IP News

Patent Reform Bill Passes Senate

The America Invents Act, S. 23, passed the Senate on a 95-5 vote, sending it to the House for consideration. The bill represents the first major change in U.S. patent law since the 1950s, and enjoys broad bipartisan support from legislators as well as the White House and USPTO Director David Kappos. Major features of the Senate bill include transitioning from a first-to-invent to first-to-file system; allowing the USPTO to set its own fees and keep the fees it generates; and changing the post-grant review process. The two fee-related measures, allowing the USPTO to set its own fees and keep any excess fees it generates, are designed to reduce the enormous current backlog of unexamined patent applications.

The Senate version will also significantly rewrite 35 U.S.C. ” 102 and 103, the main sections that define patent invalidity by lack of novelty and obviousness, respectively. Due to the first-to-file system, the new ' 102(a) will focus on the effective filing date and generally expands the scope of prior art to all art existing before that date. The Senate version also rewrites the law of obviousness, focusing on whether “the subject matter sought to be patented” is obvious, changing the current focus on the claims rather than the entire subject matter.

The first-to-file system will also eliminate current section 35 U.S.C. ' 102(g), dealing with interferences. The new law allows a legal action when the first-filer “derived” its claimed invention from another, but curiously only provides for this derivation action after the USPTO issues two patents directed to the same subject matter. The bill proposes that obviousness will now be considered as of the effective filing date, instead of at the invention date.

S. 23 also guts the current false marking statute, 35 U.S.C. ' 292, making two important changes. First, it removes the right of private citizens to sue on behalf of the U.S. government for the penalty of “not more than $500 for every such offense.” Only the federal government can bring an action to recover such a penalty. Second, while a private citizen can still sue under ' 292, such a plaintiff must prove a “competitive injury” and is only entitled to damages adequate to compensate for whatever injury is caused by the false marking. Significantly, this revision would apply to all litigations pending on the date that the bill is enacted into law. This would almost certainly result in dismissal of most of the cases that are currently pending under ' 292, since most (if not all) of these cases were not brought by the U.S. government, and most of them were not brought by competitors of the defendant.

In prior attempts at patent reform, bills had cleared the House with approval only to die in the Senate. Now, with the Senate having agreed and passed a bill, the House of Representatives Judiciary Committee's Subcommittee on Intellectual Property, Competition and the Internet will begin hearing testimony and begin introducing patent reform measures.

District Judge Rules Qui Tam False Marking Statute Unconstitutional

On Feb. 23, 2011, an Ohio federal judge declared the qui tam provision of the false marking statute to be unconstitutional.

The qui tam false marking statute 35 U.S.C. ' 292, allows any private entity to bring a suit on behalf of the U.S. government alleging that a party is marking its products with expired or invalid patent numbers. The statute does not require that the qui tam plaintiff notify the Department of Justice that it is bringing suit on behalf of the government.

In Unique Product Solutions Ltd. v. Hy-Grade Valve Inc., Case No. 10-1912, Judge Dan Aaron Polster of the U.S. District Court for the Northern District of Ohio ruled that the false marking statute violates the take care provision of Article II of the U.S. Constitution and granted the defendant's motion to dismiss. The take care clause requires that the President “shall take Care that the Laws be faithfully executed. '” Judge Polster held that “Decisions [related to the litigation] should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain.” He grounded his decision in the 1988 Supreme Court case Morrison v. Olson, 487 U.S. 654, which held that the executive branch must have sufficient control over litigation in which the United States is a real party in interest.

Claim Selection Procedures in Complex Patent Litigation Did Not Violate Due
Process Rights

On Feb. 18, 2011, the Federal Circuit issued its opinion in the multidistrict patent litigation In re Katz Interactive Call Processing Patent Litigation, 2009-1450, in which it upheld final judgments entered by Judge R. Gary Klausner of the U.S. District Court for the Central District of California. The plaintiff asserted a total of 1,975 claims from 31 patents against 165 defendants in 50 groups of related corporate entities.

To manage these staggering numbers, the court “ordered Katz initially to select no more than 40 claims per defendant group, and after discovery to narrow the number of selected claims to 16 per defendant group.” Katz sought to sever and stay the disposition of all unasserted claims, contending that the claim selection procedure violated his due process rights. The district court denied the motion and granted summary judgment in the defendants' favor on the selected claims. Katz appealed.

