The Progress & Freedom Foundation Blog

Six Flags Over Patent Law -- Microsoft's $290m in Damages in I4I

Several months ago, I wrote about the phenomenon of patent suits being brought in the federal courts of eastern Texas. The judges and juries there seem unduly plaintiff-friendly in patent suits. That has caused the towns of Marshall, Tyler, and Texarkana to host patent suits having nothing to do with those places, but in which hundreds of millions of dollars are often at stake.

The latest such instance was in I4I v. Microsoft, a case in which a jury in May awarded the plaintiff $200 million in damages; last week, the judge enhanced the award to $290 million. He also enjoined Microsoft from selling copies of Word that infringe the patent in suit, which has been construed to cover certain use of custom XML in Microsoft Word DOCX-format files. (The judge did not require Microsoft to send a software update to existing Word customers to kill the functionality.) I've never used custom XML, so I don't expect to miss the feature in Office 2010; others may.

Some commentators have immediately lashed out, suggesting that the patent is old stuff and invalid. I think it's a little risky to base an analysis of the lawsuit on a quick review of the patent, no matter how many means-plus-function elements are in the apparatus claims, and no matter how similar the method claims are to those means-plus-function apparatuses.

The fact that the judgment occurred in the Eastern District of Texas necessarily casts some shadow over the judgment because of perceived favoritism there toward patent suits, as I wrote about in my paper. The trouble with trying -- as the Eastern District of Texas has done -- to be a magnet for patent suits is that by and large plaintiffs, not defendants, choose to sue. To get patent cases, you need to draw plaintiffs, and to draw plaintiffs you need big judgments in favor of plaintiffs. This is not to say that there is anything wrong with the result in this particular case (on which I take no opinion), but rather there is something wrong that people can say "there goes the Eastern District of Texas again."

This, of course, begs the question why Toronto-based I4I sued Redmond, Washington based Microsoft (which is incorporated in Delaware), in remote Texas, nowhere near any parties, witnesses or facts having to do with the case. Barring a real or perceived benefit to plaintiffs of the Texas courts, there is no reason to sue in Texas. The federal district court in Buffalo, NY, is less than a two-hour drive from Toronto. Chicago, Detroit, and Minneapolis are airline hubs convenient both to Seattle and Toronto. Indeed, it is hard to imagine any location in the continental United States less convenient to these particular parties and to the administration of justice than eastern Texas. (Perhaps Florida.)

In my paper (at pages 6-10), I explained the problem with current venue provisions, 28 U.S.C. sections 1391 and 1400. These provisions govern in which federal courts suit may brought, and which, as applied to corporate defendants in patent cases, are often tantamount to having no limitations on suit at all.

I argued in my paper that even if the rough Texas justice turns out, after detailed analysis, to be fair, the perception of unfairness is enough to require a legislative solution. Federal judges are held to make sure that there are no "appearances" of partiality in their own Code of Conduct, and the federal judicial districts as a whole ought to be held to similar high standards: One federal judicial district ought not repeatedly mete out justice potentially out of line with what the other 90-plus federal districts would do.

Congress had proposed fixing patent venue as part of a broader patent reform agenda. That reform, which had looked like it would pass this session, became derailed by, among other things, health-care reform. I criticized the pending legislative proposals, and advanced my own (at page 16).

Under my proposal, the case would have been brought in either Delaware or Washington State, assuming Microsoft's pertinent engineers are all on the Redmond campus. What about Buffalo? Not under my proposal. That is a reflection of my attempt to accommodate Congress's concern about plaintiffs' manufacture of venue by moving to jurisdictionally-desirable locations, such as eastern Texas. Rather than getting into threshold disputes about whether a plaintiff's location is genuine or manufactured -- a conflict that could add months to a lawsuit, and that could require discovery and testimony -- it's better just to focus on the defendant's location. One could rationalize the anti-Buffalo result here under my proposal by noting that the plaintiff is Canadian, and that U.S. venue provisions are ordinarily protective of U.S. citizens, not foreigners (who are subject to venue throughout the U.S. and not merely near where they are located). So my proposal might not always find the most convenient location, but at least it has the benefit of preventing, as Justice Scalia might call it, a new "renegade jurisdiction" like the Eastern District of Texas from arising.

Nesson & Tenenbaum: Distorting Wiretapping Law and Possibly Violating Rule 11

Joel Tenenbaum is a 25-year-old graduate student at Boston University. The music industry caught him illegally sharing songs online. Through counsel, he has tacitly admitted as much, conceding his use of Kazaa, and is focusing his defense instead on arguments that the copyright scheme is, essentially, unconstitutionally punitive. My colleague, Tom Sydnor, recently addressed some of these constitutional arguments in his historical examination of statutory damages in copyright cases. The blog Copyrights & Campaigns has covered the Tenenbaum case exhaustively.

