The American Invents Act contains 37 sections.  The sections vary greatly in relative length, importance and generality.  For example, Section 3 makes a fundamental change in the priority principle by substituting a “first inventor to file” principle for the historic “first to invent” principle.  In contrast, Section 24 names the new Detroit satellite office of the Patent and Trademark Office.

The substantive amendments to the patent statutes  made by the AIA are best understood against the background of existing law.  Attached is a draft section on the AIA, organized section-by-section.  For each section, it analyzes the changes in the Patent Act made by the AIA and their impact, together with cross references to discussions of the affected subject area in the Chisum on Patents treatise.  The AIA Analysis is here:  AIAOverview

Perhaps the first and most important feature of the 2011 patent “reform” legislation is what it does not reform.

The changes made by the AIA are significant and numerous, but they change little of the substantive law on patentability and infringement.

For example, essentially unaltered are:
(1) the standards of novelty and unobviousness in relation to the prior art (though the Act will, prospectively, alter the definition of prior art),
(2) the enablement and written description requirements,
(3) patent eligible subject matter,
(4) claim interpretation,
(5) the doctrine of equivalents and prosecution history estoppel,
(6) remedies for infringement, and
(7) direct and indirect infringement (active inducement and contributory infringement).

These important matters will continue to be defined by the constant flow of case law.

The switch to first-to-file priority is significant, but it goes into effect only for applications filed 18 months after enactment.  Many, many applications and patents will be governed by the “old” law.  Alas, many of us may expire before the first-to-invent principle does (fully).   Also, standards for proving invention (conception, reduction-to-practice, etc.) will continue to be relevant to determine issues such as co-inventorship and ownership.

Also, the grace period includes an inventor disclosure rule that will, arguably, allow an inventor to set a priority date by a “public disclosure” of the invention (up to a year before filing), which eliminates from the prior art a subsequent, pre-filing independent disclosure by another.  The Act does not define what constitutes a public disclosure for this purpose.

Never has so much attention been focused on a patent enactment that accomplished so little.

On September 16, 2011, President Obama is scheduled to sign into law the “Leahy-Smith America Invents Act” (hereafter “the Act” or “AIA”).  The Act makes numerous changes to the governing United States patent statutes, which are codified in United States Code Title 35.

The Act is from a bill of the House of Representatives,  112th Cong., H. R. No. 1249.  AmericanInventsActHR1249

Pertinent to the interpretation of the Act is the House Report on the Bill, 112th Cong., H.R. Report 112-98.  HouseReportonAmericanInventsAct

Information on the legislation can be found at a U.S. Patent and Trademark Office (PTO) website here.

A series of Chisum Patent Law Reference Guides will address specific changes, issues, and developments on the AIA.

CPLRG 076:  Introduction to AIA

CPLRG 077: What the Reform Act Does NOT Reform

CPLRG 0078: Section-by-Section Analysis

Major issues: mental steps as unpatentable methods; Section 101; Bilski; claims to computer readable medium with executable programs instructions; Beauregard claims

A Federal Circuit panel, in an opinion by Judge Dyk, held that method claims to a credit card fraud prevention system, which could be carried out by a human mentally or with the aid of pencil, were unpatentably abstract in the Bilski sense.  The panel also held claims to “computer reaable medium” for carrying out the methods to be unpatentable.

Cross Reference. For a discussion of the “mental steps” doctrine, see Chisum on Patents Sec. 1.03[6].

A Growing Line of Post-Bilski Cases. This one of a line of Federal panel decisions that to apply the Supreme Court’s ambiguous analysis in Bilski.  For earlier decisions in the line, see Research Corp. Technologies, Inc. v. Microsoft Corp., 627 F.3d 859, CPLRG 0072 (Fed. Cir. 2010); Prometheus Laboratories, Inc. v. Mayo Collaborative Services, 628 F.3d 1347, CPLRG 0071 (Fed. Cir. 2010), on remand from 130 S. Ct. 3543 (2010), cert. granted, 180 L. Ed. 2d 844 (June 20, 2011); Ass’n for Molecular Pathology v. United States Patent and Trademark Office, CPLRG 0073 (Fed. Cir. July 29, 2011).   For a subsequent decision, see Classen Immuotherapies, Inc. v. Biogen Idec, 2011 U.S. App. LEXIS 18126 (Fed. Cir. Aug. 31, 2011) (with three opinions by three judges, Newman, Rader and Moore).
Pertinent to this decision is the Supreme Court’s June 20, 2011 grant of certiorari in Prometheus Laboratories, Inc. v. Mayo Collaborative Services, 628 F.3d 1347, CPLRG 0071 (Fed. Cir. 2010), which involves Section 101 issues on patent claims concerning medical diagnostics.  In Prometheus, the Supreme Court may–or, unfortunately, may not–clarify the current confusion in Section 101 doctrine, a confusion that dates back to Gottschalk v. Benson, 409 U.S. 63 (1972).  See Chisum, Patenting Intangible Methods: Revisiting Benson (1972) After Bilksi (2010), 27 Santa Clara Computer & High Tech. L. J.445 (2011) (SSRN 1698724).

Patent.  The patent concerned a credit card fraud detection system.  U.S. Pat. No. 6,029,145. USPatNo6029145
Claim 3; Method.  Claim 3 provided:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
a) obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;
b) constructing a map of credit card numbers based upon the other transactions and;
c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Machine-or-Transformation Test Failed.  The Federal Circuit noted that the Supreme Court in Bilski confirmed that the Federal Circuit’s “machine-or-transformation” (MORT) test was a useful tool but not an exclusive test.  The court held that the claim failed the MORT test: “The mere collection and organization of data regarding credit card numbers and Internet addresses is insufficient to meet the transformation prong of the test, and the plain language of claim 3 does not require the method to be performed by a particular machine, or even a machine at all.”

Abstract Ideas: Mental Steps. As the Supreme Court had directed, the court did not stop with the MORT test, but it held that the claim “fails to recite patent-eligible subject matter because it is drawn to an unpatentable mental process–a subcategory of unpatentable abstract ideas.”  In the 1972 Benson decision, “the Supreme Court appeared to endorse the view that methods which can be performed mentally, or which are the equivalent of human mental work, are unpatentable abstract ideas–the “basic tools of scientific and technological work” that are open to all.”  Subsequent Supreme Court and Federal Circuit decisions similarly refused to uphold claims to “a mental process standing alone.”  In re Comiskey, 554 F.3d 967, 980 (Fed. Cir. 2009).

