IP Law Alert : Intellectual Property Lawyers & Attorneys : Gibbons Law Firm : Copyrights, Patent Infringement, Unfair Competition

Also, as of November 2011, the SIPO of the PRC and the United States Patent and Trademark Office (“USPTO”) extended the Patent Prosecution Highway Pilot Program between the two nations. Under the Patent Prosecution Highway, “an applicant receiving a written opinion or an international preliminary examination report from either the SIPO or the USPTO that at least one claim in a PCT application has novelty, inventive step, and industrial applicability may request that the other office fast track or expedite examination of corresponding claims in corresponding applications.”

Moreover, China amended the Patent Law of the PRC in 2009 to revamp the Chinese national patent system. The impact of the amendment to the Patent Law is two-fold. First, it enhances China’s position to meet the goals highlighted above. Second, it attempts to align Chinese patent practice with much of the rest of the world. For example, in the recent amendment, China has retained a utility model patent, which is available in many countries worldwide with the United States being one exception. The utility model patent provides protection for a product’s shape or structure or combination thereof with a 10-year term from its filing date. Utility model applications are favorable to establishing rapid patent rights because they are cost effective, there is no substantive application examination, and rights are normally granted within one year from the filing date. The 2009 amendment to the Patent Law also provides rules and regulations for exploiting these utility model patents both alone and in conjunction with a more traditional invention patent. While traditionally not exploited by foreign filers, the utility model is utilized by many Chinese entities. For example, a Chinese patent infringement case based on a utility model patent granted to Chint Group resulted in a 335 million yuan ($45 million) verdict in a court of first instance against rival Schneider Electric of France. Thus, a foreign corporation considering entry into China should take into account the advantages of a utility model patent, especially for important products.

In addition, many changes were made to the Patent Law to assuage the fears of foreign corporations in conducting technology focused business with China. For example, China is a first to file system, and a recent amendment changed its patent law to one of absolute novelty. Thus, often feared patent hijacking, whereby a third-party could theoretically seek patent protection in China for another’s invention first disclosed outside China is now illegal under Chinese law. Overall, the 2009 amendments to the Patent Law have augmented China’s position as a trade partner and provide a basis to encourage foreign investment in technology and innovation in China.

In sum, China is driving its intellectual property system to grow at an astounding rate. While this presents great opportunity, the relative newness, complexity, and evolving nature of Chinese intellectual property laws, rules and regulations may create certain risks. In the next 10 to 20 years the Chinese intellectual property system will likely undergo substantial development and change. Thus, when evaluating whether to invest its technology and intellectual property in the Chinese market, a foreign entity should not only consider the current state of China’s intellectual property laws, rules and regulations, but should also take into account likely future evolution of the Chinese intellectual property system. The challenge is to help clients become competitive and successful in doing business in China by developing a solid intellectual property strategy that assists navigation of the Chinese legal, regulatory and business environment.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department. William A. Hector, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

In the trademark realm, the 2d Circuit’s decision in Louboutin, regarding trademarking colors.

Locally, the New Jersey Trade Secrets Act is expected to be signed into law, which will codify the State’s common law practice regarding trade secrets. Also, implementation of the Southern District of New York’s 18-month pilot program on conducting complex litigations will be underway.

On the national level, the launch of the Intellectual Property Exchange International (“IPXI”), an exchange for commoditizing patents and other IP assets is expected in June.

And finally, just as on-going developments with and implementation of the Smith-Leahy America Invents Act progresses, Congress will continue to address the Stop Online Piracy Act.

Gibbons, with offices in Newark, Trenton, New York City, Wilmington and Philadelphia will continue to remain at the forefront of these, and all other IP law developments.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Intellectual Property Department, co-authored this post.

Although the preliminary injunction decision was vacated, the Federal Circuit permitted the district court to enter a temporary restraining order until a consolidated preliminary injunction hearing and bench trial on the merits can be held. Thus, Mylan’s success at the Federal Circuit may only be a pyrrhic victory as it may be temporarily restrained until the merits of the patent case are resolved at trial.

Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The issue before the district court hinged on standing to sue under 35 U.S.C. § 271(e)(2)(A), i.e., whether a cause of action was made out with respect to Defendants’ proposed uses relative to the patents’ claims. The relevant language of 35 U.S.C. § 271(e)(2)(A) is:

2) It shall be an act of infringement to submit -

(A) an application under section 505(j) of the Federal Food, Drug, and Cosmetic Act or described in section 505(b)(2) of such Act for a drug claimed in a patent or the use of which is claimed in a patent.

Before the Delaware District Court, Defendants moved to dismiss for lack of subject matter jurisdiction, arguing that the Hatch-Waxman Act created an infringement claim only if the generic manufacturer sought approval for the specific methods of treatment claimed by the patent. According to Defendants, Plaintiffs case under 35 U.S.C. § 271(e)(2)(A) lacked merit because of the generics’ non-infringing uses. The district court agreed with Defendants and Plaintiffs appealed.

In oral arguments before the Federal Circuit in November, Plaintiffs argued that the mere filing of an ANDA for rosuvastatin calcium tablets was an act of infringement under the Hatch Waxman Act even though the ANDA was for non-infringing uses of the drug. Plaintiffs also urged that there was enough evidence in the generic manufacturer’s proposed labeling and elsewhere to support the likelihood of induced infringement.

Chief Justice Rader and Justice Moore pointed out several times during oral arguments that in order for 35 U.S.C. § 271(e)(2)(A) to apply, it requires that the ANDA seek approval for the use of a drug which is claimed in a patent. In this case, the ANDA does not seek approval for a patented use. The Justices cited the Warner-Lambert Co. v. Apotex Corp. decision, which held that “where a product has substantial non-infringing uses, intent to induce infringement cannot be inferred even when the [alleged inducer] has actual knowledge that some users of its product may be infringing the patent.” Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348, 1365 (Fed. Cir. 2003). “[I]nducement requires that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.” DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006) (en banc in relevant part). Plaintiffs argued that Warner Lambert did not apply to the facts at hand.

Chief Justice Rader also indicated to Defendants’ counsel that due to the limited uses in the ANDA, there was a substantial likelihood the generics would induce infringement. He raised the question as to whether the generic companies could win an inducement to infringement suit.

A decision for AstraZeneca would strengthen method of treatment patents for prescription drugs and expand the reach of Hatch-Waxman. Gibbons P.C. will stay tuned to this development.

Charles A. Gaglia, Jr. is Counsel to the Gibbons Intellectual Property Department.

The District of Delaware already is a well-respected and busy patent lawsuit venue, with seasoned jurists and a modern, accessible courthouse in a metropolitan area. Gibbons P.C., with offices in Delaware, New Jersey, New York and Pennsylvania will continue to stay at the forefront of this and other AIA-related developments, and remains available to counsel on all aspects of intellectual property law.

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department.

With the new AIA provision and the GAO commission in place, it is not clear what the future holds for NPEs. Further, the International Patent Exchange International (“IPXI”), set to debut in January 2012, plans to offer a commodities-like market for licensing patents that may reduce NPE activity, or at least provide another alternative way to monetize patent assets. Only time will tell how these measures will impact NPE activity.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Catherine M. Clayton, a Director in the Gibbons Intellectual Property Department, co-authored this post.

The Judicial Conference Committee on Court Administration and Case Management is responsible for running the pilot program. The Chief Judge of each participating court with the Administrative Office of the U.S. Courts and the Director of the Federal Judicial Center will periodically deliver status reports to Congress on whether the participating court has developed expertise and improved efficiencies in patent cases and whether the court has seen more or less patent cases since participating in the Pilot Program.

The fourteen courts that are participating in the program are:

Eastern District of New York
Southern District of New York
Western District of Pennsylvani
District of New Jersey
District of Maryland
Northern District of Illinois
Southern District of Florida
District of Nevada
Eastern District of Texas
Northern District of Texas
Western District of Tennessee
Central District of California
Northern District of California
Southern District of California

Certain courts have selected their “patent” judges and provided details on the program. Click on the links below for more information

The Northern District of Illinois
The District of New Jersey
The Southern District of New York
Northern District of Texas

While it is obviously too early to determine whether the Program is meeting its goals, many feel this initiative is a positive step toward ensuring patent litigants receive a fair and effective resolution to legitimate patent disputes.

Erich M. Falke is Counsel to the Gibbons Intellectual Property Department.  Frank A. Bruno, a Director in the Gibbons Intellectual Property Department, co-authored this post.

To obtain an exclusion order, however, an ITC complainant must meet the “domestic industry” requirement. More particularly, the complainant must establish an industry in the United States relating to the articles protected by the patent by satisfying two requirements. 19 U.S.C § 337 (a)(2). First, a technical prong, the Complainant must prove that it or its licensee is practicing at least one claim of the asserted patent. Second, an economic prong, the Complainant must demonstrate, with respect to that patented product, that one or more of the following exists in the U.S.:

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

19 U.S.C § 337 (a)(3).

In Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same, the complainant PPC sought to enforce U.S. Patent No. D440,539 (the “‘539 patent”) which describes an ornamental design for a coaxial cable connector, and exclude multiple foreign manufacturers from importing infringing connectors. Notably, PPC did not manufacture the connectors, own a plant or equipment in the United States, or employ workers in the United States. In an attempt to establish the domestic industry requirement, PPC instead relied on legal expenses it incurred in litigation relating to its enforcement of the ‘539 patent. Specifically, PPC argued that its enforcement was substantial resulting in exploitation by the licensing of its ‘539 patent. Thus, PPC argued it met the domestic industry requirement and deserved the protection of an ITC exclusion order.

