+++
[T]he four-factor Panduit test . . . requires a showing of (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit that would have been made.
+++
Id. at 20 (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)).

+++
[W]here a device is so far changed in principle from a patented article that it performs the same or similar function in a substantially different way, but nevertheless falls within the literal words of the claim, the [reverse] doctrine of equivalents may be used to restrict the claim and defeat the patentee’s action for infringement.
+++
Id. at 37 (citing Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605, 608-09 (1950)).

Patent License: The right to ‘Make, Use, and Sell’ a Product Inherently Includes the Right to Have It Made Unless Explicitly Excluded

CoreBrace LLC v. Star Seismic LLC, No. 2008-1502 (Fed. Cir. May 22, 2009):

Holding:

“The right to ‘make, use, and sell’ a product inherently includes the right to have it made by a third party, absent a clear indication of intent to the contrary.” Slip op. at 6.

Venue Transfer: Federal Circuit Ordered Yet Another Case Transferred Out of Eastern District of Texas (Is this a trend now?)

In re Genentech, No. 09-M901 (Fed. Cir. May 22, 2009):

Holding:

When assessing whether a defendant has met its burden of demonstrating the need to transfer by applying the “public” and “private” factors for determining forum non conveniens mandated by the fifth circuit, “the convenience of the witnesses is probably the single most important factor in transfer analysis” and the witnesses need not be key witnesses. Slip op. at 5-7.

Facts:

Sanofi, a German company, filed a patent infringement lawsuit against Genentech, a California company, in E.D. Tex. Genentech filed a DJ action on the same day in N.D. Cal. A substantial number of witnesses reside in California and none in Texas. Genentech then sought to transfer the case to N.D. Cal. under 28 U.S.C. § 1404(a), which the E.D. Tex. court denied. Genetech petitioned for a writ of mandamus, and the Federal Circuit granted.

Comments:

The timeline here is very important. Sanofi filed the lawsuit first in E.D. Tex. and Genentech then filed a DJ action in N.D. Cal. Therefore, this may become a trend for alleged infringers to successfully transfer cases out of E.D. Tex., as probably most of the patent infringement cases in E.D. Tex. do not involved many witnesses, if at all, from Texas.

Winner/Loser Predictions:

Winner: Accused Infringers
Loser: Patent Owners Considering E.D. Tex as a forum

Winner: Expert Witnesses Residing in Texas (to boost the balancing analysis, patentees may retain expert witnesses from Texas from the beginning).

Proper Interpretation of Product-by Process Claims: Process Terms in Product-by-Process Claims Serve as Limitations in Determining Infringement

Abbott Laboratories v. Sandoz, Inc., No. 2007-1400 (Fed. Cir. May 18, 2009):

Holding:

“[P]rocess terms in product-by-process claims serve as limitations in determining infringement.”

Slip op. at 18 (affirming the holding of Atlantic Thermoplastics Co. v. Faytex Corp., 970 F.2d 834 (Fed. Cir. 1992) and rejecting the holding of Scripps Clinic & Research Foundation v. Genentech, Inc., 927 F.2d 1565, 1583 (Fed. Cir. 1991)).

AND

“[A] patentee’s use of the word ‘obtainable' rather than ‘obtained by’ cannot give it a free pass to escape the ambit of the product-by-process claiming doctrine.”

Id. at 24.

Comments:

Here is the excellent reasoning by the Court:

+++
In sum, a patentee’s use of the word “obtainable” rather than “obtained by” cannot give it a free pass to escape the ambit of the product-by-process claiming doctrine. Claims that include such ambiguous language should be viewed extremely narrowly. If this court does not require, as a precondition for infringement, that an accused infringer actually use a recited process, simply because of the patentee’s choice of the probabilistic suffix “able,” the very recitation of that process becomes redundant. This would widen the scope of the patentee’s claims beyond that which is actually invented—a windfall to the inventor at the expense of future innovation and proper notice to the public of the scope of the claimed invention.
+++

Id.

Personal Jurisdiction: What Activities Are Sufficient?

Autogenomics, Inc. v. Oxford Gene Tech. Limited, No. 2008-1217 (Fed. Cir. May 18, 2009):

Holding: “[O]nly enforcement or defense efforts related to the patent rather than the patentee’s own commercialization efforts are to be considered for establishing specific personal jurisdiction in a declaratory judgment action against the patentee.” Slip op. at p. 13 (citing Avocent Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1328 (Fed. Cir. 2008)).