Method Claim 3. Claim 3 fell within the mental steps ban:  “the broad scope of claim 3 extends to essentially any method of detecting credit card fraud based on information relating past transactions to a particular `Internet address,’ even methods that can be performed in the human mind.”  For example, step (b) requires construction of a “map of credit card numbers”; a person could make such a map by writing down a list.
The court acknowledged that it would be proper to include “mental method steps as part of a process containing non-mental steps (citing In re Abele, 684 F.2d 902, 908 (CCPA 1982).

Claim 2; Computer Readable Medium; “Beauregard” Claims. The court then considered claim 2:

2. A computer readable medium containing program instructions for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:
a) obtaining credit card information relating to the transactions from the consumer; and
b) verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,
wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,
wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;
[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
[b] constructing a map of credit card numbers based upon the other transactions; and
[c] utilizing the map of credit card numbers to determine if the credit card transaction is valid.

This type of claim is known as a “Beauregard” claim after In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995), that is, “a claim to a computer readable medium (e.g., a disk, hard drive, or other data storage device) containing program instructions for a computer to perform a particular process.”
The patent owner argued that claim 2 was to Section 101 “manufacture” or “machine,” not a processor or method and, therefore, could not fall within any of the Bilski “exceptions” (law of nature, physical phenomena, abstract idea).  The court disagreed:  “Regardless of what statutory category (“process, machine, manufacture, or composition of matter,” 35 U.S.C. § 101) a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.”
The court distinguished cases, such as Research Corp. CPLG 0072 (Fed. Cir. 2010), “where, as a practical matter, the use of a computer is required to perform the claimed method.”

Major issues:  claims to isolated genes; claims to comparing gene sequences to detect cancer; Bilski; patent eligible subject matter

In a much-watched case, known generally by the name of the patent owner, Myriad Genetics, a Federal Circuit panel addressed Section 101 issues concerning claims to isolated DNA and to methods of screening for cancer by DNA testing.  The panel also addressed the issue whether the plaintiffs, “an assortment of medical organizations, researchers, genetic counselors, and patients” had “standing under the Declaratory Judgment Act to challenge Myriad’s patents.”
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On standing, the Federal Circuit held that “at least one plaintiff,” a doctor, had standing.  On the merits, the majority distinguished between claims to isolated genes and screening by cell growth rates and claims to methods of comparing DNA sequences.  The former but not the latter were for patent eligible subject matter.

Pertinent to this decision is the Supreme Courts June 20, 2011 grant of certiorari in Prometheus Laboratories, Inc. v. Mayo Collaborative Services, 628 F.3d 1347, CPLRG 0071 (Fed. Cir. 2010), which involves Section 101 issues on patent claims concerning medical diagnostics.

Patents. At issue were seven patents.  U.S. Pat. No. 5,747,282; U.S. Pat. No. 5,837,492; U.S. Pat. No. 5,693,473;U.S. Pat. No. 5,709,999; U.S. Pat. No. 5,710,001; U.S. Pat. No. 5,753,441; U.S. Pat. No. 6,033,857.  USPatNo5747282 USPatNo5837492 USPatNo5693473 USPatNo5709999 USPatNo5710001 USPatNo5753441 USPatNo6033857

District Court. A district court held the challenged claims in the patents unpatentable under Section 101.  See Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office, 702 F. Supp. 2d 181 (S.D.N.Y. 2010).

Isolated DNA Molecules. The majority held that “composition claims to `isolated’ DNA molecules” were not to “patent-ineligible products of nature under § 101″ because “the molecules as claimed do not exist in nature.”   An example of such a claim was claim 1 of the ‘282 patent:  “An isolated DNA coding for a BRCA1 polypeptide, said polypeptide having the amino acid sequence set forth in SEQ ID NO:2.”

The mutations in the human “BRCA1″ and “BRCA2″ genes were “associated with a predisposition to breast and ovarian cancers.”

The majority reasoned, inter alia, that isolated DNA was, by virtue of how it is obtained, chemical distinct from natural DNA: it is not merely “purified.”  The majority rejected a dissenting judge’s analogy to “snapping a leaf from a tree”:  “[N]o one could contemplate that snapping a leaf from a tree would be worthy of a patent, whereas isolating genes to provide useful diagnostic tools and medicines is surely what the patent laws are intended to encourage and protect. Snapping a leaf from a tree is a physical separation, not one creating a new chemical entity.”

Method of Screening by Comparing Cell Growth Rates. The majority also upheld that a method claim to “screening potential cancer therapeutics via changes in cell growth rates” as not drawn “to a patent-ineligible scientific principle.”  An example of such a claim was ‘282 patent claim 20:

20. A method for screening potential cancer therapeutics which comprises: growing a transformed eukaryotic host cell containing an altered BRCA1 gene causing cancer in the presence of a compound suspected of being a cancer therapeutic, growing said transformed eukaryotic host cell in the absence of said compound, determining the rate of growth of said host cell in the presence of said compound and the rate of growth of said host cell in the absence of said compound and comparing the growth rate of said host cells, wherein a slower rate of growth of said host cell in the presence of said compound is indicative of a cancer therapeutic.

The majority noted that “the claim includes transformative steps, an `important clue’ that it is drawn to a patent-eligible process. Bilski, 130 S. Ct. at 3227.  Also,

the claim is not so “manifestly abstract” as to claim only a scientific principle, and not a patent-eligible process. See Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859, 869, CPLRG 0072 (Fed. Cir. 2010). The claim does not cover all cells, all compounds, or all methods of determining the therapeutic effect of a compound. Rather, it is tied to specific host cells transformed with specific genes and grown in the presence or absence of a specific type of therapeutic. Moreover, the claim is tied to measuring a therapeutic effect on the cells solely by changes in the cells’ growth rate. The claim thus presents “functional and palpable applications” in the field of biotechnology. Id. at 868; see also Prometheus, 628 F.3d at 1355 (“[T]he claims do not preempt all uses of the natural correlations; they utilize them in a series of specific steps.”).

Methods of Comparing or Analyzing DNA Sequences. In contrast, the majority held not patentable “claims directed to “comparing” or “analyzing” DNA sequences.”  An example of such a claim was claim 1 of the ‘999 patent.

