Readers of this blog may recall that in the past year, I wrote extensively about the U.S. Supreme Court case of Oil States v. Greene’s Energy. But I paid little attention to another important case decided around the same time: SAS Institute v. IancuOil States centered on whether the USPTO’s inter partes review (“IPR”) process (challenging a patent at the USPTO, rather than in court) was constitutional. SAS followed up with a seemingly less-pressing issue: whether, when the USPTO institutes an IPR to reconsider a patent by accepting an IPR petition, the USPTO must decide the patentability of all of the claims of the patent that the IPR petitioner challenged in the IPR petition. The Supreme Court ruled that IPR is constitutional in Oil States and that the USPTO must decide the patentability of all of the claims which were challenged in the accepted IPR petition in SAS.

Just this week, I was attending a “Supreme Court Preview” event hosted by the Eighth Circuit Bar Association. One of the topics was upcoming patent cases before the Supreme Court. I’ll admit; they’re not as juicy as last term (but perhaps only lawyers would have salivated over last year’s cases). However, one gave me a squirrelly thought: Return Mail v. United States Postal Service. The major issue in Return Mail is whether the federal government is a “person” who may petition to institute review proceedings before the USPTO.

Credit: Channel 3000

Technically, Return Mail doesn’t involve IPR, but rather a different proceeding called covered business method (“CMB”) review. CMB review, as its name implies, is limited to review of business method patents–that is, patents that claim a method or apparatus for performing data processing or similar operations relating to the practice, administration, or management of a financial product or service. But CMB review is very similar to IPR; a person files a petition with the USPTO seeking review, and the USPTO decides whether to institute proceedings. For example, in the Return Mail case itself, Return Mail, Inc. sued the United States Postal Service (“USPS”) for infringement of a business method patent described as: encoding information about the name and address of intended recipients in the form of a barcode, returning undeliverable mail to a processing location, scanning the barcode, obtaining the corrected information, and then providing that information to the sender to choose whether to resend with correct addressee information. (Description in the Federal Circuit opinion.)

Credit: Postal Reporter

Does Return Mail’s patent seem a little…obvious? Sounds like USPS might have a good shot at challenging the patent via CMB review, right? That’s what the USPS thought, so it petitioned for CMB review of certain claims of the patent. There’s just one problem: current patent law says that only a “person” can institute CMB review, and that person must meet certain other requirements, which include being sued or charged with infringement. Is the USPS–an arm of the government–a person? Current patent law does not define the term. In a short opinion, the Federal Circuit held that the federal government is a “person” for the purposes of CMB review. There was a fiery dissent. The Supreme Court granted cert on this specific question.

And here is where the squirrely thought arises. Just like CMB review, IPR review starts with a petition by a “person.” But unlike CMB review, an IPR petitioner need not have been sued or charged with infringement. Indeed, an IPR can be instituted by any person “who is not the owner of a patent.” 35 U.S.C. § 311. The USPTO must review all claims challenged in a petition if the USPTO accepts the petition. But the USPTO might not want to do that in every case–as in SAS. If the government is a person, can it escape SAS‘s mandate by filing its own petition for IPR limited to the claims it actually thinks should be evaluated?

The process would go something like this: (1) the USPTO receives an IPR petition from a third party and reviews the petition, (2) the USPTO determines it would like to institute review on some of the claims of the patent challenged in the petition, but perhaps not the same claims as those listed in the petition, (3) the USPTO works in collaboration with another governmental agency (say, for example, the Attorney General or USPS), (4) the other governmental agency files a petition for IPR of the same patent, but on the claims and grounds desired by the USPTO, and (5) the USPTO accepts the governmental petition, achieving the goal of escaping SAS‘s mandate that it decide the patentability of claims listed in the third party petition that the USPTO thinks need not be considered. And voila! Return the earlier petition for IPR as uninstituted to sender.

Thus, affirming the Federal Circuit could provide the government an escape from SAS, so to speak. While reversal could preclude agencies like the USPS from seeking cost-effective review of patents with the USPTO. What do you think?

It’s not every day you’re presented with the unique opportunity of seeing and hearing the Chief Justice of the United States Supreme Court live in your own backyard, thanks very much Caleb!

Tuesday was that day, Chief Justice John G. Roberts, Jr. was here in Minneapolis for the 2018 Stein Lecture at the University of Minnesota’s Northrup Auditorium, as the Star Tribune reported.

SCOTUSBlog had this to say about the Chief Justice’s remarks. To listen to a recording of the event, to a sell out crowd of 2,700, check out MPR’s coverage, here.

Others reporting on this event don’t appear to care about trademarks as much as we do, so this may be the only place you’ll learn about Justice Roberts’ remarks relating to trademarks.

As you can imagine, knowing the vast body of legal subject matter confronted by the Supreme Court, clearly my ears perked up in hearing Justice Roberts utter the word “trademark” five times!

Moderator Robert Stein, former University of Minnesota Law School Dean, asked Chief Justice Roberts whether any highly technical subject matter might be unsuited for the Court to decide.

My mind went to the creation of the CAFC in 1982, specifically designed to hear all federal district court patent appeals, yet the Supreme Court has repeatedly reversed the CAFC since 2005.