Comments:

This case gives a nice summary of related rules from previous personal jurisdiction cases:

1. “‘[C]ease-and-desist letters alone do not suffice to justify personal jurisdiction’ in a declaratory judgment action.” Id. at p. 10.
2. “[A]ttempts at ‘extra-judicial patent enforcement’ by harming plaintiff’s business activities in forum state is a sufficient additional factor to justify the exercise of personal jurisdiction.” Id. at p. 11.
3. “[E]ntry into an exclusive license with an entity in the forum state is sufficient extra activity to establish jurisdiction.” Id.
4. Personal jurisdiction exists when a patentee contracted with an exclusive distributor to sell the patented products in the forum state where the agreement was “analogous to a grant of a patent license.” Id.
5. Personal jurisdiction exists when a party “initiated a suit seeking to enforce the same patent that is the subject of this suit against other parties, unrelated to this action, in the same district court.” Id.
6. “[E]xclusive licensing of the accused infringer’s competitor in the forum state constituted the required ‘additional activity’ beyond sending warning letters.” Id.

The Safe Harbor Statute of 35 U.S.C. § 271(e)(1) Applies to Process Patents in Actions Under Section 337 (ITC)

Amgen, Inc. v. United States International Trade Commission, No. 2007-1014 (Fed. Cir. Apr. 30, 2009)

Holding:

“[T]he safe harbor statute applies to process patents in actions under Section 337 when the imported product is used for the exempt purposes of § 271(e)(1).”

Comments:

Is this opinion inconsistent with Kinik v. United States International Trade Commission, 362 F.3d 1359 (Fed. Cir. 2004)? In Kinik, the Court held that § 271(g) provided a new right and remedy in the district court, but held that the Tariff Act remedy of exclusion based on practice of a patented process was unchanged, and that the exceptions set forth in § 271(g) did not apply in Section 337 cases.

The Federal Circuit did not overturn Kinik, but if the distinction merely lies on the Court’s interpretation of legislative history behind § 271(g) versus § 271(e), it does not seem right.

In my opinion, Kinik should be overturned, because it is inconsistent with GATT. I have copied my earlier analysis on Kinik from June 2004 below.

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The Federal Circuit held that defenses under § 271(g) do not apply to the ITC proceedings under § 1337(a)(1)(B)(ii). Id. at 1362-63. Although the text of the statutes, the legislative history, and precedent clearly support this interpretation, § 271(g), added in 1988, may have been outdated by the General Agreement on Tariffs and Trade (GATT)’s 1994 national treatment rule. This rule requires that ITC procedures in § 1337 investigations treat imported goods no less favorably than the procedures in district courts. GATT, art. III: 4, T.I.A.S. No. 1700, 55 U.N.T.S. 187.

Congress amended § 1337 in 1994 to “ensure that U.S. procedures for dealing with alleged infringements by imported products comport with GATT 1994 ‘national treatment’ rules.” Uruguay Round Agreements Act, Pub. L. 103-465, 108 Stat. 4809, §§ 321(a)(5)(A) (codified as amended at 19 U.S.C. § 1337 (1994)); H.R. Rep. No. 103-826, pt. 1, at 142 (1994). This amendment was preceded by a 1989 GATT Panel Report finding that § 1337 was inconsistent with the national treatment rule. United States - Section 337 of the Tariff Act of 1930, GATT Doc. L/6435 - 35S/345 (Nov. 7, 1989) (“1989 GATT Panel Report”).

Because courts had never decided the applicability of defenses under § 271(g) to ITC actions, the 1989 GATT Panel Report did not address defenses under § 271(g). The Federal Circuit’s interpretation in Kinik prevents makers of imported goods in § 1337 ITC actions from raising defenses available in district court infringement proceedings. Therefore, this rule appears inconsistent with the GATT’s national treatment rule. It remains to be seen, however, whether other countries will raise this inconsistency through a GATT panel.