1. A method for screening a tumor sample from a human subject for a somatic alteration in a BRCA1 gene in said tumor which comprises [] comparing a first sequence selected from the group consisting of a BRCA1 gene from said tumor sample, BRCA1 RNA from said tumor sample and BRCA1 cDNA made from mRNA from said tumor sample with a second sequence selected from the group consisting of BRCA1 gene from a nontumor sample of said subject, BRCA1 RNA from said nontumor sample and BRCA1 cDNA made from mRNA from said nontumor sample, wherein a difference in the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said tumor sample from the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said nontumor sample indicates a somatic alteration in the BRCA1 gene in said tumor sample.

Those claims “include[d] no transformative steps and cover[ed] only patent-ineligible abstract, mental steps.”

“[The claims] recite[] nothing more than the abstract mental steps necessary to compare two different nucleotide sequences: look at the first position in a first sequence; determine the nucleotide sequence at that first position; look at the first position in a second sequence; determine the nucleotide sequence at that first position; determine if the nucleotide at the first position in the first sequence and the first position in the second sequence are the same or different, wherein the latter indicates an alternation; and repeat for the next position.

The majority distinguished Prometheus (which was written by the same judge, Judge Lourie).

[In Prometheus,] the court held that because the metabolite levels could not be determined by mere inspection, the determining step necessarily required a transformation: `Some form of manipulation … is necessary to extract the metabolites from a bodily sample and determine their concentration.
Myriad’s claims, in contrast, do not include the step of “determining” the sequence of BRCA genes by, e.g., isolating the genes from a blood sample and sequencing them, or any other necessarily transformative step. Rather, the comparison between the two sequences can be accomplished by mere inspection alone. Accordingly, Myriad’s claimed methods of comparing or analyzing nucleotide sequences fail to satisfy the machine-or-transformation test, and are instead directed to the abstract mental process of comparing two nucleotide sequences. The claims thus fail to claim a patent-eligible process under § 101.”

MAJOR ISSUES: invalidity defenses; clear and convincing evidence standard of proof; Section 282 as codification of common-law heightened proof standard; jury instruction when accused infringer relies on new evidence not considered by PTO during examination

COMMENTS: The Court, in a well-crafted opinion by Justice Sotomayor, confirms the Federal Circuit’s position, consistently maintained for almost 30 years, that one challenging the validity of a patent claim bears a proof burden of clear and convincing evidence and not the general civil burden of a preponderance of the evidence. This heightened standard is not lowered even when the challenger relies on “new” evidence, that is, evidence that was not presented to or considered by the PTO during examination of the claim. However, the Court, like the Federal Circuit, cautioned that a challenger may more easily carry the heightened burden by relying on new evidence. And the Court directed that a cautionary instruction to a jury on new evidence will be proper.

Cross References: For a discussion of the proof burden, as applied to obviousness invalidity defenses, see Chisum on Patents § 5.06[2]. See also Chisum on Patents § 19.02. For cases on the presumption of validity, see Chisum Patent Law Digest § 1562, § 5663.

For a summary of the Court’s decision, see below.

1. CLARIFYING TERMINOLOGY: BURDEN OF PERSUASION, NOT PRODUCTION OF EVIDENCE. In a helpful footnote, the Court clarified terminology. It noted that the term “burden of proof” encompasses two separate burdens: (1) a burden of persuasion, which specifies “which party loses if the evidence is balanced”, and (2) a burden of production, which specifies “which party must come forward with evidence at various stages of litigation.”   At issue here is the burden of persuasion or “standard of proof,” which refers “to the degree of certainty by which the factfinder must be persuaded of a factual conclusion to find in favor of the party bearing the burden of persuasion.”   The parties dispute whether the standard for an invalidity defense should be “preponderance of the evidence” or a heightened standard of “clear and convincing evidence.”   The accused infringer, Microsoft, argues that burden should be a preponderance either generally or, alternatively, when a validity defense relies on evidence not considered by the Patent and Trademark Office (PTO). The Court rejected both arguments, holding that he standard of proof on invalidity is clear and convincing evidence. However, when an accused infringer does rely on new evidence to support an invalidity defense, a court should, on request, give a cautionary instruction to a jury.

2. CODIFYING COMMON LAW PRESUMPTION AND HEIGHTENED PROOF STANDARD. Prior to the 1952 Act, the courts, as a matter of common law, applied a heightened standard of proof for invalidity defenses.

The leading decision was Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U.S. 1 (1934). RCA stated that “an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance.”

In enacting Section 282, which, for the first time, stated a presumption of validity but which did not explicitly define the standard of proof, Congress used the common-law phrase “presumed validity” and must be assumed to have intended that it embody the common-law heightened proof standard.

Early after its formation, in an opinion by Judge Giles Rich, “a principal drafter of the 1952 Act,” American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984), and consistently thereafter, the Federal Circuit interpreted Section 282 as codifying an existing presumption of validity and as imposing a constant burden of proving invalidity by clearer and convincing evidence. Meanwhile, Congress “often amended § 282″ but never “even considered a proposal to lower the standard of proof.”

Under the common and proper understanding of a presumption, the presumption does not, alone, establish a standard of proof. See J. Thayer, Preliminary Treatise on Evidence at the Common Law 336-337 (1898); Fed. Rules of Evidence Rule 301. However, courts have often used “presumption” “when another term might be more accurate,” and Congress cannot be faulted for similarly using the phrase “presumed valid” in an imprecise way.

The accused infringer Microsoft argues that pre-1952 cases applied the heightened standard to only two categories of cases: those involving oral testimony of prior invention and those involving invention priority issues previously litigated by the parties in the PTO. To the contrary, the pre-1952 cases identified no such limitations. See Smith v. Hall, 301 U.S. 216, 233 (1937); Coffin v. Ogden, 85 U.S. 120, 124 (1874).

The accused infringer argues that construing the phrase “presumed valid” in Section 282 as imposing a heightened burden renders the subsequent phrase, “[t]he burden of establishing invalidity of a patent … shall rest on the party asserting such invalidity,” superfluous. That is true, but the accused infringer’s own suggested interpretation suffers from superfluity. Sometimes, “Congress enacts provisions that are superfluous.”

The Court noted: “For those of us for whom it is relevant,” Section 282’s legislative history supports the conclusion that “Congress meant to codify the judge-made presumption of validity” and not to establish a new presumption.

3. EVIDENCE NOT CONSIDERED BY PTO DURING EXAMINATION. The accused infringer argues, in the alternative, that a preponderance standard should apply “where the evidence before the factfinder was not before the PTO during the examination process.”

In KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398(2007), the Court stated that, as to evidence on validity not considered by the PTO: “the rationale underlying the presumption–that the PTO, in its expertise, has approved the claim–seems much diminished.” The statement “is true enough, although other rationales may animate the presumption in such circumstances,” such as the reliance interest of a patent owner, who has disclosed an invention in order to obtain a patent. See The Barbed Wire Patent, 143 U.S. 275, 292 (1892).

Regardless of the rationale, Congress codified “the common-law presumption of patent validity and, implicitly, the heightened standard of proof attached to it.” The pre-1952 cases on the common-law presumption endorsed no “fluctuating standard of proof.”

A fluctuating standard would involve “impracticalities” and “collateral litigation,” such as the difficulty in determining “whether a PTO examiner considered a particular references.” The PTO only requires examiners to cite the “best” reference, not all the references considered.

Pre-1952 Court of Appeals decisions did refer to a “weakened” or “dissipated” presumption when the Patent Office had not considered evidence, but did not suggest that a preponderance standard should apply. Rather, the cases reflect a “common sense principle” that the Federal Circuit has recognized: “new evidence supporting an invalidity defense may `carry more weight’ in an infringement action than evidence previously considered by the PTO, American Hoist, 725 F.2d at 1360.”

4. JURY INSTRUCTION. The Court noted: “a jury instruction on the effect of new evidence can, and when requested, most often should be given.”

If the parties dispute “whether the evidence presented to the jury differs from that evaluated by the PTO, the jury may be instructed to consider that question.”

Thus, “the jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence.”

5. THIS CASE: COMPUTER DOCUMENT EDITING METHOD. A patent concerned an improved computer document editing method, which required, inter alia, separate storage of document content and its “metacodes.” U.S. Pat. No. 5,787,449. USPatNo5787449

The patent’s owner, i4i, sued an accused infringer, Microsoft, alleging that Microsoft’s “Word” software product infringed the patent’s claims.

The accused infringer alleged that the asserted claims were invalid because of an “on sale” bar.

The inventors named in the patent had sold a software product (“S4″) more than a year before applying for the patent. The S4 product had not been disclosed to or considered by the PTO during examination of the patent. The source code for S4 had been destroyed. At trial to a jury, the inventors testified that the S4 software did not embody the claimed invention because it did not provide the separate metacode storage.

The accused infringer requested an instruction to the jury that its burden of proof on “its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit is by preponderance of the evidence.” The district court refused to give that instruction, instead instructing the jury that the accused infringer’s burden of proving invalidity was by clear and convincing evidence. The jury rendered verdicts that Microsoft willfully infringed and that the patent’s asserted claims were not invalid. The Federal Circuit affirmed. i4i Limited Partnership v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010), aff’d, — S. Ct. —- (2011). In turn, the Supreme Court affirmed. The accused infringer argued in its reply brief that a cautionary instruction to the jury to consider that the S4 software had never been considered by the PTO should have been given. However, the accused infringer never requested such an instruction. Therefore, the argument “comes far too late, and we therefore refuse to consider it.”

6. LAW AND FACT. Justice Breyer, joined by Justices Scalia and Alito, wrote a concurring opinion to emphasize that the heightened proof standard only applied to “questions of fact and not to questions of law.”

Focusing primarily on jury trials in which invalidity for obviousness is at issue, Justice Breyer advocated use of techniques such as interrogatories and special verdicts to “isolate[] the facts (determined with help of the `clear and convincing’ standard),” and “thereby assure the proper interpretation or application of the correct legal standard (without use of the `clear and convincing’ standard).” Justice Breyer concluded:  “By preventing the `clear and convincing’ standard from roaming outside its fact-related reservation, courts can increase the likelihood that discoveries or inventions will not receive legal protection where none is due.”

For cases on jury trials on obviousness, see Chisum Patent Law Digest § 1565. See also Chisum on Patents § 5.04[3].

7. Justice Thomas also wrote a concurring opinion, which argued that Section 282 did not codify the common-law rule. It is silent on the standard of proof. Nevertheless, the majority result is correct because the heightened standard set forth in RCA (1934) remains the law.

MAJOR ISSUES: ownership of inventions and patent rights; initial ownership vesting in inventor; employee inventions; federally-funded inventions; universities as federal contractors

“Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor.”

So decreed Chief Justice Roberts for the Supreme Court in the course of rejecting an argument that the Bayh-Dole Act, a federal statute on inventions made in projects funded by the federal government by federal contractors, such as universities, automatically vested title to all federally funded employee inventions in federal contractors.  The Court reasoned that Congress, in enacting Bayh-Dole Act, did not intend to displace the prevailing rule that title to an invention vests initially in the inventor, even when the inventor makes the invention during the course of employment.

The Court affirmed a Federal Circuit decision that a federal contractor, Stanford University, lacked standing to sue a company, Roche, for infringement of three patents on measuring HIV in blood using polymerase chain reaction (PCR) techniques.  U.S. Pat. No. 5,968,730; U.S. Pat. No. 6,503,705; U.S. Pat. No. 7,129,041.  .USPatNo5968730 USPatNo6503705 USPatNo7129041

In Board of Trustees of The Leland Stanford Junior University v. Roche Molecular Systems, Inc., 583 F.3d at 832, CPLRG 0003 (Fed. Cir. 2009) (LINN, Prost & Moore), aff’d, 131 S. Ct. 2188 (2011), the Federal Circuit had held that Stanford lacked standing because a named inventor on the patent, Holodniy, a research fellow at a Stanford, had, after signing an agreement to assign rights to inventions resulting from his employment at the University but prior to signing an actual assignment of the invention to Stanford, executed an assignment of future inventions as part of a consulting arrangement with Roche’s predecessor, Cetus.  The Federal Circuit held that the assignment agreement with Cetus resulted in an automatic transfer of ownership when the invention was made and prevailed over the prior Stanford agreement, which was merely an agreement to assign, not an assignment of future inventions.
In Stanford University, the district court had taken a different tact:  it had upheld Stanford’s standing but found the patents invalid for obviousness based on the prior art effect of Holodniy’s work at Cetus.  Cetus had elected not to seek a patent on Holodniy’s work but allowed it to be published.  See Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 487 F. Supp. 2d 1099 (N.D. Calif. 2007); Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 563 F. Supp. 2d 1016, (N.D. Calif. 2008).