Justice Roberts never mentioned the CAFC, instead he waxed a bit about trademark expertise:

“My answer, I think is, no, because usually no matter how complex and involved the legal issue, the case may seem, it implicates a broader legal question about, you know, the statute may be complicated, but the question is going to be, well, how do you go about reading the statute, what sources do you look at in a particular case. We don’t take technical legal cases because we like technical legal cases. They’re usually because they implicate a broader question. When I was practicing law, this is a speech I gave a lot of times, because I was not an expert in any area of the law. I like to think of myself as somebody who was good arguing in a particular court, in the Supreme Court, and so I’d have to, you know, convince someone who comes in with an important trademark case, who could hire the world’s leading expert in trademark law, or me.  And, I would tell them, look, the Supreme Court does not think your case is a big deal for trademark law. It thinks your case is a big deal for how regulations relate to the statute, how particular provisions in the statute should be read. So, you need somebody who, you know, can look at it in that broader perspective that the justices do, and you know, I would say, half of the time, they would say, well, I actually want somebody who knows something about trademark law, and that was understandable, but, then it would be, and, you know, they would get there in front of the Court, and they’re too expert in trademark law, and the justices just aren’t that interested in a lot of those nuances, and sometimes they would just be speaking over each other.”

My ears also perked up with Justice Roberts’ remarks about the Court’s fewer decisions:

“We have particular criteria for the cases we want to take. Obviously, if any court finds an Act of Congress unconstitutional, we will take it, we think as a matter of comity to the branches across the street, we should be the ones to say that, if any court is . . . .”

Do you see where I’m going with that remark, dear readers? I’m thinking about Erik Brunetti.

As you will recall, presently before the Supreme Court, is whether to hear the Brunetti case, and the issue presented in Brunetti is:

“Whether Section 2(a) of the Lanham Act’s prohibition on the federal registration of ‘immoral’ or ‘scandalous’ marks is facially invalid under the free speech clause of the First Amendment.”

Given the clarity of Justice Roberts’ statement, “if any court finds an Act of Congress unconstitutional, we will take it,” I’ll be amending my prediction otherwise, since the CAFC did just that, in Brunetti.

There are plenty of good reasons for the Court to decide the constitutionality of the “scandalous” and “immoral” language, separate and apart from the disparagement language found to violate the First Amendment in Tam (here, here, here, here, here, and here).

If the Court does hear Brunetti, let’s hope Section 7 of the Lanham Act — the provision expressly noting that federal registrations are issued “in the name of the United States of America” — won’t be some uninteresting and ignored “nuance” of trademark law to the justices.

The popular UGG® branded sheepskin boots are at the heart of a dispute in the Northern District of Illinois. Deckers Outdoor Corp. (“Deckers”) owns 29 federal registrations for the trademark UGG in connection with numerous goods and services, including footwear, clothing, wallets, passport covers, plush toys and retail store services. The company also has four pending applications for UGG to add to this family of UGG trademarks.

Deckers sued Australian Leather Pty. Ltd. and its owner (“Australian Leather”) for trademark infringement and patent infringement for selling “ugg” boots.

UGG® branded boots have become very popular. Fashion forward celebrities, such as Blake Lively and Sarah Jessica Parker, are often pictured wearing the comfortable boots as they go about their daily lives. This provides the brand with free publicity and even more exposure.

Defendant Australian Leather alleged that the ugg mark was generic for sheepskin boots and that the doctrine of foreign-equivalents supported this conclusion. The parties brought cross motions for summary judgment on these issues and others.

Steve Baird has written about trademark genericide before on DuetsBlog. Generic trademarks are those where a brand name has become synonymous with a general class of product or service. Famous examples include: aspirin (Bayer lost this valuable mark), elevator and linoleum. Losing a trademark to genericide allows competitors to benefit from the originating company’s goodwill without being guilty of trademark infringement. Companies have undertaken advertising campaigns to prevent or combat their trademarks from becoming generic. For example, the Velcro Companies came up with the hilarious video, “Don’t Say Velcro,” explaining that the product is a “hook and loop” with the brand name VELCRO®. The company even came up with a sequel video called “Thank You For Your Feedback” that Steve Baird wrote about previously on DuetsBlog.

Luckily for Deckers, the Illinois Court found that its UGG® trademark was not generic. Deckers introduced a survey undertaken in 2017 in the United States of 600 women between the ages of 16 and 54 wherein 98% of the respondents viewed UGG® as a brand name. These results were even better than past surveys commissioned by Deckers in 2004 where 58% of the respondents viewed the mark as a brand, and in 2011 where 89% of respondents viewed UGG® as a brand name.

In turn, Australian Leather asserted that “ugg” was generic among American surfers in the 1970s. The Court found this group to be too narrow. Australian Leather also introduced evidence of “ugg” being generic for sheepskin boots in Australia. Not surprisingly, the Court did not find this evidence to win the day. The Court noted that genericness in another country could be at least relevant to consumer perceptions in the United States. However, it is important to remember that whether a trademark is generic in another country has little bearing on whether it is generic in the United States. Trademark rights are territorial. Having a registered trademark in the United States does not give a company rights in that mark in Australia or other countries.

The Court explained that the foreign-equivalents doctrine did not warrant another result. It explained that “the doctrine is not a perfect fit for English to English [terms, rather, the doctrine] is generally used to analyze non-English terms used in the American marketplace.” Steve Baird did a nice job of explaining the appropriate use of this doctrine in his post, here.

What genericide stories have you heard about?  It can be an ongoing and costly battle for brand owners to protect their valuable intellectual property rights.

