IP News

Supreme Court Limits Patentee Control of Downstream Uses

On June 9, 2008, the Supreme Court issued its ruling in Quanta Computer, Inc. v. LG Electronics, No. 06-937 (June 9, 2008). The unanimous opinion, delivered by Justice Clarence Thomas, set limits on a patent holder's right to claim royalties for downstream use of a licensed product. Significantly, the Court held that the doctrine of patent exhaustion may apply to method claims. Further, the Court found that since the components (microprocessors and chipsets) manufactured and sold by patent licensee Intel 'substantially embody the patents in suit,' the sale of those components exhausted respondent LG's patent rights along with any entitlement to royalties from petitioner Quanta.

The Court rejected LG's argument that method claims are categorically immune to the doctrine of patent exhaustion, citing US v. Univis Lens Co., 316 U.S. 241 (1942). The Court reasoned that '[e]liminating exhaustion for method patents would seriously undermine the exhaustion doctrine,' promoting instead the drafting of claims to describe methods rather than products or apparatuses. Citing Univis, the Court held that method claims 'may be 'embodied' in a product, the sale of which exhausts patent rights.' In defining 'embodiment' for the purposes of triggering the patent exhaustion doctrine, the Court identified products that have 'no reasonable noninfringing use' and that 'include[] all inventive aspects of the patented methods.'

The Court dismissed LG's attempts to distinguish Univis. In rejecting LG's argument that Intel Products do not 'contain all the physical aspects needed to practice the patent,' the Court found no discernable purpose for the sale of the Intel Products but to permit Quanta and other purchasers to incorporate them into computer systems that practiced the LG Patents. Because the only remaining necessary step to practice the patent after such sale was 'the application of common processes or the addition of standard parts' requiring no 'creative or inventive decision' on the part of Quanta, the Intel Product substantially embodied 'all inventive aspects' of the LG Patents. Further, the Court was not persuaded by LG's argument that there is a ”patentable distinction” between the Intel Products and the LG Patents, holding that 'exhaustion analysis is not altered by the fact that more than one patent is practiced by the same product.' The Court distinguished Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961). reasoning that there the combination itself was the 'inventive part of the patent.' In contrast, the Court deemed the combination of Intel's microprocessor or chipset with memory and buses to be 'included in the design of the Intel Products themselves.' Finally, the Court noted that there were no conditions in the License Agreement between LG and Intel which 'limited Intel's authority to sell products substantially embodying its patents,' thereby exhausting LG's rights with respect to those patents. A more detailed analysis of this case will be presented in an upcoming edition of The Intellectual Property Strategist.

CAFC Hears Oral Arguments in Patent Application Revival Case

On June 6, 2008, the Federal Circuit heard oral arguments in Aristocrat Technologies Australia v. Int'l Game Technology, No. 2008-1016 (Fed. Cir. June 6, 2008). Aristocrat appealed a district court decision invalidating its patent for 'improper revival' on the basis that the USPTO Commissioner lacked authority to grant petition to revive its patent application. Aristocrat missed the deadline to file the fee for its national stage application by one day due to an 'unintentional' delay. Citing 35 U.S.C. '371, the district court held that the USPTO may revive abandoned national stage applications only if the applicants failure to meet the deadline was 'unavoidable.'

Aristocrat offered several arguments that the district court's judgment was 'inconsistent with the law.' The first of these was that statutory provisions authorizing the USPTO to charge fees for both 'unavoidable' and 'unintentional' delay impliedly authorized the USPTO Commissioner to evaluate petitions concerning such delay. As the Aristocrat put it, 'you cannot charge a fee for what you cannot do.' Citing Supreme Court precedent that statutory language is controlling regardless of its placement within the statute, Aristocrat argued that a holding that the USPTO lacks statutory authority to revive unintentionally late applications would nullify the section of the statute authorizing fees for unintentional delays in a manner inconsistent with existing law. Judge Newman seemed unconvinced by this argument, articulating her hope that appellant was 'not just saying that everyone who sends in a check will prevail,' and stating further that 'all that the fee entitles you to is consideration.'

Aristocrat's second argument was that statutory provisions that international and national applications must receive the same treatment required that statutory language authorizing USPTO revival of abandoned domestic applications on the basis of unintentional delay must be applicable in this case.

The Federal Circuit also challenged an argument in Aristocrat's brief that in light of the apparent ambiguity as to the statutory imperative, the USPTO is entitled Chevron deference. The Federal Circuit cited IGT's rebuttal that the USPTO is not entitled to such deference given its lack of substantive rulemaking authority, and seemed unpersuaded by Aristocrat's response, which included an argument that the USPTO's right to collect fees amounted to 'substantive rulemaking authority' within the meaning of Chevron.