The administrative law judge (“ALJ”) at the ITC who initially considered PPC’s argument agreed and issued an Initial Determination of infringement of the ‘539 patent. On review, the Commission considered several factors towards establishing whether the expense activities on behalf of the subject patent were substantial and related to licensing, including: establishing a licensing program; serving cease and desist letters; making a concerted effort to license the patent; filing and conducting a patent infringement litigation; conducting settlement and licensing negotiations before suit was filed or while suit was ongoing; and negotiating, drafting and executing a license.

In its Opinion, the Commission rejected PPC’s argument that it met the domestic industry requirement by incurring litigation expenses relating to asserting and defending the validity of the ‘539 patent. On remand, the ALJ found that while PPC had incurred legal expenses related to the negotiation and drafting of a licensing agreement, and therefore had made at least some investment with respect to licensing of the ’539 design patent, it had failed to establish that litigation expenses relating to that patent were related to a substantial investment in licensing. Specifically, the ALJ found that PPC’s sole license resulted from numerous litigations that had multiple objectives, not all of which were based on the ’539 patent at issue. Ultimately, the ALJ concluded that it would be inappropriate to treat most of the incurred legal fees as an investment in licensing of the ’539 patent.

PPC maintained that these expenses were a “substantial investment in exploitation” in licensing the patent. Earlier this week, the Federal Circuit considered PPC’s appeal of the ITC’s decision and affirmed the finding that, although § 337 does not specify whether litigation expenses incurred in enforcing a patent may be used as evidence to establish domestic industry, litigation expenses alone do not constitute a domestic industry.

Although the Federal Circuit’s ruling firmly establishes that litigation expenses alone are insufficient to meet the domestic industry requirement, it did note that it was not ruling that a single license can never satisfy the domestic industry requirement based on a substantial investment in licensing. The Court posited that a complainant’s litigation expenses may well satisfy § 337’s domestic industry requirement if it can prove the expense activities were substantial, on behalf of the subject patent and related to licensing.

Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The motivation to engage in scorched earth e-discovery is often directed towards inflicting as much financial pain as possible on the other party, with masses of production never used and probably never reviewed by the requestor. This can happen particularly when there is an inherent imbalance in the amount of discovery required from the respective parties. For example, in Hatch-Waxman pharmaceutical patent litigations, development of a drug product may have taken years, and involved hundreds of people scattered over several continents. The discovery, (and especially e-discovery), that is arguably relevant can take years to collect and produce, with costs easily running well into millions of dollars. On the other hand, the challenging generic may only have a few redwelds of relevant information to produce.

The same dynamic holds true for patent troll cases. Trolls, non-practicing entities that hold and assert patents against businesses, carry a limited discovery burden. However, they can exert significant financial stress on alleged infringing companies because of extensive communications exchanged through years of product development and extensive manufacturing, marketing and financial documentation and communications.

Will district courts adopt the Model E-Discovery Order? Likely they will. District courts judges welcome any guidance offered, particularly in the area of e-discovery, and especially anything that can assist in the management of difficult and complex patent cases. The Model Order also affords the courts flexibility; it can always be modified by individual judges upon a showing of good cause.

Another question that is probably more difficult to answer is whether the patent Model Order will be adopted in other types of large, complex civil litigations. That answer may be: it depends. The focus of the Model is on e-mail and that type of document, in and of itself, is generally not that important to patent litigation claims such as infringement or invalidity. However, in non-patent cases, where claims often turn on a “smoking gun” e-mails, the madness may continue.

Sheila F. McShane is a Director in the Gibbons Intellectual Property Department. Mark S. Sidoti, Chair of the Gibbons E-Discovery Task Force, co-authored this post.

During the pendency of the district court proceedings, HemCon requested reexamination of the ’245 Patent with the United States Patent and Trademark Office (“PTO”). The examiner, in rejecting all of the claims, initially adopted a different claim construction than that of the district court. The examiner also determined “biocompatible” meant “low variability, high purity, and little or no detectable reactivity.” Further, the examiner noted that the district court’s construction was inconsistent with the numerous dependent claims that required a specific elution test score of zero, one or two.

Marine Polymer argued that the district court’s interpretation should be adopted and “biocompatible” should be construed to mean “no detectable biological reactivity.” Marine Polymer then cancelled the six original dependent claims that had specifically required an elution test score of 1 or 2. The language of the remaining claims, including all of the claims HemCon had been found to infringe by the district court, was unchanged.

Intervening rights do not apply where the accused product “infringes a valid claim of the reissued patent which was in the original patent.” 35 U.S.C. § 252. Therefore, intervening rights are available only if the original claims have been substantively changed, and in determining whether substantive changes have been made, the court must discern whether the scope of the claims has changed, not merely whether different words are used.

The Federal Circuit found that in narrowing the definition of “biocompatible” by argument, all of the remaining claims of the ’245 Patent had been substantively narrowed thereby substantially changing the scope of the claims. The Federal Circuit therefore determined that absolute intervening rights under the statute applied in this case. The specific products made before the date of reissue, which infringed the new reissue claims, were absolutely free of the reissued patent and may be used or sold after the date of the reissue without regard to the patent.

Under the Patent Statute, there are two types of intervening rights: (1) absolute intervening rights, which bar claims for infringement based on specific products that were manufactured before the reissue or reexamination; and (2) equitable intervening rights, which bar claims for infringement for new products and newly manufactured versions of prior existing products made after the reissue or reexamination. See 35 U.S.C. §§ 252, 307.

The Federal Circuit remanded to the District Court to determine whether the fact based doctrine of equitable intervening rights applies. The doctrine of equitable intervening rights allows the court to permit the continued manufacture, use, or sale of additional products covered by the reissued or reexamined patent when the accused infringer made, purchased, or used identical products before the reissue or reexamination date. It also protects a newly created product that was not of a type produced before the reexamination if the accused infringer made substantial preparations for manufacture of the product before the reissue or reexamination.

Charles A. Gaglia, Jr. is Counsel to the Gibbons Intellectual Property Department. Erich M. Falke, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Generally, the cases dismissing direct infringement claims have done so because the complaint failed to allege any details of specific infringing products. Requiring a plausibility standard, these courts found complaints merely alleging the defendant was ‘selling goods that infringe Plaintiff’s ... patent’ or ‘upon information and belief Defendant was infringing’ was insufficient under Twombly/Iqbal. While it is probably not necessary to identify each infringing device and the aspects thereof, a Plaintiff must cite examples of infringing devices and allege some information about the circumstances giving rise in the complaint. Otherwise, Form 18 provides nothing more than a short and plain statement and offers little to show that the pleader is plausibly entitled to relief as necessitated by Twombly and Iqbal. See e.g. Li Ming Tseng v. Marukai Corp. USA et al., Case No. 09-cv-00968 (C.D. Cal. Nov. 13, 2009); In re Papst Licensing Litigation, 602 F. Supp. 2d 17 (D.D.C. 2009); Realtime Data, LLC v. Stanley, Case No. 09-cv-326 (E.D.Tex. June 10, 2010); Elan Microelectronics Corp. v. Apple, Inc., Case No. 09-cv-01531 (N.D. Cal. Sept. 14, 2009); Bender v. LG Electronics U.S.A., Inc., 09-cv-02114 (N.D. Cal. Mar. 11, 2010); and Fifth Market, Inc. v. CME Group, Inc., Case No. 08-cv-520 (D.Del. May 14, 2009).

Other district courts have streamlined discovery using Local Patent Rules requiring early, detailed, and binding disclosures of infringement contentions, followed by corresponding non-infringement and invalidity contentions in short order. These Local Patent Rules narrow cases even more effectively than heightened pleading requirements. Thus, districts adopting Local Patent Rules, such as Massachusetts, New Jersey, WD of Pennsylvania, ED of North Carolina, Northern District of Georgia, WD of Washington, Minnesota, SD of California, ND of Illinois, ED of Texas, SD of Texas, and ND of California are less likely to dismiss a claim properly plead under Form 18 and McZeal and more likely to find it meets the Twombly/Iqbal standards.

In contrast to direct infringement, District Courts have almost uniformly applied a higher standard for pleading claims of indirect infringement. Furthermore, there is no form for indirect infringement analogous to Form 18. Since Iqbal, Courts have required specific factual allegations showing knowledge and intent to induce or contribute to infringement by another. Some cases appear to suggest that to satisfy Twombly/Iqbal, a claim of indirect infringement must include: facts showing how the alleged infringer either induced or contributed to another party’s direct infringement; an allegation that the alleged infringer knew of the patent at the time of the infringing activities; for induced infringement, an allegation that the alleged infringer specifically intended to induce infringement; for contributory infringement, an allegation that the alleged infringer knew that the combination for which his component was especially designed was both patented and infringing. See e.g. Desenberg v. Google Inc., Case No. 08-cv-10121 (S.D.N.Y. July 30, 2009); Friday Group v. Ticketmaster, Case No. 08-cv-01203 (E.D. Mo. Dec. 12, 2008). See also Elan Microelectronics Corp. v. Apple, Inc., Case No. 09-cv-01531 (N.D. Cal. Sept. 14, 2009); Sharafabadi v. Univ. of Idaho, Case No. 09-cv-1043 (W.D. Wash. Nov. 27, 2009); Eolas Techs., Inc. v. Adobe Sys., Inc., 09-cv-446 (E.D.Tex. May 6, 2010); Halton Co. v. Streivor, Inc., 10-cv-00655 (N.D. Cal. May 21, 2010); Taurus IP, LLC v. Ford Motor Co., 539 F. Supp. 2d 1122 (W.D. Wis. 2008) and both Medsquire and Nielsen.