Amazon’s patent (U.S. Patent No. 9,280,157) for a “System and Method for Transporting Personnel Within an Active Workspace” has been in the news recently.

The invention is described as a device for keeping human workers safe in an automated (i.e., robotic) work environment.  In the Background, the patent discusses the rapid rise of automation in inventory-handling systems.  “Technological advancements have made an ever-increasing amount of automation possible in inventory-handling and other types of material-handling systems.”  ‘157 patent at col. 1, ll. 7-9.  “However, there may be circumstances where it is necessary for human operators to traverse, or otherwise go onto, an active workspace where the mobile drive units are carrying out their assigned inventory-related tasks.”  ‘157 patent at col. 1, ll. 14-18.  An automated work environment can be dangerous for human workers.  As a solution, the patent proposes a transport device to transport a human worker safely through an automated inventory-handling work area.  The premise, and the described need for the invention, sound reasonable enough.  However, it’s the drawings of this patent that are garnering some unwanted attention.

Amazon worker cages allow users to safely traverse automated work areas.
At least there’s a bench (414) to sit on?

The patent illustrates and describes the transport device as, well, a cage for workers.  The Detailed Description describes the device as a “cage-like structure configured to substantially prevent the user from sticking an appendage through the enclosure.”  ‘157 Patent at col. 13, ll. 51-53.  Importantly, the claims of the patent (i.e. the scope of protection) are relatively broad and do not specifically require the cage-like structure.  Claim 1, for example, is directed to an inventory-handling system to transport a user within a workspace, the system including a first device to transport users within the workspace, a second device to transport users within the workspace, and a management module directing movement of the two devices.  Of course, this doesn’t render the imagery of work cages any less concerning.

A recent study conducted by two artificial intelligence researchers drew attention to the patent.  The authors referred to the patent as: “an extraordinary illustration of worker alienation, a stark moment in the relationship between humans and machines.”  News of the patent quickly reached major outlets and social media.

Amazon’s Senior Vice President of Operations, Dave Clark, responded on Twitter:  “This was never used and we have no plans for usage.”

This patent, the resulting blowback, and Amazon’s response highlight a couple of important points about patent protection.

First, patents (and, typically, patent applications) are publicly accessible documents.  At the heart of the patent system is an exchange.  The inventor obtains the right to exclude anyone from making or using the invention, but in exchange, must disclose that invention to the world.  Thus a company seeking to obtain a patent, and particularly a high profile company like Amazon, should keep in mind that every word and drawing will be viewable by the public.

Second, Clark’s statement that the company has no plans to implement the cages is a reminder of the value a patent can have.  A patent grants the owner a right to exclude others from practicing the invention.  A patent owner need not actively practice the invention herself in order to enforce it against others.  Even when a company is not looking to implement a particular invention, an issued patent on the concept may provide a leg up on competitors.  The relatively broad claims of the Amazon patent, which do not rely on the cage design, allow Amazon to exclude its competitors from employing a system for transporting humans through an automated work space.

Credit: Federal Circuit (what it looks like to argue there)

One week ago, the Federal Circuit Court of Appeals issued its decision in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals, Inc., 18-1638 (Fed. Cir. July 20, 2018)–by all accounts, one of this decade’s most important decisions concerning the America Invents Act and the patent system. The primary issue in the case was whether the Saint Regis Mohawk Tribe (or any tribe, for that matter) is immune from the USPTO’s inter partes review (“IPR”) proceeding, which can result in cancellation of a patent. Allergan, a pharmaceutical company, had transferred title to certain patents to the Tribe after its competitor, Mylan, had instituted an IPR of the patents. The Tribe claimed that the USPTO could not review the patents due to sovereign immunity.

The Federal Circuit held that tribal sovereign immunity does not apply to IPR proceedings. It cited the Supreme Court’s recent Oil States decision (I wrote about the case earlier this year), which explained that IPRs arise “between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.” Thus, IPR is “simply a reconsideration of” the original patent grant by the federal Government. Although initiated by a private party, the Director of the USPTO must decide to institute the proceedings, and the USPTO acts “as the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies ‘within their legitimate scope.'” The federal Government being supreme, tribes cannot invoke sovereign immunity.

The Federal Circuit’s final reference to protecting the public interest resonated with me, as well as Judge Dyk’s concurring opinion, which provided insightful context about the importance of reviewing patents post-grant. Certainly no one expects that the USPTO will perfectly examine every patent application and grant patents without error, but striving to achieve perfection is vital–even if impossible under current circumstances. As Judge Dyk illuminated:

[T]he USPTO–then and now–is an agency with finite resources that sometimes issues patents in error. Currently, for instance, the USPTO receives over 600,000 applications a year. Patent examiners receive roughly 22 hours to review each application, an amount of time that 70% of examiners report as insufficient.  And the USPTO struggles to attract and retain examiners with the technical competence required to understand the inventions being reviewed and to perform sufficiently thorough prior art searches.

The USPTO “is under pressure to make speedy determinations on whether or not to grant patents.” As such, “pre-grant patent examination was–and still is–an imperfect way to separate the good patents from the bad. Resource constraints in the initial examination period inevitably result in erroneously granted patents.” A glut of bad patents–or the perception thereof–negatively affects the public’s view of the patent system’s fairness and credibility. Thus, Congress created IPRs to combat pre-grant examination constraints, creating a streamlined procedure to challenge patents, in the hopes of restoring trust in the patent system. As an initial matter, I’m not sure attempting to solve the effect of the USPTO’s constraints was better than solving its cause.