Ownership and Transfer of Patents: Patent Law or General (State) Law? In its opinion, in analyzing the question of the effect of the Bayh-Dole Act on patent rights, the Court treated the rule on initial but transferable inventor ownership of patent rights to an invention, as deeply ingrained in United States patent law.  The court referred to the rule as a “premise” upon which the patent system has operated since 1790, as a “norm,” as “a basic idea” unchanged in 220 years, as a “general rule,” as “the normal priority of rights,” and as “one of the fundamental precepts of patent law,”an alteration of which would be a “sea change.”
Ironically, lower court decisions before Stanford University treated the general rule on employee invention ownership as a matter of state law on ownership and contractual relations, not as matter of federal statutory patent law.

As the Court describes in Stanford University, the patent statutes do require that an application be filed by and in the name of the inventor or inventors, but court decisions prior to Stanford University have construed those statutes as speaking to inventorship and not to the distinct question of ownership.
In Stanford University, the Supreme Court may have, without analysis, altered that construction.  For example, at one point the Court refers to “the basic principle, codified in the Patent Act, that an inventor owns the rights to his invention.”  An overall theme of the Stanford University opinion by Chief Justice Roberts was to preserve a basic principle in the face of  language that could be interpreted as upsetting the principle. That theme should be applied to the interpretation of the opinion itself.   For discussion of patent ownership, see Chisum on Patents Ch. 22 and Chisum Patent Law Digest Sec. 9000

Construction of Patent Assignment Agreements; Uncertainty Created by Federal Circuit Law on Standing. In Stanford, the Court noted but did not pass upon the Federal Circuit’s rulings on important issues concerning the construction of patent assignment agreements and their effect on the standing of a putative patent owner to sue for infringement.
Dissenting, Justice Breyer, joined by Justice Ginsburg, questioned the soundness of the Federal Circuit’s rulings as applied to the Bayh-Dole Act.  Concurring, Justice Sotomayor indicated that she shared Justice Breyer’s concerns about the Federal Circuit’s interpretation of assignment agreements that “implicate the Bayh-Dole Act.”
As noted by Justice Breyer, in interpreting patent assignment agreements for the purpose of determining standing to sue for infringement, the Federal Circuit has, (1)  applied its own law rather than regional circuit law or state law, DDB Techs., L.L.C. v. MLB Advanced Media, L.P , 517 F.3d 1284 (Fed. Cir. 2008), and (2) distinguished between (a) a present assignment of patent rights and (b) an agreement to assign rights in the future.  FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991).  With the former but not the latter, an ownership transfer from the inventor to the assignee is deemed to occur automatically and as a matter of law on the date an invention is made.

The Federal Circuit applied the distinction in Stanford University to deprive Stanford of standing to sue Roche for infringement.  The oddity of this result can be appreciated by considering a simplified, hypothetical time line based on the facts of Stanford University.

1. January 1, 2000.  Employee A signs an employment agreement with employer B.  A agrees to assign any invention pertaining to the employer B’s business to B.
2. February 1, 2000.  As employer B’s direction, employee A spends time consulting with another company, C.  Unbeknown to Employer B, Employee A signs a confidential disclosure agreement, which states that A “hereby assigns all future inventions” to company C.
3. March 1, 2000.  Employee A makes an invention X.
4. April 1, 2000.  As she had agreed, employee A executes an assignment of invention A to her employer B.
5. Thereafter, employer B takes the necessary steps to obtain a patent on the invention and to record the assignment in the PTO.  The patent issues in 2003.
6. In 2006, employer B files suit for infringement against both company C and another, unrelated company D.
Current Federal Circuit law, as applied in Stanford University, is that employer B lacks standing to sue company C (or. presumably, the unrelated company D).
Strangely, the Federal Circuit applied its standing rule even though it held separately that the accused infringer (Roche or, in the hypothetical, C) was barred from affirmatively obtaining ownership of the patent by a statute of limitations, which applied because of C’s long delay in asserting any ownership rights.

Evaluation. The Stanford University case was complex and the Supreme Court’s ruling dealt with one issue.  One conclusion is inescapable:  the current law on patent ownership is unacceptably complex and creates excessive uncertainty.  Such uncertainty endangers the reliance interests of patent owners, which the Supreme Court emphasized in another 2011 decision. Microsoft Corp. v. i4i Limited Partnership, 31 S. Ct. 2238 (2011).  See CPLRG 69.
Justice Breyer’s comments in Stanford University criticized the Court’s holding (and, implicitly, Federal Circuit law on the interpretation of assignment agreements) as making “the commercialization and marketing” of inventions “more difficult” are applicable to patents rights on all inventions, not just those arising from federally-funded research.
Uncertainty on ownership arises from the Federal Circuit’s excessively technical application of the standing requirement.  There is little justification for the Federal Circuit’s application of its own law to upset ownership interests traditionally and appropriately grounded in general legal principles of contract, property and employment law.  This point is made forcefully by Judge Newman, dissenting in DDB Techs., L.L.C. v. MLB Advanced Media (2008), the decision that the Federal Circuit relied upon in Stanford University.  Judge Newman iterated similar sentiments in Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1368 (Fed. Cir. 2010)
Furthermore, regardless of the wording of private assignment agreements, ownership rights, which are not reflected in the written chain of title recorded in the Patent and Trademark Office, such as those of Roche in Stanford University, should always be categorized as “equitable” and subject to equitable rules, including a priority to a first-arising equitable interest.
In SiRF Technology, Inc. v. U.S. Int’l Trade Comm’n, 601 F.3d 1319 (Fed. Cir. 2010), the Federal Circuit moved in that direction.  In SiRf, unfortunately, the Federal Circuit acknowledged DDB, but it recognized a presumption in favor of title ownership, placing the burden of proof on a challenger asserting that an invention was the subject of a prior “automatic” employee assignment.
An analogous problem area is that of inventorship disputes.  In a questionable interpretation of the statute providing for inventorship correction, 35 U.S.C. Section 256, the Federal Circuit allows persons claiming to be inventors of subject matter claimed by a patent to bring independent suits, which, if established, alter ownership, even though such persons could have but did not timely file their own applications for a patent on the subject matter.  However, with inventorship correction, the Federal Circuit does apply equitable principles, such as laches (undue delay in asserting inventorship) and treats uncorrected inventorship as a potential invalidity ground, not a jurisdictional defect.  See Chisum on Patents § 2.03[4][e], § 2.04[7][d].