Vincent E. McGeary is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Some predict that application and claim quality will decrease with the “race” to file applications. However, the quality of European patents under a similar first-to-file system has shown that this will unlikely be the case. Moreover, 35 U.S.C. §102, as revised, provides a unique protection for inventors that publish or publicly disclose their invention less than one year before filing their patent application. Under this new standard, third party patent application filings or publications that occur after the inventor’s publication or public disclosure will not be invalidating prior art. A company or inventor that makes the decision to pursue a patent in the United States only and in no other country, and who wants to obtain the earliest possible priority date, may consider publishing their invention or an embodiment of their invention on their website first. This will provide the practitioner and the client time to prepare a thorough patent application to submit to the Patent Office. One point of caution, though, is that this provision is unique to U.S. patent law and will cause the applicant to forego any opportunity to file for patent protection on the same invention in foreign countries.

One element of uncertainty that will be created by this Act, at least for the next five to ten years, is the definition of invalidating prior art. Prior to this reform, decades of case law had been established to define what was necessary for prior art to be invalidating because it was “known,” “used,” “patented,” “described in a printed publication,” “in public use” or “on sale.” However, 35 U.S.C. §102, as amended, has introduced a new standard of “otherwise available to the public.” The statute does not define this phrase and it will take time for the Federal Circuit to sort out. While this Act has created some certainty as to what may qualify as invalidating prior art with respect to the invention date, it has introduced a new level of uncertainty as to what types or quality of publications or events may qualify as invalidating prior art.

While first-to-file reform may be one of the most significant changes in U.S. patent law provided by the America Invents Act, other provisions relating to patent validity, prosecution and litigation will also have significant effects, and will be discussed in later Gibbons P.C. postings.

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department.

• Post-Grant Review Proceedings.

(i) Replaces “optional interpartes reexamination” with “interpartes review” to be conducted by Patent Trial and Appeal Board within 1 year. The threshold showing is “reasonable likelihood” that the petitioner will prevail based on published prior art. The estoppel standard is “raised or reasonably could have raised” before the USPTO and the courts. Appeals are directed to the Federal Circuit.

(ii) Establishes a “post-grant review” before the Patent Trial and Appeal Board to review validity of issued patents within 9 months of grant on any patentability issue. The threshold showing is "more likely than not" that at least 1 claim is unpatentable. The estoppel standard is “raised or reasonably could have raised” before the USPTO and the courts.

(iii) Establishes an 8-year transitional post-grant review proceeding for review of the validity of business method patents for financial products or services by defendants accused of infringement.

(iv) Allows a pre-issuance submissions procedure for published prior art but not public, use, sale or improper inventorship, which current 35 U.S.C. 122(c) continues to provide for. Submission must be made before the earlier of (a) allowance, or (b) later of 6 months after the date of application publication or the date of first rejection.

• USPTO's Fee Setting Authority and Funding. Provides the Director with fee setting authority to cover operating and administrative costs. This authority is subject to a 7 year sunset clause. Fees in excess of appropriated amounts still require authorization under the Appropriations Act.

Practitioners should take note of the effective dates for the key provisions as they differ. The “first-inventor-to-file” provision takes effect 18 months from the passage of the Act for patents and applications with a claim having an effective date on or after the bill is passed. Post-grant review proceedings such as inter partes review, post-grant review, certain business method review, and pre-issuance submissions, become effective 1 year after enactment and applies to patents issued before, on, or after that effective date. The USPTO's fee setting authority takes effect immediately upon passage of the Act.

Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. Lisa H. Wang, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Regarding Microsoft’s alternative argument that a preponderance standard should be applied at least to evidence before the fact finder that was not before the Patent Office, the Court found that its pre-codification cases never “adopted that kind of fluctuating standard of proof . . . .” Slip Op. at 15. Plus, the Court found there was nothing in the text of s 282 to suggest that Congress meant to enact a sliding scale for the standard of proof. Slip Op. at 16.

In his concurrence, Justice Breyer called for special jury verdict forms that separate legal conclusions from factual findings. He called on courts to keep the “standard within its proper legal bounds by separating factual and legal aspects of an invalidity claim,” Breyer concurrence Slip Op. at 1. Separating these aspects might keep non-novel, obvious subject matter from improperly retaining legal protection.

This decision adds certainty to patent enforcement. Patentees’ right to exclude is secure in all but those patents which are susceptible to invalidity challenges meeting the clear and convincing standard, and accused infringers will have to continue to formulate invalidity challenges which meet that standard.

Richard J. Katz is Counsel to the Gibbons Intellectual Property Department.

Following a bench trial, the district court determined that claims 1-4 of the ’551 patent were invalid due to obviousness in light of the ’382 patent and U.S. Patent No. 4,225,410. In addition, and of relevance to the present decision, the district court held the ’551 Patent as unenforceable for inequitable conduct because of Therasense’s failure to disclose its representations to the EPO regarding the European counterpart to the ’382 patent.

Therasense appealed the decision of the district court to the Federal Circuit. In a 2010 decision rendered by a three-judge panel, the judgment of inequitable conduct and unenforceability was upheld (with a dissenting opinion by Judge Linn). Subsequently, the Court granted a petition made by Therasense for an en banc rehearing.

In the en banc decision, the Court vacated the district court’s judgment of inequitable conduct , and remanded for reconsideration in accordance with the new inequitable conduct standards. Five judges (Newman, Lourie, Linn, Moore and Reyna) fully joined a majority opinion authored by Judge Rader. Judge O’Malley authored a separate opinion, concurring in part and dissenting in part with the majority opinion. Judge Bryson authored a dissenting opinion, joined by three judges (Gajarsa, Dyk and Prost).

In the majority opinion, Judge Rader traces the origins of the inequitable conduct doctrine to a trio of early 20th century Supreme Court decisions (Keystone Driller Co., Hazel-Atlas Glass Co. and Precision Instrument Manufacturing Co.) that applied the doctrine of unclean hands in dismissing patent cases in which the patentee engaged in “particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence.” Since this time, he argues that the standards for finding inequitable conduct have relaxed to encourage patentees’ full disclosure of prior art to the PTO, and that available remedies for inequitable conduct have become an “atomic bomb” encompassing unenforceability of the entire patent at issue and other related patents, initiation of other causes of action (for example, including antitrust and unfair competition claims), and assertions of “exceptional” case status obtaining enhanced damages. The majority opinion summarizes these effects as follows:

While honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.

In tightening the standards, the majority opinion reminds that the intent standard has for some time required the accused infringer to “prove by clear and convincing evidence that the [patentee] knew of [an omitted reference], knew that it was material, and made a deliberate decision to withhold it.” Because the intent and materiality present “separate requirements,” the opinion withdraws the so-called “sliding scale” provision “where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa.” While intent may be inferred from indirect and circumstantial evidence, it may not be inferred “solely from materiality,” and in order to meet a clear and convincing standard, must be the “single most reasonable inference able to be drawn from the evidence” and “sufficient to require a finding of deceitful intent in the light of all the circumstances.”

The majority asserts that elements of a higher intent standard were previously applied from time to time without reducing the number of inequitable conduct actions brought before the courts, and on this basis holds that an adjustment to the current materiality standard is needed as well. The majority opinion references Corona Cord as “[supporting] a [heightened] but-for materiality standard,” and holds that this standard is to be applied as a general matter, bur “recognizes an exception in cases of affirmative egregious conduct.” While the opinion provides examples of such conduct (for example, “such as the filing of an unmistakenly false affidavit”), it provides no particular test. The opinion expressly declines to adopt the definition of materiality adopted by the PTO in 37 C.F.R. § 1.56:

[Information] is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the Office, or

(ii) Asserting an argument of patentability

Judge O’Malley’s concurs with the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, and with the majority’s holdings that a specific finding of intent to deceive the PTO must be made independently from a finding as to materiality and without application of the “sliding scale,” and that intent may be found from inferential evidence only when “the single most reasonable inference able to be drawn from the evidence.” He dissents from the remainder of the majority opinion (and from the dissenting opinion) by finding that each “[strains] too hard to impose hard and fast rules.” His opinion asserts that , because inequitable conduct is “based in equity,” courts should remain flexible to apply discretion based on “the necessities of the particular case.”