In a recent article, I wrote about similar concerns as those expressed by Judge Dyk:

The USPTO, as the agency tasked with examining patent applications, is the first line of defense against patent fraud. But some point to the USPTO’s examination policies as potentially inviting fraud. By way of background, the USPTO’s patent examiners (those who review applications) are evaluated on a quota system, which encourages them to examine as many applications as possible. Some commentators have questioned whether this policy has turned the USPTO into a rubber-stamp institution. In the meantime, the number of patent applications and grants since 2000 has almost tripled. This has led to an even greater need for the USPTO to quickly accept or reject patents so as not to fall behind. The cycle is further incentivized by the increasing economic and financial value of patents. And it is also enabled by the difficulty, high cost, and/or impossibility of investigating every representation made by patent applicants. The USPTO simply does not have the wherewithal to investigate every claim of inventorship, utility, novelty, and other issues related to patentability. Thus, along with the important interests at stake, the complexities of patent law and the USPTO’s current weaknesses combine to create a situation in which fraud is less likely to be identified and thwarted.

In the context of the Mohawk Tribe appeal, the overwhelming public interests in reviewing potentially-invalid patents were brought to bear against the amorphous concept of sovereign immunity. It was absolutely necessary that tribes be subject to IPRs, lest private parties be enabled to take advantage of the USPTO’s constraints and “rent” the protection of sovereign immunity. Indeed, in a recent article, another commentator argued that the Federal Circuit’s decision had an “inescapable wisdom” because, had the result been any different, “every holder of questionable U.S. patents would have been rushing to one Native American tribe or another seeking deals to shelter possibly bogus rights.”

Going further, though, one can imagine more than just deals between tribes and private parties, but also the emergence of an entirely new form of patent assertion entity, patent troll (which some, but not all, criticize), and perhaps even a hybrid form of “patent privateer.” A tribe could, itself, become a mass aggegator of patents with a huge advantage: that the avenues for challenging its patents are more limited than a traditional patent holder. And one can imagine patent alliances renting tribal sovereign immunity for large market players. Any of these could exacerbate the David-and-Goliath scenario some defendants find themselves in after being sued for infringement. But, if the Federal Circuit’s decision holds–and I predict it will, especially in view of Oil States–such possible negative effects will not come to pass. However, as Judge Dyk implied (and it bears repeating), the patent system is imperfect and still has a way to go.

One of the most common defenses to patent infringement is that the asserted patent is invalid. The reasons for invalidity regularly range from lack of utility, to incorrect inventorship, and even to fraud (as I’ve recently written about). Often, the defendant asserts that the patent is invalid for lack of novelty or non-obviousness–pointing to some piece of evidence that the defendant says conclusively shows that the invention was already in the public domain before the plaintiff even applied for the patent. That evidence is called invalidating “prior art.”

Prior art can spell the unexpected demise of an otherwise valid patent, and it comes in many forms. For several decades, published prior art (not to be confused with prior art in the form of prior uses or sales) consisted of already-existing patents (and applications), trade journals, drawings, articles, websites, standards, whitepapers, etc. But Congress expanded the scope of published prior art dramatically in passing the America Invents Act in 2012. Whereas before prior art consisted merely of “printed publications,” post-AIA, prior art also encompasses things that are “otherwise available to the public.”

The larger–and more modern–universe of possible published prior art is easy to imagine. For example, prior art references are no longer limited to traditional publications and documentary evidence. Instead, additional forms of multimedia come into play–which is fitting in today’s multimedia-packed times. Videos, movies, broadcasts, and recordings all now qualify as prior art, so long as they are available to the public.

But despite this expansion, litigants have not yet fully taken advantage of the change. There have been a few recent uses of video as prior art, such as the iconic iPhone keynote speech made by the late Steve Jobs demonstrating a technology described in an Apple patent. Ironically, in commenting on the “bounce-back” effect that was the subject of the patent, Steve Jobs stated, “boy have we patented it.” But Apple failed to patent it fast enough after the speech.

https://youtu.be/-3gw1XddJuc?t=29m7s

Samsung used clips from Stanley Kubrick’s 2001: A Space Odyssey to argue that Apple’s design patent for the shape of a tablet was invalidating prior art.

Apple really seems to be taking the brunt of video prior art challenges.

Just one week ago, a Federal district judge in the Northern District of Florida addressed–apparently for the first time–whether a YouTube video could constitute prior art. The court, in HVLPO2, LLC v. Oxygen Frog, LLC, 4:16-CV-336 (MW/CAS) (Dkt. No. 133), held that a YouTube video can constitute prior art and that YouTube videos are “sufficiently accessible to the public interested in the art.” Not exactly a groundbreaking finding to someone of my generation, who grew up with YouTube and the internet. Indeed, the USPTO’s own training guides (slide 15) specifically state that YouTube videos are a perfectly acceptable form of prior art. The USPTO has stated that videos qualified prior to the AIA, but there is conflicting authority.

The plaintiff in HVLPO2 had argued that the particular YouTube video in question was uploaded on a random account, so no one interested in the art would have found it. The court pushed back in eccentric fashion, stating:

It appears that Plaintiff is unfamiliar with how YouTube works. A familiar user would know that you don’t need to search for a particular channel to watch the videos uploaded on it. For example, if you want to watch a video of a cat skateboarding, you can search “cat skateboarding”; you don’t need to know that it might have been “CatLady83” who uploaded the video you end up watching.

