AIPLA Reports

A Periodic Notification of AIPLA Activities and
Current Developments in Intellectual Property Law
Copyright © 2008 AIPLA

February 10, 2008

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• Summary Judgment Hearing Is Held in Challenge to PTO Rules
• PTO Proposed Budget Calls for Higher Funding and Retained Fee Revenue
• London Agreement Will Enter into Force May 1
• Injunction Was Barred by Damages That Included Ongoing Compensation
• Covenant Not to Sue Does Not Stop Decision on Patent Unenforceability
• Indefiniteness Turns on Ambiguities in Scope and Prior Art
• AIPLA Brief Urges Elimination of Point of Novelty Infringement Test

Patents/PTO Rules/Summary Judgment
Summary Judgment Hearing Is Held in Challenge to PTO Rules
Tafas v. Dudas, E.D. Va., No. 1:07cv1008 (JCC/TRJ), summary judgment hearing, 2/8/08.

At the summary judgment oral argument in a lawsuit challenging PTO claims and continuations rules, the parties stressed that the validity of the rules could turn on whether they are characterized as substantive or procedural. After more than two hours of the February 8, 2008 argument, Judge James Cacheris of the Eastern District of Virginia took the case under advisement, saying “you’ll have to give me time to decide this; there’s a lot of paper.”

John M. Desmarais, representing SmithKline, acknowledged that the complex legal issues have multiplied in this case but argued that the most direct resolution would be a determination of the substantive/procedural issue. He explained that 35 U.S.C. §2(b) limit PTO rulemaking authority to matters governing agency proceedings, and that the case law has consistently held that the agency has no substantive rulemaking authority. The claims and continuations rules are substantive rules, outside of the PTO’s authority, because they change the law and affect existing rights, Desmarais contended. A finding to this effect, he added, means the rules are ultra vires and thus void, obviating the need to decide such questions as arbitrariness, deference, and unconstitutional takings. Desmarais also stressed that the rules are improperly retroactive, explaining that the rules impair trade secret rights held by applicants before their applications are published.

James Nealon, representing co-plaintiff Triantafyllos Tafas, reiterated many of the points made by Desmarais. On the authority to limit continuations practice, Nealon disputed the PTO’s reliance on the Federal Circuit’s ruling in In re Bogese, 303 F.3d 1362 (Fed. Cir. 2002). Bogese held that the equitable doctrine of prosecution laches, ratified earlier as a defense to patent infringement, was also a proper basis for the PTO to reject a patent application. Nealon stressed that Bogese addressed an egregious case of abuse by an applicant and cautioned that prosecution laches must be applied on a case-by-case to avoid undermining an applicant’s statutory rights. The mechanical process provided in the rules is exactly what Bogese warned against, according to Nealon. He also maintained that the “examination search document” required in the claims rules is invalid for vagueness because the requirement fails to clearly tell applicants what kind of search will comply.

Assistant U.S. Attorney Lauren Wetzler disputed the contention that the core issue is in the substantive/procedural dichotomy, arguing instead that the court need only examine whether Congress delegated to the PTO authority to issue these rules. The delegation clearly appears in Section 2(b)(2)(A), which states that the Director may issue rules which “govern the conduct of proceedings in the Office.” Wetzler pointed out that these rules fall clearly into that category and have nothing to do with the Sections 101, 102, 103, and 112, which prescribe the substantive requirements for patent rights. She also argued that Congress authorized the rules in Section 2(b)(2)(C) of Title 35, which authorizes rules that “facilitate and expedite the processing of patent applications.”

Acting PTO Solicitor Stephen Walsh also argued to the court that the regulations respond to changed conditions for the agency charged with issuing patents. He referred to the skyrocketing rate of patent filings and to the increasingly complex technology, both of which combine to overwhelm examiners. These rules are not an attempt to reduce inflow but are instead an attempt to obtain assistance for examiners from applicants, the parties best equipped to provide such help.

Legislation/PTO Appropriation
PTO Proposed Budget Calls for Higher Funding and Retained Fee Revenue

The PTO budget in the current Administration proposal to Congress calls for a $159 million increase and provides that the agency shall retain all of its projected fee revenue for its own spending. Under the February 4, 2008 proposal, the agency appropriation goes from last years $1,915,500,000 to $2,074,773,000; the appropriation declines as the money is expended finally reaching $0, leaving no monies to be diverted to other government programs.