Tenenbaum is represented by Harvard Law School Professor Charles Nesson, whose conduct as counsel has been bizarre. He has surreptitiously recorded and made public conversations with opposing counsel, his own consultants/experts, and even his own wife. One might argue that some of this -- particularly disclosure of the consultant/expert recordings that are both against his client's interest and may otherwise be protected from disclosure as attorney work product -- is in violation of certain ethical obligations Nesson has under Massachusetts' ethics laws. The most complete litany of Nesson's odd litigation behavior is chronicled here. I would prefer, however, to leave it to Tenenbaum himself to determine the effectiveness of counsel and to avoid slinging unnecessary ethical accusations here.

What this blog post focuses on instead, are the wiretapping-related motions in the Tenenbaum case. Nesson may have violated the federal court's rules of conduct, and even if not, his position about the scope of federal wiretap laws is alarming.

On June 23, 2009, Tenenbaum filed a motion (that I will call "the MediaSentry motion") that argued that the plaintiffs, through their agent MediaSentry, violated federal and state wiretapping laws in connection with their fact-gathering in the case. Put differently, Tenenbaum argues (with Nesson as his lawyer) that the recording industry's gathering of information about Tenenbaum's uploads and downloads is unlawful wiretapping. Next, on July 6, 2009, the plaintiffs in the Tenenbaum case themselves filed a motion (that I will call "the sanctions motion") argued that Nesson may have violated such laws as a result of his odd (and counterproductive) habit of recording things, as noted above. (The district court has already ordered Nesson to show cause why his recording was lawful in light of the judge's orders that he cease recording; his response is due on July 9.) Both motions rely in part on the fact that Massachusetts law requires that all parties to a communication consent to the recording of it. Mass. Gen. Laws ch. 272, s 99(B)(4) (defining "interception" as to "secretly record the contents of any wire or oral communication through the use of any intercepting device by any person other than a person given prior authority by all parties to such communication") (emphasis added).

This lengthy exposition of Tenenbaum background is necessary first because Nesson appears to be playing fast and loose with the district court, in violation of his obligations under the Federal Rules of Civil Procedure. Second, Nesson grotesquely misconstrues the statutes at issue in ways that -- if adopted -- would have lasting repercussions well outside the bounds of copyright litigation.

Nesson's public statements in defense of his own conduct are completely at odds with the legal representations he made in the MediaSentry motion. More specifically, Nesson recently told Wired Magazine that he was "unaware" that recording a conversation in Massachusetts requires the consent of all parties: "I have to say I was completely unaware of this Massachusetts law. When I dug into this thing, I am amazed to what it purports to be." Yet only two weeks before, he relied upon the very same statute to which he professed ignorance. In the MediaSentry motion, he wrote: "And unlike the federal statute, the Massachusetts statute requires both parties' consent, not merely one party's consent, before recording is exempted fro [sic] the statute." MediaSentry Motion at 15.

To the extent that Nesson claims, in response to the sanctions motion, ignorance of the Massachusetts statute, he admits that he did not review the MediaSentry motion of which he was undersigned counsel. Notably, he is the only attorney who signed that brief who is actually admitted to practice in the Massachusetts federal district court. The Federal Rules of Civil Procedure, which govern practice in the federal district court explain:

"By presenting to the court a . . . written motion, or other paper -- whether by signing, filing, submitting, or later advocating it -- an attorney or unrepresented party certifies that to the best of that person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law." Fed. R. Civ. P. 11(b)(2) (emphasis added).

That Nesson did not know, two scant weeks later, about the scope of Massachusetts law, suggests that he did not read the MediaSentry motion he signed, i.e., he did not engage in any reasonable inquiry, in violation of Rule 11. The Supreme Court (in another copyright case, coincidentally) held that this duty is non-delegable:

"The signing attorney cannot leave it to some trusted subordinate, or to one of his partners, to satisfy himself that the filed paper is factually and legally responsible; by signing he represents not merely the fact that it is so, but also the fact that he personally has applied his own judgment. . . . [T]he text establishes a duty that cannot be delegated . . . ."

Pavelic & LeFlore v. Marvel Entertainment Group, 493 U.S. 120, 125 (1989). Nesson cannot, therefore, pawn off the brief to his co-counsel Kiwi Camara, who is hoping to have better luck as a last-minute addition to the Tenenbaum team than he had in the Jammie Thomas case. In any event, Camara was not admitted to practice in the federal district court at the time of the brief's filing; only Nesson was. Sanctions under such circumstances would be appropriate.

Had Nesson actually reviewed the MediaSentry motion, he might have decided, prudently, not to file it, and to be more candid to the court. The MediaSentry motion nowhere mentions the fact that counsel Camara made the same arguments weeks before in federal district court in Minnesota (in the Jammie Thomas case), and that the district judge there ruled (at pages 2-12) against him. Is Nesson required by law to tell the judge in Massachusetts about the judge's decision in Minnesota only weeks earlier? No, but it makes counsel seem needlessly evasive and rather less trustworthy, to the detriment of the client Tenenbaum.