The court held that the YouTube video in question appeared within the first 20 videos when using appropriate search terms on the site. “Surely, the effort involved in composing a basic search query and scrolling down the page a few times does not exceed the ‘reasonable diligence’ that the law expects of a hypothetical prior art subject.” I couldn’t agree more, and I recommend this fun cat skateboarding video:

But even though most YouTube videos are generally accessible, not all are available to the public. For example, YouTube videos may be “private” or “unlisted,” potentially removing them from the “otherwise available to the public” category or at least undermining the argument for their accessibility. Thus, as even the court in HVLPO2 noted, the defendant still has to prove the existence of public access to the video prior to the applicable date. This can be accomplished by proffering screenshots of the video in the browser and evidence of that video’s publication date (which is disclosed on the YouTube website and many other video sharing platforms).

Besides the above, there are few other examples of videos (online or otherwise) being used as prior art. This is probably due in part to the current difficulty of searching the vast amount of video and audio–as opposed to text, for example–available on the internet. But as computer learning gets better and better, I expect audiovisual prior art will play a bigger role in both patent prosecution and litigation, so long as that prior art is “otherwise available to the public.”

Five months ago to the day, I predicted that the U.S. Supreme Court would uphold inter partes review (“IPR”) proceedings at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (“PTAB”) as constitutional in Oil States v. Greene Energy. On April 24, 2018, the Court so-held.

Back in November, the questions at oral argument in Oil States raised numerous intriguing issues:

  • Whether IPR proceedings are “examinational” rather than “adjudicatory.”
  • Distinctions between “public rights” and “private rights.”
  • The relevance of 19th-century cases on patents, such as McCormick v. Aultman.
  • The interplay of due process, given a patentee’s usually-substantial investment in the patented invention and reliance on the patent grant.
  • Opportunities for subsequent appellate review.

So which of these became the deciding issues in the Court’s opinion? Ironically, Justice Thomas–who has been known to refrain from questions at oral argument and was the only Justice not to ask a question during oral argument in this case–wrote for the 7-Justice majority. Justice Gorsuch wrote a dissenting opinion.

First, the majority held that IPR proceedings do not violate separation of powers by invading the sphere of the Judiciary under Article III of the Constitution:

When determining whether a proceeding involves an exercise of Article III judicial power, this Court’s precedents have distinguished between “public rights” and “private rights.” Those precedents have given Congress significant latitude to assign adjudication of public rights to entities other than Article III courts.

Recognizing that the Court has not been clear on this distinction, the Court provided some clarity:

[T]he public-rights doctrine applies to matters “‘arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.’” Inter partes review involves one such matter: reconsideration of the Government’s decision to grant a public franchise.

Inter partes review falls squarely within the public-rights doctrine. This Court has recognized, and the parties do not dispute, that the decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise. Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration. Thus, the PTO can do so without violating Article III.

The Court went on to incorporate Article I, Section 8, Clause 8 of the Constitution, which gives Congress the power to “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”:

Congress can grant patents itself by statute. And, from the founding to today, Congress has authorized the Executive Branch to grant patents that meet the statutory requirements for patentability. When the PTO “adjudicate[s] the patentability of inventions,” it is “exercising the executive power.”

Inter partes review is “a second look at an earlier administrative grant of a patent.”  The Board considers the same statutory requirements that the PTO considered when granting the patent…. So, like the PTO’s initial review, the Board’s inter partes review protects “the public’s paramount interest in seeing that patent monopolies are kept within their legitimate scope,” Thus, inter partes review involves the same interests as the determination to grant a patent in the first instance.

The primary distinction between inter partes review and the initial grant of a patent is that inter partes review occurs after the patent has issued. But that distinction does not make a difference here. Patent claims are granted subject to the qualification that the PTO has “the authority to reexamine—and perhaps cancel—a patent claim” in an inter partes review. Patents thus remain “subject to [the Board’s] authority” to cancel outside of an Article III court.

This Court has recognized that franchises can be qualified in this manner. For example, Congress can grant a franchise that permits a company to erect a toll bridge, but qualify the grant by reserving its authority to revoke or amend the franchise.

The Court then went on to distinguish 19th-century cases appearing to state that patents are private, not public, rights:
To be sure, two of the cases make broad declarations that “[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” (citing McCormick) But those cases were decided under the Patent Act of 1870. That version of the Patent Act did not include any provision for post-issuance administrative review. Those precedents, then, are best read as a description of the statutory scheme that existed at that time. They do not resolve Congress’ authority under the Constitution to establish a different scheme.

The Court also noted that even the English legal system, from which the U.S. derives many of its principles, contained a similar patent revocation process by petition to the Privy Council:

The Patent Clause in our Constitution “was written against the backdrop” of the English system. Based on the practice of the Privy Council, it was well understood at the founding that a patent system could include a practice of granting patents subject to potential cancellation in the executive proceeding of the Privy Council. The parties have cited nothing in the text or history of the Patent Clause or Article III to suggest that the Framers were not aware of this common practice. Nor is there any reason to think they excluded this practice during their deliberations.

For similar reasons, we disagree with the dissent’s assumption that, because courts have traditionally adjudicated patent validity in this country, courts must forever continue to do so.