Like Judge O’Malley, Judge Bryson in his dissenting opinion agrees with the majority that the intent standard requires a showing of specific intent to deceive the PTO, and that the intent and materiality standards each require showings by clear and convincing evidence without application of the “sliding scale” provision. The dissenting opinion however disagrees with the majority’s but-for standard for materiality, arguing instead for the continued application of the PTO standard expressed in 37 C.F.R. § 1.56:

With respect to the issue of materiality, the majority has adopted a test that has no support in this court’s cases and is inconsistent with a long line of precedents dating back to the early years of this court. The effect of the majority’s new test, moreover, does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether. … I would adhere to the materiality standard set forth in the PTO’s disclosure rule for two basic reasons: First, the PTO is in the best position to know what information examiners need to conduct effective and efficient examinations. … Second, the higher standard of materiality adopted by the majority will not provide appropriate incentives for patent applicants to comply with the disclosure obligations the PTO places upon them.

Judge Bryson also dissents from the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, finding that the present district court holding is not subject to reversible error.

Time will tell whether the Federal Circuit’s decision in Therasense will lead to reductions in the incidence of unwarranted inequitable conduct claims made by accused infringers during patent litigation, and in the volume of marginally relevant prior art disclosures made by patentees during patent prosecution. Because of the advantages provided until now in basing inequitable conduct claims on highly material omissions in order to obtain a sliding scale reduction in the level of proof required for the intent element, many of the claims made to date may in fact satisfy the new materiality standard. This may sufficiently embolden accused infringers to continue to raise such claims at nearly the same rate even if the heightened intent standard causes such claims to have a lower success rate. Similarly, patentees may find that it is easier to continue present liberal prior art disclosure practices during patent prosecution than to be more selective about prior art disclosures as may be allowed in accordance with the heightened standards. In this decision, the differing opinions among the judges on the en banc panel and the relatively bright-line rules adopted by the majority in contrast to other applications of the unclean hands doctrine may invite the Supreme Court’s favorable response to a further petition for certiorari.

Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department.

In the en banc decision, seven judges joined in a majority opinion authored by Judge Lourie, while five judges joined in a dissenting-in part-opinion filed by Judge Dyk. The Court unanimously overruled a two-step framework defined in KSM Fastening Sys., Inc. v. H. A. Jones Co. for initiating contempt proceedings based on a product redesign as “unworkable.”

The two-step KSM framework requires a district court to first decide whether a contempt hearing is an “appropriate setting” by comparing the redesigned product with the original product to determine whether there is “more than a colorable difference” between the two products, such that “substantial open issues with respect to infringement” exist. If this threshold is unmet, the district court may then proceed to determine whether the redesigned product continues to infringe the claims.

The Court found that the two-step inquiry of KSM “confuses the merits of contempt with the propriety of initiating contempt proceedings.” In its place, the Court holds that the district court may be allowed broad discretion to determined the propriety of a contempt proceeding based simply on “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”

EchoStar argued that a contempt proceeding is improper in any case where a defendant, in redesigning an infringing product, has engaged in “diligent, good faith efforts to comply with the injunction” and has an “objectively reasonable basis” to believe that its actions are in compliance with the injunction. The Court disagreed with this argument, citing Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc. for the proposition that “a lack of intent to violate an injunction alone cannot save an infringer from a finding of contempt.”

For a finding of contempt, the Court cited Abbott Labs. v. TorPharm, Inc. as requiring proof both that the newly accused product is “not more than colorably different from the product found to infringe,” and that the newly accused product “actually infringes.” The Court clarified that the colorable difference portion of the test is not determined simply by judging whether the redesigned product continues to infringe, but rather by focusing on differences between the infringing features of the original product and the modified features of the newly accused product. Citing a decision by the U.S. Supreme Court in Cal. Artificial Stone Paving Co. v. Molitor, the Court stated that “the primary question on contempt should be whether the newly accused product is so different from the product previously found to infringe that it raises ‘a fair ground of doubt as to the wrongfulness of the defendant’s conduct.’”

The Court was divided as to whether provisions in an injunction order can be directly challenged as vague and overbroad in a contempt proceeding. Although the majority agreed that “in certain circumstances vagueness can operate as a defense to contempt,” it stated with reference to the Supreme Court’s opinion in McComb v. Jacksonville Paper Co. that the contempt defendant who has an earlier opportunity to present a vagueness claim on appeal or clarify or modify an injunction by motion “cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the [defendant’s] conduct.” In the dissenting-in part-opinion, Judge Dyk disagreed with the majority’s interpretation of McComb, and suggested that the pertinent question is not whether or not the injunction is invalid for vagueness, but rather “whether contempt is appropriate where the injunction does not clearly prohibit the challenged conduct.”

While the Court’s ruling simplifies and arguably lowers the threshold for initiating contempt, it may raise the threshold for finding a colorable difference by narrowing the inquiry to only the product features that were originally relied upon for establishing infringement. As a result, patent owners may prefer in some cases to file a new infringement lawsuit against a redesigned product rather than entering into a contempt proceeding. The present decision suggests that it may be in the interests one or more of the parties to challenge ambiguities in injunctive order at the time it is granted rather than later on within the context of a contempt proceeding.

Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department.

Centillion Data Systems, Inc. accused Quest Communications International and other Quest companies of infringing U.S. Patent No. 5,287,270. The claims-in-suit are directed to a system for presenting cost-of-service information to a customer, and recite server-side elements (a storage means, a data processing means, a transferring means) and a client-side element (a personal computer data processing means). Quest’s customer phone call transaction records are stored on the server-side storage means, and the data processing means generates a summary report as specified by the customer. The transferring means transfers the transaction records and summary reports to a customer, where the personal computer data processing means perform additional processing on the transaction records.

Centillion held that the customer “puts the system as a whole into service, i.e., controls the system and obtains benefit from it.” Centillion at 10. It did not matter to the court that the back-end processing was “physically possessed” by Quest and not the customer. What did matter to the court was that “but for the customer’s actions, the entire system would never have been put into service.” Id. at 11. The court reasoned that “[b]y causing the system as a whole to perform [server-side] processing and obtaining the benefit of the result, the customer has ‘used’ the system under [35 U.S.C.] § 271(a).” Id. at 10. The Federal Circuit held that the district court erred as a matter of law when it concluded that no single party could be liable for use of the patented invention. Id. at 11.

Prior to this decision, a patentee would likely have thought it necessary to name both a web-based enterprise and the enterprise’s third-party server farm host as joint infringers. By extending Centillion, the patentee could now assert that the web-based enterprise alone controls the claimed system and obtains benefit from the system. Naturally, patent claims are better drafted to capture a single class of infringers, and patent applicants would be wise to keep this in mind as they review the claims of their patent applications drafted during prosecution of the patent.

Richard J. Katz is Counsel to the Gibbons Intellectual Property Department.

The court went on to hold that, as a matter of law, the plaintiff patentee’s lost profits damages for any alleged infringement of its patent should be limited to the time period it “…proves it actually practiced the invention and earned or lost income from these operations.” The further held that the precise date of transfer of operations was a question of fact.

The outcome in this case is illustrative of the pitfalls which await patentees, and intellectual property owners in general, who do not consider the implications corporate reorganization may have on their ability to protect and enforce intellectual property assets.

Owen J. McKeon is a Director in the Gibbons Intellectual Property Department.

FRAUD

 One strategy that has met with mixed results has been to attack the sufficiency of a plaintiff’s complaint on the basis that false marking is a fraud-based claim subject to heightened pleading standards mandated under Fed. R. Civ. P. 9(b). This defense was successfully employed by the defendants in a recent case before the United States District Court for the Southern District of Florida. In Herengracht Group, LLC v. Intelligent Products, Inc., the plaintiff alleged that Intelligent Products, Inc. had falsely marked a disposable pet waste disposal bag commercially known as the “Mutt Mitt.” Intelligent Products sought dismissal of the complaint pursuant to Rules 9(b) and 12(b)(6). The Herengracht Group attempted to establish the requisite “intent to deceive” with conclusory assertions that the defendants were “sophisticated companies, experienced with leveraging patents and other intellectual property” and had been doing so for two decades. The court found plaintiff’s assertions were inadequate and granted Intelligent Products’ motion to dismiss. Citing Graco, the court noted that “These allegations alone do not supply enough factual matter to suggest an intent to deceive, and amount to nothing more than ‘mere labels and conclusions’ prohibited by Twombly.”

AFFIRMATIVE DEFENSES

In Oakley, Inc. v. Bugaboos Eyewear Corp., Bugaboos Eyewear asserted false marking counterclaims against Oakley, Inc. Oakley filed a motion to amend its answer to the counterclaims, asserting thirteen additional affirmative defenses. Bugaboos Eyewear objected to eleven of the thirteen affirmative defenses. First, Bugaboos argued that the defenses of laches and unclean hands could not be asserted against a party standing in the shoes of the federal government. The court disagreed, citing a Ninth Circuit case involving the Clean Air Act finding that the defense of laches “must be invoked sparingly in suits brought to vindicate the public interest.” The court found that laches and unclean hands were proper affirmative defenses to a false marking claim.