MAJOR ISSUES: active inducement of infringement; Section 271(b); knowledge of patent; willful blindness as knowledge

COMMENTS: Section 271(b) imposes liability on those who actively induce infringement. The statute and its sister provision on contributory infringement, Section 271(c), impose liability for “indirect” infringement, that is, for acts of causing another to commit direct infringement by unauthorized making, selling, etc. As has long been recognized, the two statutes are ambiguous on what level of knowledge and intent an accused indirect infringer must have.

In Global Tech, the Supreme Court confirms that (1) there is a requirement that an indirect infringer have knowledge of the patent in question, (2) the knowledge requirement may be met by a showing of “willful blindness, but (3) the Federal Circuit erred by adopting a standard of “deliberate indifference to a known risk.

As discussed below, in Global-Tech, the Supreme Court did not address the difficult questions that arise when an accused inducer clearly knows of a patent, knows of the patent owner’s accusation of infringement, but believes that there is no infringement. For example, the accused inducer may rely on an opinion of counsel that the patent’s claims are invalid or that the infringement accusation is based on an unsupportably broad interpretation of the claims. As of June 2011, Federal Circuit and district court decisions do impose an “intent” requirement and have upheld findings of no liability when an accused inducer believed in good faith that there was no infringement. The issue may be reevaluated by the courts in the future.

CROSS REFERENCES: On active inducement, see Chisum on Patents § 17.04. For case law, see Chisum Patent Law Digest § 5115.

In Global-Tech Appliances, Inc., the Supreme Court returned to the law on contributory and inducing patent infringement. The Court had last directly addressed indirect patent infringement liability in the 1964 Aro II decision, Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964), though it had discussed such liability in the context of two copyright infringement suits, Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984), and Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

1. Knowledge Requirement. The question the Court addressed was: “whether a party who ‘actively induces infringement of a patent’ under 35 U.S.C. § 271(b) must know that the induced acts constitute patent infringement.” In an opinion by Justice Alito, the Court held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.”

The Court found the language of the statute to be ambiguous on the knowledge question. From the words “induce” and “actively,” the Court could infer that “at least some intent is required,” but it was unclear whether the inducer must (1) simply know that his or her actions will “lead another to engage in conduct that happens to amount to infringement,” or (2) also know that the conduct is infringement. The Court noted that the direct infringer, that is, the person who is induced by the inducer, need not know that his or her actions are infringing.

The Court then looked to the pre-1952 case law on contributory infringement, which Section 271(b) and its companion, Section 271(c), were meant to codify. Unfortunately, there was authority dating back into the 19th century on both sides of the question. Dictum in Grokster supported interpreting the case law as requiring knowledge of infringement.

The decider was Aro II, in which the Supreme Court had ruled that knowledge was required for Section 271(c). That decision was on a 5 to 4 vote, and there was “much to be said in favor of both views.” However, in Global-Tech Appliances, the Court did not revisit the merits of the holding because (1) the patent owner in the case at bar had not asked the Court to overrule Aro II, (2) “Congress seen fit to alter § 271(c)’s intent requirement in the nearly half a century since Aro II was decided,” and (3) the doctrine of stare decisis (precedent) applies with “special force” to “questions of statutory interpretation.”

Given the settled law on the knowledge requirement for Section 271(c) contributory infringement, the Court concluded that “the same knowledge is needed for induced infringement under § 271(b).” It would be “strange” to hold otherwise given that both Section 271(c) and Section 271(b) had “a common origin in the pre-1952 understanding of contributory infringement ….” and both provisions posed “the same difficult interpretive choice.”

2. Standard for Knowledge; Willful Blindness.   The Court next addressed the issue of what standard should govern the knowledge requirement under the active inducement provision, Section 271(b). The issue was important in the case because, as described below, there was no direct evidence that the accused inducing infringer had actual knowledge of the patent in question until the patent owner filed suit for infringement. The Court held that a doctrine of “willful blindness,” which it deemed to be well-established in criminal law, provided the appropriate standard.

The Court saw no merit in dissenting Justice Kennedy’s suggestion that the constitutional purposes of the patent system “demand[ed] a stricter standard for knowledge under § 271(b)”: “The dissent does not explain—nor can we see—why promoting ‘ “the Progress of Science and useful Arts,” ‘ … requires protecting parties who actively encourage others to violate patent rights and who take deliberate steps to remain ignorant of those rights despite a high probability that the rights exist and are being infringed ….”

The Court also saw not merit in the accused inducing infringer’s contention that the Grokster decision on inducing copyright infringement precluded application of the doctrine of willful infringement.

To find willful blindness, there are “two basic requirements: “(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.” These requirements assure that a knowledge finding based on willful blindness is more than merely recklessness or negligence.

In this case, the Federal Circuit had articulated a standard of “deliberate indifference to a known risk.” That standard was erroneous because it “departs from the proper willful blindness standard in two important respects.” First, the test would permit a knowledge finding based solely on “a ‘known risk’ that the induced acts are infringing.” Second, the test did “not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.”

3. Facts of Case; Holding: Sufficient Evidence of Willful Blindness. The patent in suit concerned a deep fryer. U.S. Pat. No. 4,995,312.  USPatNo4995312 The patent owner sold a product covered by the patent. The product was a commercial success. An accused infringer purchased the patent owner’s product in Hong Kong. The product bore no U.S. patent number. The accused infringer copied the product, except for cosmetic details, and sold its products to companies in the U.S., which then resold them. The accused infringer requested a patent attorney to conduct a “right to sell” search but did not inform the attorney of the copying. In an infringement suit, the patent owner asserted both direct infringement (by sale) and indirect infringement (active inducement of the customers’ sales). A jury found infringement under both theories. The Federal Circuit affirmed.

The Supreme Court affirmed the judgment on active inducement even though the Federal Circuit had erred in applying a deliberate indifference test of knowledge.

The Court reasoned that the evidence was sufficient to support a jury’s finding of knowledge based on the willful blindness doctrine. At trial, the jury was not instructed on the correct willful blindness standard but instead was asked whether the accused infringer “knew or should have known” of the patent. The accused infringer did not challenge the instructions on appeal to the Federal Circuit and consequently the Supreme Court did not consider whether remand for a new trial due to the erroneous instruction would have been proper.