The Administration proposal strikes language from last year’s appropriation bill which prescribed minimum numbers of patent and trademark examiners and which directed funding support for the National Intellectual Property Law Enforcement Coordination Council. The legislation also provides authority for the PTO to issue rules that allow reduced fees for electronic filing.

In a press release on the budget, the PTO said it plans to hire an additional 1,200 patent examiners and to continue its “telework” programs. The press release also states that the budget includes support for the possible operational changes at the agency that could result from patent reform legislation.

To read the PTO press release, click here.

Patents/International Agreements
LondonAgreement Will Enter into Force May 1

The European Patent Office announced that the London Agreement will enter into force on May 1, 2008, with the January 29, 2008 deposit of the instrument of ratification with the German Ministry. The agreement will make patenting in Europe cheaper by reducing post-grant translation costs.

Under the agreement, which was adopted on October 17, 2000, key EPC contracting states agreed to largely or entirely waive the requirement for translations of granted European patents in their national language. Countries, such as France, Germany or the United Kingdom, whose national language is also an official EPO language will dispense with translation requirements. This change is expected to benefit small and medium-sized enterprises in particular.

To read the London Agreement, click here.

Patents/Permanent Injunctions
Injunction Was Barred by Damages That Included Ongoing Compensation
Innogenetics, N.V. v. Abbott Laboratories, Fed. Cir., No. 2007-1145, 1/17/08.

A permanent injunction against an infringing defendant was an abuse of discretion where a jury’s damages award included an ongoing royalty payment, the Federal Circuit held January 17, 2008, explaining that a plaintiff under such circumstances “cannot be heard to complain that it will be irreparably harmed by future sales.”

Innogenetics, N.V. sued Abbott Laboratories for infringing its patent (5,846,704) on a method for genotyping the hepatitis C virus (HCV). The claimed method involved specifically hybridizing probes to a target sequence, and then detecting the formation of any complexes between the probes and nucleic acids. Abbott’s HCV genotyping involved indirect detection of such formations by observing the fluorescence emitted after a complex has been destroyed. The district court held that the claim language in question (“detecting a complex as formed”) was broad enough to cover both direct and indirect detection. A jury found infringement and awarded $7 million in damages, and the district court entered a permanent injunction against Abbott.

After resolving a number of evidentiary issues in favor of the patentee, the Federal Circuit vacated the permanent injunction against the defendant. Nothing in the jury instructions stated that a reasonable royalty would be limited to a period from the start of the infringement to the date of judgment, Judge Kimberly Moore pointed out. Instead, it was told that a reasonable royalty could include an ongoing royalty payment as well as an up-front payment, she explained, noting that award of $5.8 million as a market entry fee and $1.2 million as an ongoing royalty payment exactly tracked damages proposed by Innogenetics expert.

“The reasonable royalties awarded to Innogenetics include an upfront entry fee that contemplates or is based upon future sales by Abbott in a long term market. When a patentee requests and receives such compensation, it cannot be heard to complain that it will be irreparably harmed by future sales. Moreover, this factor greatly outweighs the other eBay factors in this case. As a result, the district court’s grant of an injunction prohibiting futures sales of Abbott’s genotyping assay kits was an abuse of discretion and must be vacated.”

In footnote 8, the Federal Circuit criticized the district court’s comment that it “would denigrate the value plaintiff’s patent rights” to allow the defendant to continue to infringe in exchange for the same fee it would have paid without a lawsuit. Judge Moore pointed out that injunctive relief ought not to act as a form of “extra damages” to compensate for litigation costs. She cited the statement in Amstar Corp. v. Envirotech Corp., 823 F.2d 1538 (Fed. Cir. 1987), that an injunction may not be punitive. “If litigation costs were a factor, injunctive relief would be warranted in every litigated patent case,” she wrote.

To read the court’s opinion, click here.

Patents/Inequitable Conduct
Covenant Not to Sue Does Not Stop Decision on Patent Unenforceability
Monsanto Company v. Bayer Bioscience N.V., Fed. Cir., No. 2007-1109, 1/25/08.

A covenant not to sue may remove declaratory judgment jurisdiction on infringement and invalidity issues, but it does not do remove jurisdiction to decide attorney fee requests or the related questions of inequitable conduct and unenforceability, the Federal Circuit held January 25, 2008.