The court denied Oakley’s motion to add the additional affirmative defenses, finding that they did nothing more than reframe elements that the counterclaimants were required to prove, and did not actually constitute affirmative defenses. Among the affirmative defenses Oakley sought to add was one based upon advice of counsel. The court noted that in Pequignot, the defendant used advice of counsel in order to rebut the presumption that it had marked its products with intent to deceive the public. The Oakley court concluded that advice of counsel was not an affirmative defense, but instead formed part of the “intent to deceive” analysis. In a recent opinion, the Oakley court dismissed Bugaboos’ false marking counterclaim in its entirety, finding that the warranty card where the allegedly false marking appeared did not constitute advertising as defined by the statute. As these two recent cases illustrate, defendants have been forced to inject some creativity into their attempts to short circuit what may become costly and protracted litigation.

As long as false marking suits continue to be filed at a rapid clip, defendants will be forced to explore new strategies to defend against them.

Frank A. Bruno, a Director in the Gibbons Intellectual Property Department, assisted in the preparation of this post.

Of these factors, the court focused on the convenience of the parties and witnesses, the sources of proof, and local interests. The Federal Circuit disagreed with the Eastern District’s conclusion that the convenience of the parties was a neutral factor. Rather, the Federal Circuit found that this factor weighed in favor of the defendants because a substantial number of party witnesses, in addition to the inventor and prosecuting attorneys, resided within the Northern District of California, and transferring the case there would substantially reduce potential costs associated with airfare, meals, lodging, and work productivity.

The Federal Circuit next noted that the ability to subpoena witnesses also favored transfer to the Northern District of California. The Eastern District of Texas would not have the ability to compel the appearance of witnesses from any of the parties to the case other than Texas resident Dell. Having the case before the Northern District, on the other hand, would be invaluable in the event that process would be required to hale relevant witnesses into court.

The source of proof issue again favored the defendants. Many defendants noted that evidence related to such pivotal issues as research, design, development, testing and marketing of accused products would likely be located within the state of California. In comparison, not a single party to the litigation identified any likely source of proof that would be found within the Eastern District of Texas.

Last, the Federal Circuit found that the local interest factor favored transfer. The Federal Circuit noted that although nationwide sale of an accused product does not necessarily give rise to a substantial interest in any single venue, significant connections between a particular venue and the events that give rise to a suit could favor a specific venue. The court noted that in this case, the company asserting the harm and many of the companies alleged to have caused that harm were residents of California, as were the inventor and patent prosecuting attorneys.

In light of its analysis, the Federal Circuit reversed the ruling of the Eastern District of Texas, and ordered that the case be transferred to the Northern District of California. Many plaintiffs are drawn to the Eastern District of Texas due to its reputation as a “plaintiff-friendly” forum. Regardless of whether this reputation is deserved, any plaintiff considering filing suit within that district would be well advised to review In Re Acer America Corp., and to ensure that it has substantial and meaningful contacts within the district, sufficient to defeat a motion to transfer.

Because these amendments are new and their bounds untested, counsel and clients should remain careful when communicating with testifying experts in connection with a litigation.

Under 21 U.S.C. § 355(j)(2)(A)(viii) a generic seeking approval from the FDA for a method of use not claimed in a ‘method of use patent’ for a listed drug must submit a statement declaring the patent does not claim such a use and must remove any mention of the patented method of use from the generic drug label. During its review of Apotex’s label, the FDA concluded that Apotex could omit references to the claimed “once-daily” dosing without sacrificing safety and efficacy. The FDA also found that the downward titration language did not “teach” once-daily dosing. The Federal Circuit disagreed, noting that the FDA is not the arbiter of patent infringement issues and that the mere existence of non-infringing uses does not preclude infringement.

The case is particularly interesting because of the dilemma that Apotex faced. It could not sell its drug without including the FDA-mandated downward titration language. Nonetheless, it was precisely that language that resulted in sales of the drug being enjoined.

John J. Cahill is an apprentice in the Gibbons Intellectual Property Department.

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"American economic security is threatened in a way Congress has failed to recognize. Our biggest challenge is stemming the outflow of jobs, talent, technology and manufacturing. All four losses drain away national economic power. All result from the same cause: chronic under-financing of our innovation infrastructure. Although invisible, it is our nation’s greatest asset. Strengthening it can assure our prosperity and restore our technological leadership. We urgently need to increase invention and make new products that Americans and others will need, want and buy. To increase innovation, however, we must increase investment.

And it is needed immediately because we are already losing our international lead in technology and our global competitiveness. In a recent study, the United States came in dead last of the 40 top technology countries in the world in strengthening its innovation infrastructure over the last decade. Foreign inventive activity has surged to the point where filings in the United States Patent and Trademark Office by foreign entities now equal filings by Americans. Filings in the Chinese patent office by Chinese companies show exponential advances in twelve out of twelve top technologies.

Public finance for increased investment in innovation, however, is not available. It has been exhausted by the cost of two, concurrent and continuing wars and a decade of fiscal mismanagement, saddling us with a huge annual debt payments and recent annual budget deficits of many hundreds of billions of dollars, and this year of $1.5 Trillion. In this recession when tax revenues are down, obtaining even a modest increase in public R&D funding will be difficult, if not impossible. Actually, the challenge will be to avoid cuts in government R&D funding. The Administration recently instructed all agencies except the Defense Department to plan for a 5% reduction. At best, agency budgets will be frozen. Anyway, private investment has always supported much R&D by research-based companies, universities, and other innovators. Only increased private finance, then, can fund the needed increase in research and development. But how do we incentivize increased private investment in innovation? The answer is simple: strengthen the intellectual property systems – patents, trademarks, trade secrets, copyright, but especially patents. What we most need is faster, sounder patent grants, plus swifter, stronger, subtler court enforcement. After all, no one can be expected to invest without confidence in a return. Patents, and the protection of investment they afford, provide the only incentives strong enough to cause a big enough increase in private investment in innovation.

A primary engine of American recovery and resurgence therefore will have to be an improved patent system. Without that, both short-term recovery and long-term prosperity will be stunted. By “system”, I mean primarily the Patent and Trademark Office and the Federal courts, which, along with the International Trade Commission, afford the only mechanisms to enforce patent rights.

Using patents to spur both economic and technological advances is hardly a new idea. They have been a primary engine of economic growth and technological progress since 1790 when the First Congress passed the first Patent Act. Unlike today’s Congress, the founders knew patents promote national prosperity, economic growth, and technological progress. Patents have promoted repeated surges of technological advance, the most recent in the information technology revolution of the 1990’s. Notice that this was the last time our country had a balanced budget. And now, bio-tech shows promise of another surge.

Note, too, that if we strengthen the patent system, the job creation needed if our country is to rehire the 15 million unemployed workers, half from the recent recession, and add 13 million new jobs by 2018 to absorb a growing labor force will naturally follow. So will migrations of the technologically talented. If more R&D is done here, they will come here and stay, at least if we fix our broken visa system. Otherwise, foreign talent studying at our research universities will all return home. Our own leading technologists will also go elsewhere, just as is now happening with U.S. companies such as Intel and Applied Materials. Both will soon open large research laboratories headed by their top American researchers, not in California but in China.

A few commentators, despite all evidence, still assume the nation could afford a large increase in public R&D funding. Others assume that even though public revenue is unavailable, the needed R&D can be funded by company revenues. But that is not realistic. Most innovative companies are new and small. Many do not yet make profitable products. Some do not yet sell any products. Yet the majority of new technologies and 75% of new jobs are now being created by small, young, companies. Therefore, the firms with the least revenue to support their R&D are those most needing and deserving private investment. Biotech start-ups are only one example. Without it, many of them will die. With it, medical science, public health and national wealth will surge. Besides, 2/3 of the economic growth and ¾ of the new jobs since WWII came from innovation, and technology-related jobs pay 2.5 time average salaries.

Well, what is wrong with the present patent system? First, and foremost: delay -- health and welfare-diminishing, wealth-reducing, job- destroying, technology-impeding delay. In some technologies it now takes, at least, 4-6 years even to get a patent. The product life-cycle is often shorter than that. For all technologies the average wait is three years. That is two times longer than in 1990. Too long! And it is going up. Even worse, because nearly all applications must by law be published at 18 months, foreign competitors can pirate inventions for years before the patents issue, for until then patent owners have no rights against infringements whether produced here or imported. No wonder foreign competitors minutely monitor the PTO website! The story is told that thousands of Chinese engineers sit at computers reading U.S. patent applications rather than doing research in labs.

Why such extensive delay? Because for two decades the patent office has been grossly underfunded. And it is still losing ground. It operates entirely on user fees paid by applicants and patent owners -- fees that were set by Congress six years ago -- at levels that do not support necessary operations. The PTO lacks sufficient numbers of examiners, especially experienced examiners, and modern computer systems. Imagine, the government’s own technology agency using decades-old computer technology! These are the principal reasons delays are so long.

The patent system is failing primarily because the patent office is failing. In a single, blunt word, the patent office has become dysfunctional. Applications have tripled, and the PTO simply cannot keep up. Over 735,000 applications sit unread in a warehouse in Alexandria, Virginia. Note that the warehoused applications equate to almost two years worth of filings. Although some 490,000 applications are being examined, their progress is far too slow. And every year another 460,000 more are filed. Of the 1.2 million applications currently awaiting final disposition, only about 350,000 complete the examination process each year. So the backlog, already intolerable, is actually growing by 110,000 applications per year. It is now four times the backlog of 1990.