Several facts supported a jury finding of the accused infringer’s “knowledge under the doctrine of willful blindness.” First, the patent owner’s product, a deep fryer, was innovative and successful. The accused infringer conducted “market research” and copied all but the cosmetic features of the patent owner’s product, indicating the accused infringer’s belief that the patent owner’s “advanced technology … would be valuable in the U.S. market.” Second, the accused infringer chose to copy an “overseas” model of the patent owner’s product. The accused infringer’s president was named an inventor on other patents and “was well aware that products made for overseas markets usually do not bear U.S. patent markings ….” The accused infringer’s president hired an attorney to conduct a patent search but did not inform the attorney that the accused infringer’s product was “simply a knockoff” of the patent owner’s product. The Court could not “fathom what motive” the president could have had “for withholding this information other than to manufacture a claim of plausible deniability in the event that his company was later accused of patent infringement.”

The Court concluded:

“Taken together, this evidence was more than sufficient for a jury to find that [the accused infringer] subjectively believed there was a high probability that [the patent owner's] fryer was patented, that [the accused infringer] took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of [the customer] Sunbeam’s sales.”

4. Difficult Remaining Issues: Specific Intent.  The Supreme Court did not address difficult issues on “specific intent” and the effect of an accused inducer’s asserted good faith belief that a patent was not infringed or was invalid. These issues had been addressed by the Federal Circuit and district courts. The Court did refer to active inducers who “take deliberate steps to remain ignorant of those rights despite a high probability that the rights exist and are being infringed ….” In discussing the doctrine of willful blindness, the Court referred to a party’s subjective belief that “that there is a high probability that a fact exists.” Infringement and validity are not simple historical facts that exist or not and of which a human either knows or does not. The Court also referred to a “high probability of wrongdoing” and “active efforts by an inducer to avoid knowing about the infringing nature of the activities.” In discussing the evidence in the case, the Court referred to a permissible jury finding that the inducer “willfully blinded itself to the infringing nature of [the induced] sales.”  (Emphasis added).

MAJOR ISSUES: inequitable conduct rendering patents unenforceable; raising standards for materiality and intent; “but for” materiality; no “sliding scale”; no materiality required for affirmative egregious misconduct

COMMENTS: In a milestone decision, the Federal Circuit, sitting en banc, reviewed the standard of materiality for the inequitable conduct defense to patent infringement. In a majority opinion for six of the participating eleven judges, Chief Judge Rader “tighten[ed] the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.”  On intent, the majority (1) rejected a “sliding scale” approach under which “a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa,” and (2) restricted the circumstances under which the necessary intent to deceive the PTO may be inferred.  On materiality, the majority (1) adopted a “but-for” standard of materiality, (2) recognized “an exception in cases of affirmative egregious misconduct,” and (3) eschewed prior decisions that relied on the PTO’s Rule 56 definitions of materiality.

For a preliminary, critical evaluation of Therasense, see below.

CROSS REFERENCES:  On the inequitable conduct defense and its history, see Chisum on Patents 19.03.  For case law on the defense, see Chisum, Patent Law Digest 4000.

1. Close Vote; Questionable Viability

In view of the lack of consensus among the judges in Therasense, with the majority representing a bare 6 of the 11 participating judges and with strong opinions by concurring Judge O’Malley and dissenting Judge Bryson, there is doubt about the long-term viability of the Therasense approach to inequitable conduct. Historically, en banc decisions by close votes on important issues of patent law in the Federal Circuit did not stabilize the law. The division of opinion among the judges persisted in subsequent panel decisions and, in some instances, the Supreme Court intervened. An example is the 1985 en banc decision, SRI Int’l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107 (Fed. Cir. 1985) (en banc), in which a badly-fractured court addressed, inconclusively, claim construction, the doctrine of equivalents, and prosecution history estoppel. The decision was followed over the years by en banc rulings and three Supreme Court decisions. Contrariwise, en banc decisions that were unanimous or nearly so have had a more permanent impact. Examples are A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 22 USPQ2d 1321 (Fed. Cir. 1992) (laches and estoppel) and Phillips v. AWH Corp., 415 F.3d 1303 or (Fed. Cir. 2005) (claim construction principles).

2. Driving Force: “Plague” of Inequitable Conduct Charges. Driving the majority decision to raise the standard of materiality were the perceptions, supported primarily by reference to amicus briefs rather than hard factual evidence, that accused infringers were charging inequitable conduct in a high percentage of infringement suits and that this “plague” of charges was having negative effects, not only making patent litigation more complex and uncertain but also negatively effecting examination in the Patent and Trademark Office (PTO) as patent prosecutors, fearing inequitable conduct charges, flood the PTO with the disclosure of marginally relevant information.

An implicit premise of the majority position, which the dissenting judges did not specifically challenge, was that a large number of the charges were groundless. If a significant percentage of the charges have merit, then the “plague” may be of a different sort, one of substandard prosecution practices. That not all inequitable conduct charges were groundless was suggested by the significant number of Federal Circuit panel decisions upholding inequitable conduct charges in the four calender years (2007-2010) before Therasense.

Not discussed by the majority, but articulated clearly by the dissent, is the prospect that a better and more effective solution to the overcharging “plague” (or “flood” or metasticized ”cancer”) would have been to tighten the standards for alleging inequitable conduct in litigation, such as by imposing stern sanctions on accused infringers and their litigation counsel who charge inequitable conduct without a sufficient basis in law and fact. Related to potential use of sanctions for groundless inequitable conduct charges is the use of strict pleading standards. Less than two years before Therasense, in August 2009, a Federal Circuit panel had imposed stringent pleading requirements. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). The Therasense majority did not consider whether the “plague” had lessened for cases initiated after August 2009.

Also questionable is whether the majority’s approach of raising the substantive standards for materiality and intent will successfully and permanently substantially reduce the number of inequitable conduct charges. In short, a key question is: will the majority’s raising of the intent and materiality levees contain the flood?

The majority’s distinction between charges of “mere nondisclosure”, for which a high materiality standard must be met, and charges of “affirmative egregious misconduct,” for which no materiality need be shown, is a fine one. It is a distinction that the Federal Circuit had previously considered but rejected in the context of Walker Process antitrust suits based on fraudulent patent procurement. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 46 USPQ2d 1097 (Fed. Cir. 1998). The distinction may be exploited by accused infringers hell bent on raising an inequitable defense to an otherwise iron-clad charge of patent infringement.

In fairness, one must concede that the majority’s tightened standards, faithfully applied, should deter to some extent a common and easy-to-make but questionable inequitable conduct charge: an allegation that a patent owner’s representatives knew of but did not cite a prior art reference, which was relevant to the patentability of a claim and not cumulative of other information before the PTO but which, after full consideration during a litigation, would not have precluded grant of the claim.