The Federal Circuit affirmed the district court's denial of the motion to sever and stay, holding that “to make out a due process claim, Katz must demonstrate that the district court's claim selection procedure risked erroneously depriving it of its rights and that the risk outweighed the added costs associated with a substitute procedure.” According to Katz, it was the defendants' burden to show that issues related to the unselected claims were duplicative. The district court noted, and the Federal Circuit agreed, that the defendants had made “a convincing showing that many of the claims are duplicative” by providing examples of duplicative claims and “pointing out the common genealogy of Katz's patents and the terminal disclaimers in almost all of them.” Based on this showing, the Federal Circuit held that “it was both efficient and fair to require Katz to identify those unasserted claims that, in Katz's view, raised separate legal issues from those raised by the asserted claims. In light of Katz's failure to make, or even attempt to make, any such showing, it was reasonable for the district court to deny Katz's motion to sever and stay the disposition of all of the unasserted claims.”

Federal Circuit Raises Bar on False Marking Pleading

On March 15, the Federal Circuit issued a mandamus order in In re BP Lubricants USA, Inc., Misc. Case No. 2010-960, in which the pleading standard for false marking patent suits was heightened. The Order, authored by Judge Richard Linn, states that false marking claims are subject to Federal Rule of Civil Procedure 9(b), which requires fraud claims to be pled with “particularity.” The court held that the enhanced pleading requirements described in the landmark opinion Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009) apply to all pleadings under Rule 9(b), not just inequitable conduct. The Federal Circuit analogized the false marking statute to a more often litigated area of law, the False Claims Act. Every regional circuit has held that Rule 9(b) applies to the False Claims Act when bringing complaints on behalf of the government. The complaint in BP Lubricants was based primarily on information and belief that BP should have been aware that it was marking products with the number of an expired patent. The Federal Circuit held that this was not particular enough, noting that a party cannot plead the bare elements of its cause of action, affix the term “general allegation” to them, and expect the complaint to survive a motion to dismiss. In response to the relator's argument that it would be impossible to name specific individuals who committed the allegedly fraudulent acts in a false marking context, the Federal Circuit noted that naming of specific individuals is not the only way to set forth facts on which the intent to deceive can be inferred. This mandamus order could lead to a decline in the recent explosion of litigation that many view as a misuse of the false marking statute.

Jeffrey S. Ginsberg is a partner and Joseph Mercadante is an associate in the New York office of Kenyon & Kenyon LLP.

Patent Reform Bill Passes Senate

The America Invents Act, S. 23, passed the Senate on a 95-5 vote, sending it to the House for consideration. The bill represents the first major change in U.S. patent law since the 1950s, and enjoys broad bipartisan support from legislators as well as the White House and USPTO Director David Kappos. Major features of the Senate bill include transitioning from a first-to-invent to first-to-file system; allowing the USPTO to set its own fees and keep the fees it generates; and changing the post-grant review process. The two fee-related measures, allowing the USPTO to set its own fees and keep any excess fees it generates, are designed to reduce the enormous current backlog of unexamined patent applications.

The Senate version will also significantly rewrite 35 U.S.C. ” 102 and 103, the main sections that define patent invalidity by lack of novelty and obviousness, respectively. Due to the first-to-file system, the new ' 102(a) will focus on the effective filing date and generally expands the scope of prior art to all art existing before that date. The Senate version also rewrites the law of obviousness, focusing on whether “the subject matter sought to be patented” is obvious, changing the current focus on the claims rather than the entire subject matter.

The first-to-file system will also eliminate current section 35 U.S.C. ' 102(g), dealing with interferences. The new law allows a legal action when the first-filer “derived” its claimed invention from another, but curiously only provides for this derivation action after the USPTO issues two patents directed to the same subject matter. The bill proposes that obviousness will now be considered as of the effective filing date, instead of at the invention date.

S. 23 also guts the current false marking statute, 35 U.S.C. ' 292, making two important changes. First, it removes the right of private citizens to sue on behalf of the U.S. government for the penalty of “not more than $500 for every such offense.” Only the federal government can bring an action to recover such a penalty. Second, while a private citizen can still sue under ' 292, such a plaintiff must prove a “competitive injury” and is only entitled to damages adequate to compensate for whatever injury is caused by the false marking. Significantly, this revision would apply to all litigations pending on the date that the bill is enacted into law. This would almost certainly result in dismissal of most of the cases that are currently pending under ' 292, since most (if not all) of these cases were not brought by the U.S. government, and most of them were not brought by competitors of the defendant.

In prior attempts at patent reform, bills had cleared the House with approval only to die in the Senate. Now, with the Senate having agreed and passed a bill, the House of Representatives Judiciary Committee's Subcommittee on Intellectual Property, Competition and the Internet will begin hearing testimony and begin introducing patent reform measures.