Monsanto Company sued Bayer Bioscience for a declaratory judgment that four Bayer patents were not infringed, invalid, and unenforceable. Before the case went to the jury, Bayer filed a promise not to sue for infringement of three of the four patents, prompting a dismissal of the declaratory judgment claims as to those patents. The jury found the final patent not infringed and invalid; the district court subsequently held all four patents unenforceable for inequitable conduct. The court cited the patent applicant’s failure to disclose detailed notes about a poster included in a conference presentation where the notes conflicted with the disclosure about the presentation.

The Federal Circuit affirmed. With respect to the three patents not in suit, Judge Arthur Gajarsa pointed out that the dismissal of those claims for want of jurisdiction did not affect the district court’s independent jurisdiction to decide Monsanto’s attorneys’ fee request and the related issue of inequitable conduct. When a court finds inequitable conduct in connection with an attorneys’ fee determination, the unenforceability of a patent follows automatically. “As a result, jurisdiction to decide whether a patent was obtained through inequitable conduct necessarily includes the jurisdiction to declare a patent unenforceable as a result of that inequitable conduct,” Judge Gajarsa wrote. Explaining that the power extends to patents that are no longer in suit, the court cited Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007).

To read the court’s opinion in this case, click here.

Patents/Indefiniteness
Indefiniteness Turns on Ambiguities in Scope and Prior Art
Halliburton Energy Services, Inc. v. M-I LLC, Fed. Cir., No. 2007-1149, 1/25/08.

A claim term is indefinite where the patentee’s definitions or other possible constructions of the term fail to resolve ambiguities as to the term’s scope and its relation to the prior art, the Federal Circuit held January 25, 2008.

The court thus found invalid for indefiniteness Halliburton’s patent on oil field drilling fluids because the bounds of claims using the term “fragile gel” cannot be determined by a person of ordinary skill in the art, i.e., they are insolubly ambiguous. “Even if a claim term’s definition can be reduced to words, the claim is still indefinite if a person of ordinary skill in the art cannot translate the definition into meaningfully precise claim scope,” Chief Judge Paul Michel wrote.

Halliburton argued that indefiniteness should not depend on whether the scope of the claim might extend into the prior art, which is an issue for patent validity rather than claim construction or indefiniteness. The court was not persuaded. Judge Michel pointed out that differentiating the claimed invention from the prior art is an important consideration in the definiteness inquiry because a person of ordinary skill is likely to expect that a definition in the patent does not encompass the prior art.

The court also criticized Halliburton’s definition of the term as functional, i.e., the fluid is defined “by what it does rather than what it is.” The dangers of using only functional claim limitations to distinguish the claimed invention from the prior art were identified years ago by the Supreme Court, Judge Michel noted, citing Gen. Elec. Co. v. Wabash Appliance Corp., 304 U.S. 364 (1938), and United Carbon Co. v. Binney & Smith Co., 317 U.S. 228 (1942). The ambiguities of a functional limitation could be resolved by patent drafting that uses quantitative metrics rather than qualitative functional features, he explained.

To read the court’s opinion in this case, click here.

Design Patents/CAFC En Banc Review
AIPLA Brief Urges Elimination of Point of Novelty Infringement Test
Egyptian Goddess, Inc. v. Swisa, Inc., Fed. Cir., No. 2006-1562, brief filed 2/5/06.

AIPLA in a February 5, 2008, amicus brief urged the en banc Federal Circuit to eliminate the “point of novelty” infringement test for design patent infringement cases.

The brief was filed in a case involving claims to the design of a fingernail buffer in which the Federal Circuit panel required a patent owner to show not only that the defendant appropriated the claimed design’s point of novelty, but also that the asserted point of novelty was a “non-trivial” advance over the prior art. In response to requests for en banc review of this standard, the panel decision was vacated and the en banc court recited a set of questions for briefing which go to long recognized principles of design patent infringement. (Click here for information on the Federal Circuit order for en banc review.).

The AIPLA en banc brief argued that the proper test for infringement is the “ordinary observer” test to determine if the accused design is substantially similar to the claimed design. The Federal Circuit’s addition of a point of novelty test to the ordinary observer test, according to the brief, is both unworkable and undermines the presumption of validity created by the issuance of the patent. The brief also maintains that claim construction of design patents should not be reduced to a verbalization of the drawing of the claimed design that appears in the patent.

To read the AIPLA brief, click here.

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