There are too few examiners – mostly young engineers and scientists -- and too few with experience. Nearly one third of the examiner workforce has been at the PTO for less than 3 years. But it takes at least 3 years for new examiners to become both competent and efficient. Faulty decisions by inexperienced examiners, like delay itself, harm the system and therefore innovation; such examiners allow patent claims they should reject, blocking innovation, and reject ones they should allow, causing further unnecessary delays and costs for Board appeals. And the lack of quality assurance undermines the presumption of patent validity provided by law and also the credibility of patents in the eyes of the media, academia and the Congress.

The trial courts too are hobbled. Most lack sufficient numbers of judges to expeditiously enforce good patents and invalidate bad ones. Almost 100 judicial vacancies remain unfilled, the highest vacancy rate in the history of the country. Most of these have gone unfilled for many, many months, and some for years. That means the courts are normally 12% understaffed. And almost 100 additional district and circuit judgeships are desperately needed but have yet to be authorized by Congress despite repeated requests by the Judiciary for two decades. So, the courts struggle with almost 200 too few judges because of two decades of Congressional neglect, just like the Congressional neglect of the patent office.

The result of course is long litigation delays that diminish the value of patents and add uncertainty that impedes invention and economic growth. Most patent infringement cases now take 3-5 years to verdict, with each appeal adding at least another year. Like patent examinations, litigations are simply too slow both for the pace of technological advances and for domestic and global markets. Delay must be cut at least in half, and soon. Because of delays caused by chronic underfunding of the Judiciary, innovation incentives are shrinking just when the nation needs them to be growing.

The gears of our patent system seem seized up. Ironically, Congressional inaction is discouraging private action. Obviously we need to strengthen and speed up both examinations and litigations, but only public funds can jump start the process. How so? Although PTO operations should remain financed by user fees, it needs an emergency transfusion of public money to overcome its warehouse backlog of 735,000 and equip it to keep up with the annual influx of 460,000 new applications. It needs thousands of additional examiners and salary increases to retain experienced, quality examiners. Most of all, it needs new computer systems and new space to house the existing workforce, as well as new hires. At present, two thousand of the six thousand examiners work at home, as the PTO lacks sufficient workspace for one-third of its workforce. Thus, even if Congress finally raises the fees, which it should, resolving the current crisis still requires a large infusion of public money. That is because much of the fee revenue arrives only years after the patents issue as maintenance fees. But money is needed now. Deferral will have corrosive consequences that cannot be undone. Therefore, I suggest the following emergency steps:

First, a one-time capital investment in the PTO of one billion dollars. It could be spent over the next several fiscal years, but it should be authorized and appropriated promptly. That should be enough to replace the IT systems, which the Director correctly calls “moribund,” and secure work space for the examiners. It probably could also pay for new hires to beat down the backlog.

Second, the Congress must guarantee by law that the PTO can spend an amount equal to the user fees paid by patent applicants and holders. Between 1992 and 2010, Congress diverted $759 million in fees paid to the PTO by patent holders and applicants and directed them instead to other governmental activity. In this year alone, Congress will siphon off an estimated $230 million in PTO user-paid fees. Essentially, PTO users have unwittingly been paying an additional tax subsidizing governmental expenditures that have nothing to do with PTO functions. Permanently ending this Congressional practice, called “fee diversion”, is a necessary precondition to reviving the PTO. If Congress continues spending user fees for other purposes, raising fee levels will have little effect.

But there is a Catch-22. If public R&D funding is already “maxed out” and other public funding otherwise already committed, then how could Congress find a billion dollars for the PTO? Well, when Congress wishes, it freely spends many billions of dollars, such as the $700 billion it provided to Wall St. I suggest only $1 billion, once. Just $1 billion, spread over several years, but provided soon.

Is my suggestion realistic? Yes, if Congress were to follow proper priorities. This public investment is absolutely necessary to our country’s short-term and long-term prosperity.

Well, would such capital investment fix everything that is wrong with the patent office? Maybe not everything, but certainly all the big problems. And, without it, other reforms will surely not suffice. Although other remedial steps are also necessary, most have already been started, at least on a pilot basis, by the new Director, David Kappos. But without an immediate, large, one-time dose of public funding, even his very sound leadership initiatives cannot produce the needed results and do so fast enough. In fact, despite his initiatives, the examiner corps is still shrinking, losing 500 examiners in the last several years. A net loss is again predicted for this year. So just when the patent office needs more examiners, it has fewer.

In his recent testimony before a House Appropriations Subcommittee, Director Kappos admitted that it will take many years to achieve timely examinations even if in the next two fiscal years Congress allows him to hire 1,000 new examiners per year. But since each year 500 leave, the total gain would only be 1,000, not 2,000. A much larger increase in examiners is needed to eliminate the backlog of 735,000 warehoused applications and assure timely examination of 460,000 new applications. My estimate is 3,000 additional examiners are needed if the PTO is to examine all incoming applications within one year.

What else? First, let the PTO open satellite offices in places like Detroit, and Houston, and hire unemployed engineers, patent agents and patent attorneys who are already experienced IP professionals. They can be productive immediately, unlike new graduates who need years of training. But again, Congressional authorization is probably needed. Under current law, most employees must work at the PTO campus in Alexandria, Virginia, or at home with regular reporting in person if living over 50 miles away.

Second, pay examiners better. Congress also controls the pay structure for examiners. But the gap between the examiner pay schedule and the General Schedule for non-technical civil servants is shrinking. Industry, I am sure, would willingly pay higher fees to enable the PTO to pay more competitive salaries to retain skilled examiners. Congress should raise these fees and pay levels.

What about ending the delays in court? In addition to promptly filling nearly 100 vacancies and Congress adding the nearly 100 judgeships long requested, what else could be done?

First, more frequent use of expert special masters to do claim construction and magistrate judges to police discovery would help. Second, discovery should be narrowed. If discovery were limited largely to evidence that can actually be used at trial, much delay as well as excess cost could be avoided. Staging discovery by issue also looks promising. But both require closer judicial supervision which in turn requires more magistrate and district judges.

The bottom line is this: unless Congress invests more in the America patent system, private investors will not. We must encourage investors to boost their investments in order to surge American R&D. The PTO and the courts both need more money, more space and more adjudicators. Congress must “prime the pump”. Only then can private investment take over. This is the only practical way to increase innovation and restore our nation’s competitive advantage. This strategy could restore us as the technology leader of the world, increase private and public revenues and stock values, raise our standard of living and create millions of new, high-paying jobs. With so clear and compelling a strategy, Congress need not hesitate to act.

But because members don’t understand that patents increase prosperity, they must first hear from you, from private sector leaders in law, business, media, and academia. The question is: Will you advocate these reforms to Congress?"

David E. De Lorenzi is Chair of the Gibbons Intellectual Property Department.

Pequignot v. Solo Cup Revisited

On June 10, 2010, the Federal Circuit decided Pequignot v. Solo Cup Company, largely affirming the holding of Judge Leonie Brinkema of the United States District Court for the Eastern District of Virginia. Defendant Solo Cup had prevailed at the district court when Judge Brinkema held that Pequignot failed to establish that Solo Cup had acted with deceptive intent with respect to its falsely marked products. The decision clarified several key points.

First, the Federal Circuit confirmed that an article that was covered by an expired patent is the same as an unpatented article. This determination is important, because it satisfies the first prong of the false marking statute, which requires the marking of an unpatented article by the defendant.

Second, the court addressed burden shifting with respect to establishing deceptive intent to deceive the public, which is the second prong of the false marking statute. The court noted that “the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrebuttably proving such intent.” According to the court, not only may defendants rebut this presumption, but “the bar for proving deceptive intent here is particularly high, given that the false marking statute is a criminal one . . .” The court held that the standard of proof of intent for false marking is a “preponderance of the evidence.” Interestingly, the court also held that in regard to false marking related to expired patents, the “presumption of intent is weaker.” A defendant may not defeat an inference of an intent to deceive with “blind assertions of good faith.” The court confirmed that Solo had successfully rebutted the presumption when it provided evidence that it had relied on advice of counsel, and had carried out a plan to replace molds with unmarked ones as they wore out over time. When Pequignot was unable to raise a genuine issue of material fact showing otherwise, the case was decided in Solo’s favor.

Last, some practitioners had hoped that the Federal Circuit would use the Pequignot decision to revisit the “per article” standard of fines determined in the Bon Tool case. However, the Court threw cold water on such hopes, finding that because the other issues were case dispositive, a determination relating to the assessment of damages was rendered moot, vacating Judge Brinkema’s holding to the contrary at the district court level.

Developments Since Pequignot

Two recent cases have been decided in the district courts of Texas and Florida that address the level of specificity required by a plaintiff when pleading a false marking cause of action. In Patent Compliance Group, Inc. v. Interdesign, Inc., the defendant sought dismissal of the case based partly on a failure to state a claim upon which relief may be based and for failure to plead its false marking claim with requisite specificity under Fed. R. Civ. P. 9(b). In its complaint, plaintiff alleged that the defendant “intended to deceive the public by marking the Patent Expired Product with the ‘842 patent after its expiration.” In support of its allegation, plaintiff attached a copy of the patent, establishing the expiration date, as well as a picture of the actual product labeled with the expired patent number. The court held that this was a sufficient showing to survive the defendant’s motion to dismiss the complaint. Although the court declined to decide whether false marking claims were subject to the heightened fraud pleading standard of Rule 9(b), the court stated that, “[a]rmed with actual documentation that a product was falsely marked, a court may draw an inference of the defendants’ knowledge simply by the finite nature of patents and the ordeal an entity must go through to actively create and maintain a patent . . . Similarly, an actual photograph of a product recently injected into the stream of commerce with an expired patent number also creates an inference of a false statement.” The court cited to Pequignot, noting that defendant’s conclusory statements that it acted in good faith were insufficient to rebut the inference of deceptive intent.