District Judge Rules Qui Tam False Marking Statute Unconstitutional

On Feb. 23, 2011, an Ohio federal judge declared the qui tam provision of the false marking statute to be unconstitutional.

The qui tam false marking statute 35 U.S.C. ' 292, allows any private entity to bring a suit on behalf of the U.S. government alleging that a party is marking its products with expired or invalid patent numbers. The statute does not require that the qui tam plaintiff notify the Department of Justice that it is bringing suit on behalf of the government.

In Unique Product Solutions Ltd. v. Hy-Grade Valve Inc., Case No. 10-1912, Judge Dan Aaron Polster of the U.S. District Court for the Northern District of Ohio ruled that the false marking statute violates the take care provision of Article II of the U.S. Constitution and granted the defendant's motion to dismiss. The take care clause requires that the President “shall take Care that the Laws be faithfully executed. '” Judge Polster held that “Decisions [related to the litigation] should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain.” He grounded his decision in the 1988 Supreme Court case Morrison v. Olson , 487 U.S. 654, which held that the executive branch must have sufficient control over litigation in which the United States is a real party in interest.

Claim Selection Procedures in Complex Patent Litigation Did Not Violate Due
Process Rights

On Feb. 18, 2011, the Federal Circuit issued its opinion in the multidistrict patent litigation In re Katz Interactive Call Processing Patent Litigation, 2009-1450, in which it upheld final judgments entered by Judge R. Gary Klausner of the U.S. District Court for the Central District of California. The plaintiff asserted a total of 1,975 claims from 31 patents against 165 defendants in 50 groups of related corporate entities.

To manage these staggering numbers, the court “ordered Katz initially to select no more than 40 claims per defendant group, and after discovery to narrow the number of selected claims to 16 per defendant group.” Katz sought to sever and stay the disposition of all unasserted claims, contending that the claim selection procedure violated his due process rights. The district court denied the motion and granted summary judgment in the defendants' favor on the selected claims. Katz appealed.

The Federal Circuit affirmed the district court's denial of the motion to sever and stay, holding that “to make out a due process claim, Katz must demonstrate that the district court's claim selection procedure risked erroneously depriving it of its rights and that the risk outweighed the added costs associated with a substitute procedure.” According to Katz, it was the defendants' burden to show that issues related to the unselected claims were duplicative. The district court noted, and the Federal Circuit agreed, that the defendants had made “a convincing showing that many of the claims are duplicative” by providing examples of duplicative claims and “pointing out the common genealogy of Katz's patents and the terminal disclaimers in almost all of them.” Based on this showing, the Federal Circuit held that “it was both efficient and fair to require Katz to identify those unasserted claims that, in Katz's view, raised separate legal issues from those raised by the asserted claims. In light of Katz's failure to make, or even attempt to make, any such showing, it was reasonable for the district court to deny Katz's motion to sever and stay the disposition of all of the unasserted claims.”

Federal Circuit Raises Bar on False Marking Pleading

On March 15, the Federal Circuit issued a mandamus order in In re BP Lubricants USA, Inc., Misc. Case No. 2010-960, in which the pleading standard for false marking patent suits was heightened. The Order, authored by Judge Richard Linn, states that false marking claims are subject to Federal Rule of Civil Procedure 9(b), which requires fraud claims to be pled with “particularity.” The court held that the enhanced pleading requirements described in the landmark opinion Exergen Corp. v. Wal-Mart Stores, Inc. , 575 F.3d 1312 (Fed. Cir. 2009) apply to all pleadings under Rule 9(b), not just inequitable conduct. The Federal Circuit analogized the false marking statute to a more often litigated area of law, the False Claims Act. Every regional circuit has held that Rule 9(b) applies to the False Claims Act when bringing complaints on behalf of the government. The complaint in BP Lubricants was based primarily on information and belief that BP should have been aware that it was marking products with the number of an expired patent. The Federal Circuit held that this was not particular enough, noting that a party cannot plead the bare elements of its cause of action, affix the term “general allegation” to them, and expect the complaint to survive a motion to dismiss. In response to the relator's argument that it would be impossible to name specific individuals who committed the allegedly fraudulent acts in a false marking context, the Federal Circuit noted that naming of specific individuals is not the only way to set forth facts on which the intent to deceive can be inferred. This mandamus order could lead to a decline in the recent explosion of litigation that many view as a misuse of the false marking statute.

Jeffrey S. Ginsberg is a partner and Joseph Mercadante is an associate in the New York office of Kenyon & Kenyon LLP.