In support of its amicus brief advocating Aristocrat's position, the Director of the USPTO argued that legislative history and prior amendments to 35 U.S.C. indicate that narrow interpretation of the statutory language is inconsistent with the intent of Congress in granting authority to the USPTO. In defending the argument that it should be entitled Chevron deference, the USPTO argued that the authority sought is 'procedural' and not 'substantive.' The Federal Circuit pressed further, seeking precise definitions of 'procedural' and soliciting a distinction between legislative and interpretive authority. The attorney for the Director of the USPTO finally concluded that, 'if you want more word from the government as to whether we have substantive rulemaking authority, then I guess my position, if we're to be truly helpful, is to say that we could supplementally brief that issue.'

IGT argued that the plain meaning of the applicable patent statutes precluded revival of applications 'unintentionally' abandoned for failure to timely pay the national stage filing fee. In response to Aristocrat's argument that the USPTO is empowered to charge a fee for 'unintentionally' abandoned applications and that 'you cannot charge a fee for what you cannot do,' IGT noted that such fee provisions were not 'hollow' because they applied to revival petitions under different statutory provisions, e.g., 35 U.S.C. '111(a)(4). The Federal Circuit challenged this argument, noting that Congress did not enact the provisions, e.g., '111(a)(4), providing for revival of 'unintentionally' abandoned applications until after the fee provisions were already in force.

Finally, IGT argued that Chevron gives the USPTO, at most, the authority to fill gaps and interpret ambiguous provisions, not to 'interpret the Patent Act in such a way as to override substantive standards that Congress expressly inscribed in the Act.'

House Judiciary Committee Passes Prioritizing Resources And Organization for Intellectual Property Act

On April 30, 2008 the U.S. House of Representatives Judiciary Committee passed a bill known as the Prioritizing Resources and Organization for Intellectual Property Act (H.R. 4279, 110th Congress (2007)). The bill, introduced Dec. 5, 2007, would increase penalties for copyright and trademark infringement and allocate more resources toward federal enforcement. Specifically, the bill would create an Office of the United States Intellectual Property Enforcement Representative, which would, in cooperation with other government agencies, have responsibility for developing and implementing a Joint Strategic Plan intended to, inter alia, eliminate counterfeiting and pirated good from the international supply chain.

The bill would also establish within the Office of the Deputy Attorney General in the Department of Justice an 'Intellectual Property Enforcement Division' responsible for coordinating efforts of the Department of Justice relating to the enforcement of IP rights and combating counterfeiting and piracy. It also provides for allocation of grants by the Department of Justice to local law enforcement entities for the purpose of enforcing IP laws. The bill will now move to the full House for a vote.

Supreme Court Limits Patentee Control of Downstream Uses

On June 9, 2008, the Supreme Court issued its ruling in Quanta Computer, Inc. v. LG Electronics, No. 06-937 (June 9, 2008). The unanimous opinion, delivered by Justice Clarence Thomas, set limits on a patent holder's right to claim royalties for downstream use of a licensed product. Significantly, the Court held that the doctrine of patent exhaustion may apply to method claims. Further, the Court found that since the components (microprocessors and chipsets) manufactured and sold by patent licensee Intel 'substantially embody the patents in suit,' the sale of those components exhausted respondent LG's patent rights along with any entitlement to royalties from petitioner Quanta.

The Court rejected LG's argument that method claims are categorically immune to the doctrine of patent exhaustion, citing US v. Univis Lens Co. , 316 U.S. 241 (1942). The Court reasoned that '[e]liminating exhaustion for method patents would seriously undermine the exhaustion doctrine,' promoting instead the drafting of claims to describe methods rather than products or apparatuses. Citing Univis, the Court held that method claims 'may be 'embodied' in a product, the sale of which exhausts patent rights.' In defining 'embodiment' for the purposes of triggering the patent exhaustion doctrine, the Court identified products that have 'no reasonable noninfringing use' and that 'include[] all inventive aspects of the patented methods.'

The Court dismissed LG's attempts to distinguish Univis. In rejecting LG's argument that Intel Products do not 'contain all the physical aspects needed to practice the patent,' the Court found no discernable purpose for the sale of the Intel Products but to permit Quanta and other purchasers to incorporate them into computer systems that practiced the LG Patents. Because the only remaining necessary step to practice the patent after such sale was 'the application of common processes or the addition of standard parts' requiring no 'creative or inventive decision' on the part of Quanta, the Intel Product substantially embodied 'all inventive aspects' of the LG Patents. Further, the Court was not persuaded by LG's argument that there is a ”patentable distinction” between the Intel Products and the LG Patents, holding that 'exhaustion analysis is not altered by the fact that more than one patent is practiced by the same product.' The Court distinguished Aro Mfg. Co. v. Convertible Top Replacement Co. , 365 U.S. 336 (1961). reasoning that there the combination itself was the 'inventive part of the patent.' In contrast, the Court deemed the combination of Intel's microprocessor or chipset with memory and buses to be 'included in the design of the Intel Products themselves.' Finally, the Court noted that there were no conditions in the License Agreement between LG and Intel which 'limited Intel's authority to sell products substantially embodying its patents,' thereby exhausting LG's rights with respect to those patents. A more detailed analysis of this case will be presented in an upcoming edition of The Intellectual Property Strategist.