The Court also rejected the argument that because IPR “looks like” the exercise of Article III judicial power, it is infringing on that power. And it “emphasize[d] the narrowness of [its] holding,” noting that appellant Oil States had not raised a due process challenge. Finally, the Court held that IPR proceedings do not abridge the “right of trial by jury” under the Seventh Amendment because Congress properly assigned the matter of patent rights to adjudication before the PTAB.

Justices Breyer, Ginsburg, and Sotomayor concurred, stating only that the opinion “should not be read to say that matters involving private rights may never be adjudicated other than by Article III courts, say, sometimes by agencies.”

Justices Gorsuch and Chief Justice Roberts dissented:

Today, the government invites us to retreat from the promise of judicial independence. Until recently, most everyone considered an issued patent a personal right—no less than a home or farm—that the federal government could revoke only with the concurrence of independent judges. But in the statute before us Congress has tapped an executive agency, the Patent Trial and Appeal Board, for the job. Supporters say this is a good thing because the Patent Office issues too many low quality patents; allowing a subdivision of that office to clean up problems after the fact, they assure us, promises an efficient solution. And, no doubt, dispensing with constitutionally prescribed procedures is often expedient. Whether it is the guarantee of a warrant before a search, a jury trial before a conviction—or, yes, a judicial hearing before a property interest is stripped away—the Constitution’s constraints can slow things down. But economy supplies no license for ignoring these—often vitally inefficient—protections. The Constitution “reflects a judgment by the American people that the benefits of its restrictions on the Government outweigh the costs,” and it is not our place to replace that judgment with our own.
This dissent is not at all surprising, given that during oral argument both Justices asked questions that suggested they doubted that patents were public rights. It goes on to say:
Article III, explains that the federal “judicial Power” is vested in independent judges. As originally understood, the judicial power extended to “suit[s] at the common law, or in equity, or admiralty.” From this and as we’ve recently explained, it follows that, “[w]hen a suit is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789 … and is brought within the bounds of federal jurisdiction, the responsibility for deciding that suit rests with” Article III judges endowed with the protections for their independence the framers thought so important.
The dissent disputed the relevance and value of the references to the Privy Council, colorfully stating that the cases cited by the majority “represent the Privy Council’s dying gasp in this area.” And Justice Gorsuch embarked on a history lesson about the early years of our Republic. Wrapping up, the dissent expressed concern:
Today’s decision may not represent a rout but it at least signals a retreat from Article III’s guarantees. Ceding to the political branches ground they wish to take in the name of efficient government may seem like an act of judicial restraint. But enforcing Article III isn’t about protecting judicial authority for its own sake. It’s about ensuring the people today and tomorrow enjoy no fewer rights against governmental intrusion than those who came before. And the loss of the right to an independent judge is never a small thing. It’s for that reason Hamilton warned the judiciary to take “all possible care … to defend itself against” intrusions by the other branches. It’s for that reason I respectfully dissent.
As demonstrated by the Court’s opinion and the dissent, the primary issue was whether patents were public or private rights. The majority held they were public, between the government and the grantee, and its other holdings flowed from that decision. The dissent deemed patents private, akin to land grants and other personally-held rights, citing cases such as McCormick. In the end, due process did not play a role in the majority’s decision, but seemed to justify the dissent’s view that IPR proceedings are a form of Executive Branch encroachment. Given the majority’s explicitly-narrow holding and the dissent’s concerns, my guess is that the Court will be revisiting Oil States on a related issue in the near future. As always, stay tuned!

 

A couple of years ago, our friend John Welch over at the TTABlog reported about a white color trademark that had acquired distinctiveness, according to a rare precedential TTAB decision:

No, that’s not a roll of toilet paper, it’s a preformed gunpowder charge for use in muzzleloading rifles. And the applied-for mark was described as “the color white applied to gunpowder.”

The application was filed almost five years ago. And after multiple responses over the years to various USPTO refusals, in 2015 the Applicant appealed the lack of acquired distinctiveness.

And, as John reported, the TTAB reversed the lack of distinctiveness refusal, instead being persuaded that Applicant’s look-for advertising and other evidence established distinctiveness:

But, that’s not the end of the story. Turns out there is a relevant utility patent, called White Propellant Compositions, which led to the filing of a weighty 50-page Notice of Opposition.

It spells out in dramatic detail the functionality of the color white for the gunpowder charges, among other grounds for registration refusal, and judgment has been entered against Applicant.

In case you’re wondering, yes, we were privileged to light the match on this one. Word to the wise, never forget the timeless ticking time bomb of functionality. It kills trademarks in its tracks.

Kaboom, but judge for yourself whether the claimed mark is looking more like toilet paper now.

Recently, the Federal Circuit Court of Appeals (the federal appellate court that primarily hears appeals in patents cases) heard arguments in NantKwest Inc. v. Matal, No. 16-1794 on the issue of attorneys’ fees (a timely topic) in certain patent cases.

Credit: PatentlyO

Attorneys’ fees are a necessary and inescapable cost of enforcing one’s rights and, as often is the case, can be astronomical in intellectual property cases. Under what is known as the “American Rule,” parties to a case usually must shoulder their own attorneys’ fees and costs–even if they win. Some statutes alter this general rule, allowing those who win in court (known sometimes as “prevailing parties”) to recover fees and costs. But reimbursement is the exception, rather than the rule.