In Advanced Cartridge Technologies, LLC v. Lexmark International Inc., the court took a more skeptical view of the plaintiff’s complaint. Although the Interdesign court specifically avoided the issue of whether Rule 9(b) is applicable to false marking cases, the United States District Court for the Middle District of Florida cited to the rule in holding that that the plaintiff’s complaint was factually deficient. Specifically, the court noted that, “Providing only sparse factual detail, the complaint utterly fails to state with particularity the circumstances constituting fraud.” The court dismissed the false marking claim, but provided the plaintiff leave to refile the complaint with the required degree of specificity.

A Legislative Fix on the Horizon?

In response to the unexpectedly high level of false marking litigation, legislators are scrambling to craft a fix. The Patent Reform Act of 2010 is currently under consideration by Congress (H.R. 4954).  If passed, this legislation would eliminate qui tam suits by requiring plaintiffs to show competitive injury related to false marking. Damages would be assessed in a manner “adequate to compensate for the injury,” as opposed to the current statute, which allows a fine of up to $500 for each article. The legislation as drafted would apply to all pending cases. However, it is not clear when or if this legislation will ever be enacted.

The Court found its basis for rejecting Bilski’s process claims on the grounds that these claims represented an attempt to patent “abstract ideas.” Making reference to its prior opinions in the Benson, Flook and Diehr cases, the Court found that Bilski’s claims “[explained] the basic concept of hedging,” and that this concept represented “an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook.” The Court reasoned that the patent eligibility of these claims would impermissibly “pre-empt used of [hedging] in all fields, and would effectively grant a monopoly over an abstract idea.”

Justice Stevens, writing for himself and joined by Justices Ginsberg, Breyer and Sotomayor, concurred in the judgment of the Court but found that it was unclear how the grounds for rejecting Bilski’s claims as an abstract idea found sufficient support from the Court’s case law. Justice Stevens suggested that because, business methods have historically fallen outside of the subject matter that the Court has considered as patent-eligible, a “wiser” holding would find that Bilski’s claims were patent-ineligible as describing “only a general method of engaging in business transactions.” Justice Breyer, writing for himself and joined in part by Justice Scalia, concurred in the judgment of the Court to emphasize several aspects of the decision receiving full endorsement by the Court.

In Bilski, the Court continues a trend beginning with the KSR and eBay decisions for overturning “bright line” rules set forth by the Federal Circuit on patent questions. The Court asserts that, while disapproving an “exclusive” machine-or-transformation test for determining patent-eligible processes, it has not foreclosed the Federal Circuit’s ability to develop other “limiting criteria.” Nevertheless, it is likely that the Federal Circuit will proceed to craft such criteria henceforth with great caution, and with ample reference to the Court’s prior opinions. It remains to be seen how the United States Patent & Trademark Office will contribute to this process. In the interim, patent applicants would be wise to continue to draft business method claims that satisfy the machine-or-transformation test, and that clearly delimit the claimed method when performed by a machine in a manner defined by the operation of the machine.

The Gibbons Institute of Law, Science & Technology at Seton Hall Law School will present a free webinar - Understanding the Supreme Court's Bilski Decision - on Thursday, July 1, at 9:00 am. For more information or to attend this program, please visit the Gibbons website.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. Thomas J. Bean, Counsel to the Gibbons Intellectual Property Department, assisted in the preparation of this post.

The Dual Requirements for Written Description Are Part of 35 U.S.C. §112

With respect to a patent specification, the first paragraph of 35 U.S.C. § 112 sets forth that the specification shall contain a written description of:

1. the invention; and
2. the manner of making and using the invention (the enablement requirement)

Therefore, there are two requirements set forth in this statute with respect to the written description, one as to the invention and the other as to enablement (the manner of making and using the invention). The case of In re Barker, 194 U.S.P.Q. 474 (C.C.P.A. 1977) explicitly articulated that 35 U.S.C. §112 first paragraph set forth these two separate requirements for written description. To provide a written description of the invention, the specification must include a written description of each and every element of the claimed subject matter. This was enunciated by the Federal Circuit in Lockwood v. American Airlines. In the Lockwood case, the Federal Circuit specifically stated that:

It is the disclosure of the application that counts. Enablement of a filing date does not extend to subject matter which is not disclosed but which would be obvious over what is expressly disclosed.

The Written Description Requirement Has Been The Backbone of U.S. Patent Law Well Before 1967

The requirement for written description was reiterated by the C.C.P.A. in In re Ruschig. In Ruschig, the C.C.P.A. specifically held that a description of a genus does not constitute a description of a claimed subgenus unless that specific claimed subgenus is specifically described in the specification. The Ruschig case was directed to whether the specification contained a written description of a specific claimed compound. The claimed compound in Ruschig had a phenyl group substituted with chlorine and the C.C.P.A., in a prosecution and interference setting, held that there was no written description of this compound even though the application disclosed that phenyl ring could be substituted with chlorine or bromine. Discussing the written description requirement of 35 U.S.C. §112, first paragraph, the C.C.P.A. stated as follows:

Appellants refer to 35 USC 112 as the presumed basis for this rejection and emphasize language therein about enabling one skilled in the art to make the invention, arguing therefrom that one skilled in the art would be enabled by the specification to make chlorpropamide. We find the argument unpersuasive -- the question is not whether he would be so enabled but whether the specification disclosed the compound to him, specifically, as something appellants actually invented.

379 F.2d at 995.

Ariad May Not Affect the Law as to the Written Description Requirement and Its Dual Nature

The outcome of the per curiam appeal in the Ariad case may not affect the law as to the written description requirement and its dual nature because the appeal does not challenge these requirements for written description. The issue in Ariad is whether the describing of a claimed method which utilizes a compound to regulate by altering the transcription factor of specific genes to express proteins is sufficient to provide a written description for this method, even though no specific compound is disclosed for such regulation. Therefore, the Ariad application claims the use of any compound which provides a specific function and the issue is whether this description is sufficient for a written description of the invention and to enable the invention. The issue presented in Ariad is not directed to the fact that there is no new matter claimed which is not disclosed but whether the written description of the invention in chemical and biotech cases requires the definition of compounds by structure, formula, chemical name or physical properties and not by function. Therefore, the Ariad case never really challenges the basic requirements of 35 U.S.C. §112 for written description that, for at least 40 years, have and remain instrumental to the operation of the U.S. patent system.


William H. Epstein is Counsel to the Gibbons Intellectual Property Department.

Differences Between Biological and Chemical Drugs

One of the critical differences between biological drugs and chemical drugs is that biological drugs are made by living cells whose DNA has been modified by introduction of the gene of interest to synthesize the active component. Compared to small molecule drugs made up of only a few dozen atoms, biological drugs can consist of many thousands of atoms making up the protein, which is folded into a complex three-dimensional structure. Living cells synthesizing biological drugs must be grown and maintained in a highly controlled sterile environment and any contamination (viruses, bacteria, mold, etc.) can have catastrophic consequences. The innovator company may seek to protect products and processes -- including gene isolation, cell-line creation, maintaining cell growth and isolation and purification of the biological drug from the cells -- through patents or trade secrets. Follow-on companies will not likely have access to the products or processes and will likely seek to design around any relevant patents.

Argument for a Longer Exclusivity Period

BIO argues that recent trends have been towards narrowing biotech patents, and therefore a substantial exclusivity period is necessary because reliance on patents alone cannot guarantee incentives to foster innovation of biological drugs. This argument may have some support. In an unpublished paper, two law professors stated that for composition of matter patents on biotech drugs:

There does not appear to be a single appellate-level decision in which a patent on the active ingredient of a biotech drug has been found valid and infringed.

The paper also noted that competitors can circumvent patent protection by shifting production of the biotech drugs to foreign countries where no patent protection exists or where enforcement is weak or nonexistent. Although the paper concludes that multiple barriers exist to entry of biosimilars thereby promoting competition and lowering costs, it agrees that a reasonable basis exists for a twelve-year exclusivity term to support innovation of biological drugs.

It appears that a longer term data exclusivity period may be gathering support as a number of organizations and legislators were recently reported to back follow-on biologics bills containing 12-year data exclusivity terms.

The exclusivity debates mark the ongoing dialog in establishing a regulatory pathway for biosimilar drugs. In the upcoming months, we will explore, in a series of posts, the legal and regulatory landscape concerning biosimilars and any notable commercial activities by the pharmaceutical industry as they relate to patents.


Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department.

A few years later, during prosecution of the ‘551 patent, the prosecuting attorney, who was familiar with the EPO opposition proceedings, established a new point of novelty before the USPTO to advance the prosecution of the ‘551 patent. That new point of novelty was that never before was the sensor known to work without a membrane. This assertion directly contradicted an earlier statement made by the applicant during the EPO opposition proceedings. See Therasense at pages 19–23.