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Notable Federal Circuit Opinions from Last Week

Transcore, LP v. Elec. Transaction Consultants Corp., No. 2008-1430 (Fed. Cir. Apr. 8, 2009):

Holding: An unconditional covenant not to sue authorizes sales by the covenantee for purposes of patent exhaustion.

Comments: According to the Federal Circuit, a covenant not to sue is essentially a nonexclusive patent license.

Takeda Pharm. Co. v. Doll, No. 2008-1131 (Fed. Cir. Apr. 10, 2009):

Holding: For purposes of double patenting analysis, the relevant time frame for determining whether a product and process are “patentably distinct” should be at the filing date of the secondary application.

Schneider Agreed to Pay Chinese rival CHINT $23 million to Settle a Chinese Patent Infringement Lawsuit

A unit of France's Schneider Electric has reportedly agreed to pay Chinese rival Chint Group 157.5 million yuan ($23 million) - roughly half the court's original award in 2007 - to settle a three-year legal battle over patents for low-voltage electrical equipment.

According to Chinese media, the highest court in Zhejiang Province (to which Schneider appealed the original $48.5 million trial judgment) was pleased that the parties settled their differences, citing domestic and international pressures.

Click here to read my earlier post regarding patent litigation in China and its impacts on U.S. companies.

Impressions from my recent China trip

I just came back from a one-week business trip in China (Shenzhen and Shanghai) and would like to share my impressions on China's economy and IP market with our readers.

(1) Recession. What recession?

I would never have guessed that China is in recession. The stores were packed with customers and the restaurants were full of patrons, as if China's fast pace has never slowed. For the companies I visited, large or small, their oversea sales might have slowed, but China's domestic consumption keeps these companies going. I can sense that the energy is still there and these companies are still innovating (thanks to supportive Chinese government policies).

(2) Chinese IP Market

Chinese companies have stepped up their efforts to protect IP rights. It appears, however, that large Chinese companies are still not comfortable about spending reasonable (according to the US standard) attorney fees for IP matters. Because of their size and potential, these large companies still attempt to pressure US law firms to offer deep discounts in IP services. I believe that it will take at least another 5 years for the Chinese IP market to mature with respect to these large Chinese companies.

Interestingly, however, the medium or small Chinese companies are more active in defending their products against infringement allegations. Because these smaller companies rely on single or limited product lines, they are more willing to pay standard attorney fees to protect their market shares. Currently, the demand for IP services mainly comes from these smaller companies.

(3) Shanghai: A Futuristic City

I have never seen a more dynamic city than Shanghai, not NYC, not London, and certainly not Paris. Entrepreneurs from all over the world come to Shanghai to look for and seize seemly unlimited opportunities. Not only is Shanghai a financial center of Asia now, it is also becoming a center for technological innovations. Personally, after talking to several clients about their ventures, I was deeply impressed with their innovations and their energy.

How Unambiguous An Assignment Must Be?

In Euclid Chemical Co. v. Vector Corrosion Techs. Inc., No. 2008-1170 (Fed. Cir. Apr. 1, 2009), the Federal Circuit found that an assignment of a disputed patent to Vector was ambiguous, vacated the judgment of the district court based on an erroneous finding that the assignment was unambiguous, and remanded for further proceedings. On a second issue, the Federal Circuit found that the district court abused its discretion by dismissing Euclid’s bona fide purchaser claim.

Key Issue:
• Whether an assignment that lists an issued patent and all continuations to the issued patent, but leaves out a second issued patent that is a continuation to the first issued patent, cover the second issued patent?

Holding:
• If an assignment merely lists an issued patent and all continuations to the issued patent, but leaves out a second issued patent this is a continuation to the first issued patent, without other clarifying language, does not cover the second issued patent.

The Disputed Assignment (emphasis added)

I, JACK BENNETT, whose full post office address is 10039 Hawthorne Drive, Chardon, Ohio 44024, in consideration for $25,000.00 and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged do hereby sell and assign to VECTOR CORROSION TECHNOLOGIES LTD. whose full post office address is 474 Dovercourt Drive, Winnipeg, Manitoba Canada R3Y 1G4, all my interest in the United States, Canada and in all other countries in and to my US, Canadian, and European applications for patents and issued US patent, namely:

1. Issued US Patent 6,033,553. This patent claims the specific use of LiNO3 and LiBr to enhance the performance of metallized zinc anodes;