The issue on appeal in NantKwest is unique and far more exceptional than prevailing party statutes. As clearly explained in a recent Law360 article, the case has to do with a previously-neglected section of the Patent Act, which provides that parties who “appeal” USPTO decisions directly to a district court (as opposed directly to the Federal Circuit) must pay “all expenses” incurred by the USPTO, win or lose. The full language can be found in 35 U.S.C. § 145, which provides:

An applicant dissatisfied with the decision of the Patent Trial and Appeal Board…may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court….The court may adjudge that such applicant is entitled to receive a patent for his invention….All the expenses of the proceedings shall be paid by the applicant.

For more than 100 years, the USPTO interpreted the “all expenses” language to apply only to travel expenses, expert fees, and miscellaneous costs. But in 2014, the USPTO argued that similar language in the Lanham Act (at 15 U.S.C. § 1071) entitled the USPTO to not only traditional costs, but also the USPTO’s attorneys’ fees. A district court agreed, and the Fourth Circuit Court of Appeals affirmed.

It wasn’t long until the similarly-worded language in the Patent Act came to bear on patent applicant NantKwest. Citing § 145, the USPTO argued that NantKwest should pay over $78,000 in attorneys’ fees. But the district court disagreed, stating that the word “expenses,” American Rule presumption, and over 100-year history of the Government’s position on this provision in the Patent Act, together required a narrow construction of the term. But the Federal Circuit reversed the district court in a 2-1 decision. Months later, the entire Federal Circuit agreed to hear the case en banc (to be considered by all of the judges, rather than a three-judge panel).

Numerous third-parties filed briefs with the Federal Circuit in anticipation of the rehearing. The American Bar Association is against an expansive interpretation, asserting that such would serve as a “roadblock to justice.” The International Trademark Association, which has interests given the similar language in the Lanham Act, and the American Intellectual Propertly Law Association agree.

The Federal Circuit recently heard oral argument in NantKwest and has not issued its opinion. But as I have chronicled before, the questions posed at oral argument may provide clues as to what may result. Here are some of the questions judges asked during the Government’s oral argument:

  • “[The USPTO] says there is no meaningful dispute with respect to whether ‘expenses’ covers attorneys fees or not. Isn’t there enough in the record to establish there is some ambiguity in terms of the coverage of ‘expenses’?”
  • “[The USPTO previously] hired independently counsel?” This references outside fee arrangements from the 1800s, perhaps establishing a factual basis for distinguishing attorneys’ fees from expenses.
  • “If it’s so clear, why did it take the PTO until the last couple years to tumble onto this supposedly unambiguous reading?”
  • “So, time out, [is the USPTO] saying that when the taxpayers were paying [the USPTO’s] fees, [the USPTO] had no obligation to seek them, but when the applicants would be paying [the USPTO’s] fees, now [the USPTO] suddenly need[s] to go seek them? You just said that [the USPTO] turned into a self-funded agency. Fefore that, who was paying the expenses of the agency?”
  • “So the statute has said for 170 years all expenses of the proceeding shall be paid by the applicant. That is not discretionary, correct? So the PTO did not have the discretion if the statute included attorneys’ fees…to not seek attorneys’ fees because the statute is mandatory, not discretionary?”
  • “Didn’t the agency become user-funded in the 80s?”
  • “Do you agree that since it wasn’t mandatory…the agency was in error for the last 170 years when it failed to seek attorneys’ fees?”
  • “What I don’t understand…if the AIA mandates that [the USPTO] be completely user-funded, why isn’t the cost of a patent examiner, or the cost of Xeroxing, or the cost of parking part of the fees pro-rata that [the USPTO is] seeking in this case?”
  • “Can you cite to any other provision…in which a loser can recoup its attorneys’ fees?”
  • “How are the salaries that are paid to the staff attorneys treated within the PTO budget? Are they an operating cost? Are they expensed out? Is there any profit margin factored into any of those costs?”
  • “Did counsel ever receive bonuses during a fiscal year? Counsel can get a bonus, isn’t that correct? Why aren’t they expensed in? Or in this particular instance?”
  • “Do you all keep detailed time sheets? Day-by-day, every [6] minute break? At the time that it is spent, or at the time in retrospect after the case is over? Are contemporaneous time sheets kept for every item that every lawyer works on?”
  • “What was the hourly rate?” The attorney for the USPTO responded that the value of USPTO attorney time is “roughly $100 per hour.”
  • “There’s no dispute in this case, at least, that expert fees are included in the statutory provision? And does the PTO contract with outside providers?”
  • “What about the access-to-courts issue?” This references a due process argument and the concern that requiring the payment of the USPTO’s attorneys’ fees would be prohibitive to small inventors and businesses.
  • “Is it your view that the expenses of this appeal should be payable, including the salaries of PTO employees who might be sitting here?”
  • “So you’re saying that the language in the statute that says ‘this proceeding,’ is not limited to the action in the district court, but also includes this appeal and maybe a Supreme Court appeal?” The USPTO responded yes, but that it wasn’t seeking such fees, prompting one judge to ask, “Why?…You don’t have discretion to request…or waive them.”
  • “Are you aware of any other statute that shifts the salaries of an agency’s attorneys onto the party who brought proceedings challenging the agency’s decision?”