The Federal Circuit affirmed the district court’s finding of invalidity of U.S. Pat. No. 5,820,551 due to inequitable conduct by applying the standard recently summarized by the Federal Circuit in McKesson Info. Solutions, Inc. v. Bridge Med., Inc.

To establish inequitable conduct by failure to disclose, the asserting party must show materiality of the information and the intent to deceive. The trial court held that the prosecuting attorney knew that to disclose the EPO opposition arguments would defeat the patent grant before the USPTO. The trial court then balanced the levels of materiality and intent, and found the withheld information “richly material” and that the prosecuting attorney had no explanation for his conduct, and that this was proved by clear and convincing evidence.

As we previously posted, a patent applicant’s duty of disclosure may also extend to references and office actions in “similar” but unrelated, co-pending patent applications. The Therasense and McKesson cases show continued development in the caselaw of inequitable conduct. Stay tuned for future developments.


Frank A. Bruno is a Director in the Gibbons Intellectual Property Department. Lucy Emhardt, an Associate in the Gibbons Intellectual Property Department, assisted in the preparation of this post.

While considering the post trial motions, the Court examined the Federal Rules of Evidence to consider whether the expert’s testimony met the evidentiary threshold. In particular, the court examined the following relevant Federal Rules of Evidence which state: 

Rule 704 . . . testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact.

Rule 705 . . . The expert may testify in terms of opinion or inference and give reasons therefor without first testifying to the underlying facts or data, unless the court requires otherwise. The expert may in any event be required to disclose the underlying facts or data on cross-examination.

Rule 103 . . . (a) Error may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected, and (1) Objection. In case the ruling is one admitting evidence, a timely objection or motion to strike appears of record, stating the specific ground of objection, if the specific ground was not apparent from the context . . .

The Court stated the expert’s opinion, while conclusory and unsupported, not only satisfied the evidentiary threshold, but fit these rules “as the hand the glove.” But the Court further noted that the Federal Circuit’s Koito decision made clear that, on the issues of anticipation, obviousness, and doctrine of equivalents, the unsupported opinion even of a qualified expert is simply not “substantial evidence” adequate to support a jury verdict. The District Court further explained the tension between the patent laws and the Federal Rules of Evidence:

The central holding of Daubert runs precisely to the contrary – lower federal courts are not permitted to engraft additional hurdles on the admissibility of evidence beyond those found in the Rules themselves. Despite the express teaching of Daubert, this is exactly what Federal Circuit jurisprudence does, at least on the issues of anticipation, obviousness, and doctrine of equivalents.

Notwithstanding Rules 704 and 705, Federal Circuit case law renders legally inadequate the opinions of qualified experts on the ultimate issues of anticipation, obviousness, and doctrine of equivalents unless the bases therefor are spelled out on the record.

Although the tension between the Federal Rules of Evidence (with their statutory authority) and the decisions of the Federal Circuit (with their precedential authority) seems irreconcilable, it is not open to a district court to chose one in disregard of the other. Both requirements necessarily must be followed. (citations and footnotes omitted)

After recognizing the tension between the two areas of law, the Court noted that the expert’s opinion was fatally flawed since its bases were never explained and the jury therefore was not entitled to credit. Absent the expert opinion, the jury had no basis to resolve the issue of obviousness of claims 9-11 and the matter ought not have been given to them to consider. The Court then ordered a new trial on the issues of infringement and invalidity of claims 9-11.

After being illuminated to the hidden disconnect between the two areas of law, Judge Young stated that he would revise his judicial procedures to avoid this issue by, at the earliest possible moment when an expert opinion is proffered on the issues of obviousness, anticipation, written description, or doctrine of equivalents, ruling sua sponte on the adequacy of the testimony. In this manner, Judge Young noted that Judge Lungstrum’s thoughtful opinion in Sprint v. Vonage No. 05-2433, 2007 WL 2572417, at *2 (D. Kan. 2007) would serve as a useful guide.

As a practical matter and to avoid the situation presented in this case, patent litigators should carefully scrutinize all expert testimony being offered by the opposing party. If such testimony lacks the requisite basis, appropriate preemptive relief should be obtained (e.g. through a motion in limine).


Erich M. Falke is Counsel to the Gibbons Intellectual Property Department.

Similarly, in a case where the parties requested construction of sixteen terms, Judge Crabb of the Western District of Wisconsin denied the parties’ requests for an early claim construction hearing, stating that “neither [party] met its burden with respect to the need for claims construction.” Semiconductor Energy Laboratory Co., Ltd. v. Samsung Elec. Co., Ltd., No. 09 cv-01, 2009 WL 3731959, at *1 (W.D. Wis. Nov. 4, 2009). In Samsung, the Court issued an order requiring the parties to “persuade the court that construction of each specified term [wa]s necessary to resolve a disputed issue concerning infringement or invalidity.” The Court had issued this order to “avoid devoting judicial resources to the issuance of advisory opinions on the construction of claim terms about which the parties ha[d] no concrete dispute.”

Practice tip: When litigating a patent infringement case, in addition to studying any local patent rules that may be in effect in the jurisdiction in which you are litigating, it is advisable to review decisions by your particular judge and others in the district to see whether the court has been imposing limits on the number of terms they will construe, and if so, be prepared to limit the number of terms and phrases to those most important to your case.

Pequignot v. Solo Cup Company

In Pequignot, Solo Cup initially moved to dismiss for failure to state a claim. Judge Leonie M. Brinkema denied the motion, holding that marking an article with an expired patent number was tantamount to a false marking under the statute. The court found that an article once protected by an expired patent was no different than an article that had never been covered by a patent. The court next denied Solo Cup’s motion to dismiss for lack of subject matter jurisdiction, finding that although Pequignot did not have traditional standing under Article III of the Constitution, the false marking statute was a true qui tam statute, and Pequignot was entitled to recover as an assignee of the government’s claim for any harm that resulted from the false marking of products.

Pequignot’s suit was ultimately derailed on summary judgment when Solo Cup produced evidence that it had relied upon advice from counsel that it was permissible to mark the articles after the patent had expired, taking into account that it would have cost Solo Cup nearly $ 2 million to replace the equipment used to produce the marked lids. Solo Cup’s outside attorneys had advised that such expensive and burdensome steps were unnecessary so long as the equipment was replaced with non-marked substitutes as the parts wore out over time.

Last, the court determined that Pequignot’s suggested construction of the term “offense” to mean “each article” was unsupported. Judge Brinkema held that an “offense” was to be defined as a distinct decision by a defendant to falsely mark an article. Although this issue was not case dispositive, it may be subject to attack on appeal based on Federal Circuit's recent holding in The Forest Group, Inc. v. Bon Tool Company. In that case, the Federal Circuit held that the statutory fine should be assessed on a "per article" basis as opposed to the "per decision to mark" basis favored by Judge Brinkema.

Stauffer v. Brooks Brothers, Inc.

Stauffer’s suit was deemed dead on arrival, and was dismissed for lack of standing. The hypothetical nature of the allegations found within Stauffer’s complaint proved fatal. Stauffer’s allegation that Brooks Brothers’ conduct “wrongfully quelled competition with respect to such bowtie products thereby causing harm to the economy of the United States” was rebutted by declarations and exhibits submitted by Brooks Brothers showing that the adjustolox mechanism was not made by the defendants, but instead by a third party that also sold the mechanism to Brooks Brothers competitors, which actually fostered competition. Finding the standing issue to be dispositive, the court declined to address the failure to state a claim motion.

Lessons For Business Owners

Although the false marking suits brought by Pequignot and Stauffer have to date proved to be unsuccessful (both cases are currently on appeal before the United States Court of Appeals for the Federal Circuit), the suits could have been avoided entirely with some simple preventative planning on the part of the defendants. If it is not feasible to remove an expired patent number, a company should be prepared to produce evidence to that effect. Widely available services such as the USPTO’s internet patent database, and Google’s Patent Search, make it easier than ever for a consumer to access information about almost any patent marking affixed to any product. In a struggling economy, a large corporation with some improperly marked products could provide a tempting target for an enterprising consumer. Even if the likelihood of a plaintiff winning such a suit is remote, companies should take proactive steps to avoid becoming embroiled in litigation.

As you sow, so shall you reap, and in the flurry of legislative activity that has recently ensued, the proposed presumption shift has now made its way into a proposed amendment to antitrust laws. On October 15, 2009, the Judiciary Committee of the U.S. Senate passed a bill that could effectively ban the use of reverse payments to settle Hatch-Waxman actions. The bill, known as the Preserve Access to Affordable Generics Act, would amend the Clayton Antitrust Act, and as initially proposed, would have made reverse payments per se illegal. The bill was subsequently amended to make the payments presumptively illegal, where the presumption can be rebutted upon a showing of a promotion of competition under a clear and convincing standard.

The new proposed legislation again raises the classic dilemma: at what point do antitrust curbs impermissibly cut into patent exclusivity? Given that reverse payments are viewed favorably by both branded drug companies and generics because they provide business flexibility for Hatch-Waxman action settlements, future fights on this issue inevitably remain to be fought.


Sheila F. McShane is a Director in the Gibbons Intellectual Property Department.