2. US Application No. 08/839,292 filed on April 17, 1997,

3. US Application No. 08/731,248, filed on October 11, 1996 (now abandoned),

4. EPO Application No. 99122342.1, filed November 9, 1999, and

5. Canadian Application No. 2288630, filed November 8, 1999,

any and all divisional applications, continuations, and continuations in part together with the entire right, title and interest in and to said applications, any and to all divisional applications, continuations, and continuations in part thereof, the right to claim priority therefrom under the International Convention, and any and all Letters Patent which may issue or be reissued for said invention to the full end of the term for which each said Letters Patent may by granted; and hereby authorize the issuance to said assignee of any and all said Letters Patent not already issued as the assignee of entire right, title and interest in and to the same, for the sole use and benefit of said assignee, its successors, assigns or legal representatives; and hereby covenant and agree to do all such lawful acts and things and to execute without further consideration such further lawful assignments, documents, assurances, applications, and other instruments as may reasonably be required by said assignee, its successors, assigns or legal representatives, to obtain any and all Letters Patent for said invention and vest the same in said assignee, its successors, assignees or legal representatives.

SIGNED AT: Chardon, Ohio, U.S.A.

This 20th day of December, 2001

Federal Circuit’s Analysis

The patent in dispute, U.S. Patent No. U.S. Patent No. 6,217,742 (“the ‘742 patent”), had already issued by the signing date.

The district court granted Vector’s motion for partial summary judgment for ownership, finding that the assignment was unambiguous, that the ‘742 patent was a continuation-in-part of U.S. Patent 6,033,553 (“the ‘553 patent”), and that “the plain and unambiguous language of the [Assignment] assigns all rights in the 553 patent and any and all continuations-in-part thereof.” Slip op. at 4.

The Federal Circuit disagreed with the district court that the assignment unambiguously transferred ownership of the ‘742 patent to Vector. It noted that the language “refers to ‘applications’—plural—but ‘issued US patent’—singular.” Slip op. at 7.

Judge Newman, in her opinion concurring in part and dissenting in part, went one step further and argued that the assignment unambiguously does not convey the ‘742 patent because the ‘742 patent is a different invention from the ‘553 patent and thus was not for “said invention.”

Commentary:

It appears that Vector’s intent must have been for the assignment to cover all existing and future patents in the same patent family. Although the assignment contains broad language, it does leave slight ambiguity, as the Federal Circuit pointed out. Judge Newman’s position seems to be a little extreme, but yet still reasonable and sound, which further illustrates the danger of any ambiguity in the assignment.

From a policy (and law and economics) point of view, the Federal Circuit’s decision makes perfect sense. The burden should be on Vector to draft an unambiguous agreement, which would alleviate the needs for future disputes and the burden on other parties and the court system.

For the licensing professionals, the lesson is simple. Relying on the “any and all divisional applications, continuations, and continuations” may not be enough. Err on the side of caution, and be over-inclusive when drafting the assignment/licensing language. In this case, Vector could have included a sentence to state that the listing of specific patent(s) and patent application(s) is not intended to be exhaustive and the assignment covers any other patent(s) and patent application(s) that may exist.

Tafas v. Doll: Round 2 of Battle on the USPTO’s New Rules

Case:

Tafas v. Doll, No. 2008-1352 (Fed. Cir. Mar. 20, 2009).

Ruling:

The USPTO’s Final Rules 75, 78, 114, and 265 are procedural rules that are within the scope of the USPTO’s rulemaking authority. Final Rule 78 conflicts with 35 U.S.C. § 120 and is thus invalid.

Affirm the district court’s grant of summary judgment that Final Rule 78 is invalid, vacate its grant of summary judgment with respect to Final Rules 75, 114, and 265, and remand for further proceedings consistent with this opinion.

Short Explanation of New Rules (note: quotation from the decision):

Final Rule 78 governs the availability of continuation and continuation-in-part applications. Under the rule, an applicant is entitled to file two continuation applications as a matter of right. 37 C.F.R. § 1.78(d)(1)(i). If an applicant wishes to pursue more than two continuation applications, he must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application.” Id. § 1.78(d)(1)(vi).