Question to the other side, NantKwest:

  • “What is the purpose of the expense provision in section 145? Why did Congress adopt this unusual provision?” The answer? “We don’t know” because the legislative history doesn’t provide an answer.
  • “How are attorneys’ fees accounted for in a law firm? Are they profit? Income? Expense?”
  • “So your theory is that ‘expenses’ means traditional costs?”
  • “If you’re sitting there in Congress, and you’re trying to craft an unambiguous provision that would allow for the personnel expenses, would it be sufficient in this provision to say, ‘all of the expenses of the proceeding, including the personnel expenses’?” This spawned a great deal of back-and-forth about how Congress could have been more explicit without using the words “attorneys’ fees.”
  • “Is it your position that the ‘all expenses’ language is clear and doesn’t include attorneys’ fees? Or that it’s ambiguous, and, therefore, under Supreme Court precedent…doesn’t include attorneys’ fees?”
  • “My understanding is that nobody has identified any statute that uses generic language…without a parenthetical stating ‘including attorneys’ fees’ that has been interpreted to cover time for lawyers?”
  • “Are we really dealing with attorneys’ fees here?…In your experience as a practitioner…does that include a profit margin?”
  • “Do private law firms follow the government model? In which people who bill less hours…get to charge more per hour?” This was a somewhat lighthearted question.

On rebuttal:

  • “When did the Government determine that this provision included attorneys’ fees? For 170 years did [the USPTO] believe that it was entitled to seek them, but didn’t have to?”
  • “What about when the Government said that the possibility that the Government would try to seek fees was so remote that it could not be taken seriously?”

After listening to the oral argument, one is left with the distinct impression that the Federal Circuit was more critical of the Government’s newfound position and more accepting of NantKwest’s arguments. Yet, as shown above, the questions the judges asked the Government far exceeded those directed to NantKwest. As a recent Star Tribune article reported, if the case was being heard by the Supreme Court, this could suggest that the judges actually support the Government’s position. But given the entire tone of the oral argument–especially that of the rebuttal, in which the judges specifically asked the Government to address arguments raised by NantKwest–I cannot help but think the Federal Circuit will rule against the Government, creating a circuit split with the Fourth Circuit and ultimately setting up an appeal to the Supreme Court. Stay tuned!

UPDATE: The Federal Circuit rejected the USPTO’s arguments, stating “the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress. The phrase ‘[a]ll the expenses of the proceedings’ [in 35 U.S.C. § 145] falls short of this stringent standard.”

In an age of rising healthcare costs, pharmaceutical companies can be an easy target in calls for patent reform.  Patent protection helps drug manufacturers recoup their investment in developing the new drug,.  It also prevents generic manufacturers from releasing the same drug formulation at lower cost.  The Hatch-Waxman Act provides a pathway for generic manufacturers to challenge branded drug patents, but this type of challenge requires costly litigation.

 

Inter Partes Review

Enter the Inter Partes Review.  An Inter Partes Review (IPR) is a procedure before the Patent Trial and Appeal Board (PTAB) for challenging the validity of a patent.  IPR proceedings provide an expedited and cost-effective alternative to litigation.  The IPR process was introduced in 2012, and since then, hundreds of patents have been invalidated using this process.  In the pharmaceutical industry, IPRs provide generic drug manufacturers with an additional or alternative path to challenge branded drug patents.

 

The Allergan Case

In 2016 and 2017, generic drug manufacturers filed IPR petitions seeking to invalidate patents owned by drug maker Allergan on its branded prescription eye drops, Restasis.  In response, and less than a week before a scheduled hearing before the PTAB, Allergan transferred its patents to the Saint Regis Mohawk Tribe.  Like states, Native American tribes have sovereign immunity, and therefore are not subject to private lawsuits.  The idea of sovereign immunity is codified in a Constitutional Amendment, and it stems from the basic notion that you cannot sue a monarch.

The Allergan-Tribe agreement provides for an initial payment of $13.25 million, plus an annual royalty of $15 million paid to the Tribe.  In exchange, the Tribe agreed to exclusively license the patent rights back to Allergan.

Shortly after the agreement was finalized, the Tribe moved to terminate the IPR proceedings on the basis of its sovereign immunity.

There are many opinions about both the legal and moral implications of this agreement, with some calling it a sham transaction.  In a highly unusual move, the PTAB authorized interested third parties to file amicus curiae briefs.  A total of 15 briefs from outside parties were filed, including some from other Native American Tribes.  Seven briefs were filed in support of the Tribe’s (and Allergan’s) sovereign immunity argument, while eight argued against it.  Briefs siding with the Tribe cited prior PTAB decisions recognizing sovereign immunity for states, and dismissing IPR proceedings initiated against state universities.  Briefs arguing against the Tribe’s motion cited a lack of precedent with respect to tribal-specific sovereign immunity, and asserted the question should be left for Congress.

 

The PTAB’s Sovereign Immunity Decision

Ultimately, the PTAB decided last month to deny the Tribe’s motion to terminate the proceedings.  See the decision here, courtesy of Patent Progress.  The PTAB differentiated tribal sovereign immunity from state sovereign immunity, and broadly held that tribal sovereign immunity does not insulate a patent from an IPR proceeding.  The Tribe and Allergan are seeking to appeal the decision.

What do you think?  Just as a matter of policy, should companies be permitted to transfer their IP to sovereign entities to avoid this type of challenge?  The PTAB’s distinction between tribal and state sovereign immunity suggests that if Allergan had made this same agreement with a state university instead of a tribe, the IPR would have been terminated.  Is that the right distinction to make?