CAFC Hears Oral Arguments in Patent Application Revival Case

On June 6, 2008, the Federal Circuit heard oral arguments in Aristocrat Technologies Australia v. Int'l Game Technology, No. 2008-1016 (Fed. Cir. June 6, 2008). Aristocrat appealed a district court decision invalidating its patent for 'improper revival' on the basis that the USPTO Commissioner lacked authority to grant petition to revive its patent application. Aristocrat missed the deadline to file the fee for its national stage application by one day due to an 'unintentional' delay. Citing 35 U.S.C. '371, the district court held that the USPTO may revive abandoned national stage applications only if the applicants failure to meet the deadline was 'unavoidable.'

Aristocrat offered several arguments that the district court's judgment was 'inconsistent with the law.' The first of these was that statutory provisions authorizing the USPTO to charge fees for both 'unavoidable' and 'unintentional' delay impliedly authorized the USPTO Commissioner to evaluate petitions concerning such delay. As the Aristocrat put it, 'you cannot charge a fee for what you cannot do.' Citing Supreme Court precedent that statutory language is controlling regardless of its placement within the statute, Aristocrat argued that a holding that the USPTO lacks statutory authority to revive unintentionally late applications would nullify the section of the statute authorizing fees for unintentional delays in a manner inconsistent with existing law. Judge Newman seemed unconvinced by this argument, articulating her hope that appellant was 'not just saying that everyone who sends in a check will prevail,' and stating further that 'all that the fee entitles you to is consideration.'

Aristocrat's second argument was that statutory provisions that international and national applications must receive the same treatment required that statutory language authorizing USPTO revival of abandoned domestic applications on the basis of unintentional delay must be applicable in this case.

The Federal Circuit also challenged an argument in Aristocrat's brief that in light of the apparent ambiguity as to the statutory imperative, the USPTO is entitled Chevron deference. The Federal Circuit cited IGT's rebuttal that the USPTO is not entitled to such deference given its lack of substantive rulemaking authority, and seemed unpersuaded by Aristocrat's response, which included an argument that the USPTO's right to collect fees amounted to 'substantive rulemaking authority' within the meaning of Chevron.

In support of its amicus brief advocating Aristocrat's position, the Director of the USPTO argued that legislative history and prior amendments to 35 U.S.C. indicate that narrow interpretation of the statutory language is inconsistent with the intent of Congress in granting authority to the USPTO. In defending the argument that it should be entitled Chevron deference, the USPTO argued that the authority sought is 'procedural' and not 'substantive.' The Federal Circuit pressed further, seeking precise definitions of 'procedural' and soliciting a distinction between legislative and interpretive authority. The attorney for the Director of the USPTO finally concluded that, 'if you want more word from the government as to whether we have substantive rulemaking authority, then I guess my position, if we're to be truly helpful, is to say that we could supplementally brief that issue.'

IGT argued that the plain meaning of the applicable patent statutes precluded revival of applications 'unintentionally' abandoned for failure to timely pay the national stage filing fee. In response to Aristocrat's argument that the USPTO is empowered to charge a fee for 'unintentionally' abandoned applications and that 'you cannot charge a fee for what you cannot do,' IGT noted that such fee provisions were not 'hollow' because they applied to revival petitions under different statutory provisions, e.g., 35 U.S.C. '111(a)(4). The Federal Circuit challenged this argument, noting that Congress did not enact the provisions, e.g., '111(a)(4), providing for revival of 'unintentionally' abandoned applications until after the fee provisions were already in force.

Finally, IGT argued that Chevron gives the USPTO, at most, the authority to fill gaps and interpret ambiguous provisions, not to 'interpret the Patent Act in such a way as to override substantive standards that Congress expressly inscribed in the Act.'

House Judiciary Committee Passes Prioritizing Resources And Organization for Intellectual Property Act

On April 30, 2008 the U.S. House of Representatives Judiciary Committee passed a bill known as the Prioritizing Resources and Organization for Intellectual Property Act (H.R. 4279, 110th Congress (2007)). The bill, introduced Dec. 5, 2007, would increase penalties for copyright and trademark infringement and allocate more resources toward federal enforcement. Specifically, the bill would create an Office of the United States Intellectual Property Enforcement Representative, which would, in cooperation with other government agencies, have responsibility for developing and implementing a Joint Strategic Plan intended to, inter alia, eliminate counterfeiting and pirated good from the international supply chain.

The bill would also establish within the Office of the Deputy Attorney General in the Department of Justice an 'Intellectual Property Enforcement Division' responsible for coordinating efforts of the Department of Justice relating to the enforcement of IP rights and combating counterfeiting and piracy. It also provides for allocation of grants by the Department of Justice to local law enforcement entities for the purpose of enforcing IP laws. The bill will now move to the full House for a vote.