But identifying and dismissing this type of charge will not be as straightforward as might be initially assumed. First, the majority notes that a reference might be material because it would have barred allowance of a claim even though, subsequently in litigation, the claim is uphold as not invalid over the reference. This is because the PTO gives the claim a broader interpretation and imposes a different proof burden (preponderance of the evidence rather than clear and convincing evidence). Second, in case of a known, undisclosed reference, a persistent accuser may argue that a patent owner’s representative made an egregious affirmative misrepresentation to the PTO. For example, the representative may have stated that “the claim requires element X and nowhere in the prior art is X disclosed or suggested.” The accused infringer could allege that the falsity of the affirmative statement was established by the failure to disclose a known reference that taught X.

3. Distinguishing Patentability and Validity; “Objective” and “Subjective” “But For”; All Claims Rule; Effect on Jury Trial Right; Critique of Majority Approach. The majority clearly and carefully explained the difference between the materiality of a prior art reference or other item of information for purposes of patentability and its “but for” standard of materiality for purposes of the inequitable conduct defense.  That distinction, coupled with the egregious misconduct exception, may reduce the likelihood that the majority’s goal of discouraging inequitable conduct charges in litigation will be fully achieved. It illustrates a fundamental flaw in the majority’s approach.

The majority noted that a court’s adjudication that a claim is invalid in view of an undisclosed reference “necessarily” means that the reference was material. This is because proof of invalidity to a court must be by clear and convincing evidence whereas the PTO’s burden is less, a preponderance of the evidence. Further, a court applies a claim construction that is either the same or narrower than that which the PTO applies.

The majority does not discuss the possibility that a given examiner may have allowed the claim under a mistaken assumption about the law and facts and would have allowed (erroneously) the claim even in light of the undisclosed reference. The majority’s “but for” standard asks “whether the PTO would have allowed the claim if it had been aware of the undisclosed” reference, implicitly meaning in light of all the facts and the correct law. This is what older cases referred to as an objective “but for” standard rather than a subjective “but for” standard.

The majority notes that the opposite adjudication, that is, a court’s adjudication that a claim is not invalid in view of an undisclosed reference, is not conclusive of materiality for two reasons (caveats).

First, the PTO applies a different and broader construction to claims. The PTO’s broadest reasonable construction rule can mean the PTO will reject a broadly-construed claims as “reading on” prior art even though a court would give the claim a narrower construction and uphold its patentability. This prospect complicates a district court’s task of determining the materiality of an undisclosed reference. The construction of a claim that PTO adopted may be evident from the prosecution history of a patent, but often that will not be true, and the parties will dispute about a broad construction. Possibly, by analogy to the Wilson Sporting Goods decision, Wilson Sporting Goods Co. v. David Geoffrey & Associates, 904 F.2d 677 (Fed. Cir. 1990), a court might require an accused infringer charging inequitable conduct to posit a hypothetical claim that is both reasonable and broad enough to establish unpatentability in view of the undisclosed reference.

Second, as noted, the burden of proof differs. The Federal Circuit has held that the PTO must establish unpatentability of a claim by a preponderance of the evidence. As the Supreme Court confirmed in Microsoft Corp. v. i4i Limited Partnership (June 9, 2011), a challenger to an issued patent claim must establish invalidity by a clear and convincing evidence.

Both caveats inject uncertainty into a field that is, as the majority assumes, already excessively litigious.

If the majority had fully equated materiality for patentability with effect on validity, it would have further reduced and simplified the task of adjudicating in equitable conduct claims (and, therefore, presumptively, helped contain the flood of inequitable conduct charges). Addressing a charge of inequitable conduct based on an undisclosed reference, a district court (or the International Trade Commission) could address first validity over the reference. If an asserted claim were valid, the reference would have been per se not material. Contrariwise if the asserted claim were invalid.

But even that simplification by equating validity and patentability would been incomplete. The majority reviewed and did not disapprove of the case law establishing that inequitable conduct in connect with any claim in a patent renders the entire patent (and all its claims and even some related patents) unenforceable. This will mean that accused infringers may continue to have viable inequitable conduct defenses even when a patent owner asserts successfully one or more claims in a patent if the patent has other, broader claims as to which an undisclosed prior art reference was material. The patent owner may not have asserted those claims. Indeed, the broader, potentially tainted claims may have been cancelled during a reexamination or disclaimed. Yet such a claim can be the foundation of an inequitable conduct charge.

In moving the standard of materiality and hence the question to the conclusion on inequitable conduct closer to–but not concentric with–the standard for validity over the prior art, the Therasense decision raises questions about the right to a jury trial. The Federal Circuit has held that the jury trial right does not apply to the inequitable conduct defense because is of the defense’s “equitable” nature.   See Chisum on Patents 19.03[5][d]. It has held that the jury trial right does apply to validity questions, which are “legal” in nature, at least if monetary damages for infringement are at issue. Under Supreme Court authority, a court sitting in equity cannot first resolve an issue if the issue is common to a legal claim. The Federal Circuit has held that the issues in an inequitable conduct defense are generally not common to those in invalidity. This has allowed separate trials or concurrent trials with separate determinations, validity going to a jury, inequitable conduct being decided by the trial judge. By moving the standard of materiality closer to that for validity, Therasense makes it more likely that issues, such as the pertinence of a reference to patentability, will be common and hence subject to prior jury determination.

That questions such as these remain is further evidence suggesting that the majority’s solution to the problem of a “plague” (flood or cancer) of inequitable conduct charges problem may not be viable in the long term. The majority could have simplified the law but discouraged groundless inequitable conduct charges by (1) leaving the materiality standard at an easy to administer low level, (2) seriously enforcing the requirement that an intent to deceive be shown, and (3) encouraging the district courts to impose meaningful sanctions for groundless assertions of inequitable conduct during litigation.

Patent litigators as well as patent prosecutors should be subject to high standards. It is disturbing that the Federal Circuit majority would rule based on the assumptions that “allegations of inequitable conduct are routinely brought on `the slenderest grounds,’ Burlington Indus., 849 F.2d at 1422,” and that such routine practices of charging misconduct without adequate grounds have continued without effective judicial intervention since 1988 (the date of the Burlington opinion) and would be allowed to continue unless the definition of what constitutes misconduct is narrowed.