Final Rule 114 provides for similar treatment of RCEs. Under the rule, an applicant is allowed one RCE as a matter of right. Id. § 1.114(f). For each additional RCE, the applicant must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted prior to the close of prosecution in the application.” Id. § 1.114(g).

Final Rule 75 requires an applicant who submits either more than five independent claims or twenty-five total claims to provide the examiner with information in an examination support document (“ESD”). 37 C.F.R. § 1.75(b)(1).

The requirements for ESDs are set forth in Final Rule 265. To comply with Final Rule 265, an applicant must conduct a preexamination prior art search, provide a list of the most relevant references, identify which limitations are disclosed by each reference, explain how each independent claim is patentable over the references, and show where in the specification each limitation is disclosed in accordance with 35 U.S.C. § 112, 1.

Marking Not Required When the Patentee Only Asserted the Method Claims

Holding: The Marking Statute, 35 U.S.C. § 287(a), Does Not Apply Where the Patentee Only Asserted the Method Claims of a Patent Which Included both Method and Apparatus Claims.

In Crown Packaging Tech., Inc. v. Rexam Beverage Can Co., No. 2008-1284 (Fed. Cir. Mar. 17, 2009), the Federal Circuit reversed the district court’s grant of summary judgment dismissing Rexam’s counterclaim based on a failure to mark, because it is “bound by our holding in Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075 (Fed. Cir. 1983)—that the marking requirement of 35 U.S.C. § 287(a) does not apply when only method claims are asserted.” Slip op. at 2.

The Federal Circuit observed:

“The marking statute, 35 U.S.C. § 287(a), requires that:

Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of the patent, or when, from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice. In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.

Accordingly, a party that does not mark a patented article is not entitled to damages for infringement prior to actual notice.”

Id. at 12.

However, in Hanson, 718 F.2d at 1082–83, the Federal Circuit held that “35 U.S.C. § 287(a) did not apply where the patentee only asserted the method claims of a patent which included both method and apparatus claims.” Id. Here, “because Rexam asserted only the method claims of the ’839 patent, the marking requirement of 35 U.S.C. § 287(a) does not apply.” Id. at 13.

Notable Revisions on Chinese Patent Law: Compulsory License and Its Impact on U.S. Patent Holding Companies and Pharmaceutical Companies

As some of you may know, Chinese Patent Law has gone through revision recently. On December 27, 2009, the Chinese government has approved the revision and the new law will take effect on October 1, 2009. We provide our preliminary analysis below.

One significant change occurs in Chapter 6 – “Compulsory License of Patent Enforcement.” Previously, the law was not clear as to under what circumstances the Chinese government may impose a compulsory license. Pursuant to the old Section 48, if a potential licensee requested a patent license “under a reasonable condition,” but has not got the license after “a reasonable time,” the Chinese government may impose a compulsory license. No explanation was given as to what is a “reasonable” condition or time.

The new Section 48 is more detailed. It states now that a compulsory license may be imposed “if (1) after 3 years since the patent issued and 4 years since the application was filed, the patentee does not have a reasonable justification as to why it has not practiced or sufficiently practiced such patent, or (2) the patentee’s enforcement acts are deemed as a monopoly, and [the Chinese government may impose a compulsory license] to negate or reduce its monopoly effects.”

Note that the Chinese government also passed its first ever comprehensive anti-monopoly legislation in 2008. It remains to be seen, however, how this new anti-monopoly law will shape the IP policies in China.

Nonetheless, the new compulsory chapter appears to be the Chinese government’s response to limit foreign patentees’ ability to seek “unreasonable” royalties from Chinese companies. In particular, the new law will have serious consequences for licensing companies that do not practice the patents themselves, although it is not clear at this point whether a licensing company (i.e., a patent holding company) can rely on related corporate entities that do practice the patents to avoid compulsory licenses.

In addition, the new law beefs up the provisions for compulsory licenses in connection with national emergency and interest (presumably consistent with TRIPS). It adds a new Section 50, which provides that pharmaceutical patents may be subject to compulsory licenses.

Please stay tuned for additional analysis as we comb through the revision in the next several days.

p.s. Mei & Mark LLP has obtained a copy of a redline version of the new Chinese Patent law in Chinese. If you have any question regarding the revision, please feel free to contact Lei Mei, Esq. of Mei & Mark LLP at mei@meimark.com.