The substance of the MediaSentry motion is worth understanding -- and refuting -- because the arguments are so weak and, if adopted by a court, would have lasting effects that go well beyond any disagreements about copyright. Moreover, it appears that Kamara may again make the same arguments in an apparently yet-to-be-filed class action that will seek the disgorgement of the recording industry's thousands of settlements with file sharers.

Given that the recording industry wrote an entire brief refuting these MediaSentry arguments in the Jammie Thomas case, here, and the district court dismissed the allegations with its written order, I will be brief. I must explain at the outset, however, that in order for MediaSentry's conduct to be potentially unlawful under the federal wiretapping statute, it must be shown both that the communications allegedly intercepted (i.e., the Kazaa messages transmitted to MediaSentry) are not "readily accessible to the general public," 18 U.S.C. s 2511(2)(g)(i), and either that MediaSentry is not a party to the communication or, if it is, that its interception is for the purpose of violating another statute, 18 U.S.C. s 2511(2)(d).

Tenenbaum's jurisdictional arguments are without support:
MediaSentry is a company that apparently does business in New Jersey and Maryland (MediaSentry Motion at 8) yet is accused of violating numerous Massachusetts statutes including Massachusetts' wiretapping law (the one of which Nesson now pronouces ignorance) and Massachusetts' regulations on private investigators (they must be licensed). Yet Tenenbaum advances no basis for subjecting MediaSentry, an out-of-state entity, to those regulations. Notably, the Massachusetts wiretapping law has been construed not to reach the out-of-state recording of conversations that originate or terminate in Massachusetts. MacNeill Eng'g Co. v. Trisport, Ltd., 59 F. Supp. 2d 199, 202 (D. Mass. 1999). Those who are concerned by the sometimes overzealous extension of state laws to out-of-state conduct should be concerned by Tenenbaum's arguments here.

Tenenbaum would criminalize conduct because of failure to abide by a website's terms of use:
Tenenbaum alleges that MediaSentry,

"using its own copy of KaZaA, searches the KaZaA network for files . . . . MediaSentry records an image for each screen displayed by KaZaA when it lists the available files . . . [and] using KaZaA, downloads selected files . . . to confirm that the files are in fact copyrighted sound recordings." MediaSentry Motion at 2-3.

That means that MediaSentry is acting just as any other peer on the Kazaa network, looking for files. Tenenbaum claims that such behavior should nonetheless be unlawful. Despite the fact that anyone can participate on the Kazaa network for free (knowing among other things that the recording industry monitors downloads), Tenenbaum argues that the Kazaa network is not truly public. Rather, "the Kazaa network is available only to users of KaZaA who consent to certain terms of use, not to the general public." MediaSentry Motion at 10. Tenenbaum alleges that MediaSentry violated those terms of use. Id. at 11-12. (Note that this puts Tenenbaum in the position of enforcing, as a third party, Kazaa's terms of use, which he himself violated by trading copyrighted songs.)

This argument is very similar to that which the prosecutors used in the Lori Drew case. My colleague, Berin Szoka, blogged about the case here, as have many others. Lori Drew is the despicable woman who, on MySpace, "cyber-bullied" an adolescent girl, Megan Meier, who later killed herself. The prosecutor there argued that Drew's failure to comport with the terms of service of MySpace constituted a criminal violation of the Computer Fraud and Abuse Act (CFAA), 18 USC s 1030. The district judge, as Berin noted, recently overturned the jury verdict -- to the hosannas of the tech community (including myself) who believe that as loathsome as Ms. Drew may be, she did not violate the CFAA. Yet Tenenbaum makes essentially the same argument, that failure to abide by the terms of service of a computer network will be enough to cause one to be subjected to criminal liability, in this case, under the federal wiretapping law, Title III, 18 U.S.C. ss 2510 et seq. Putting aside any differences over the appropriate scope of copyright, all those who agreed with the overturning of the jury verdict in the Drew case should be aghast at Tenenbaum's arguments here.

Tenenbaum would not allow anyone to gather information that is only machine readable:
Tenenbaum argues:

"At the level of TCP/IP packet communications (as opposed to at the level of web browsers that translate such communications into human-readable form), the Internet is not readily accessible to the general public." MediaSentry Motion at 12.

"The communications system at the TCP/IP level requires special expertise to access. . . . An ordinary person could not have [decoded the TCP/IP packets] because the Internet is not designed for ordinary people to listen in on such packet transmissions." Id.

Thus, according to Tenenbaum, the only information that is publicly available is information that is readily displayed by a web browser or other client software. Therefore, any peek at information (HTML source code even?) that is not ordinarily displayed by the browser or client software -- no matter how public that information appears to be -- now triggers criminal liability according to Tenenbaum.

Tenenbaum argues that if the "Court holds otherwise, the Internet will have no protection under the wiretap laws." MediaSentry at 13. That grossly misstates matters. If the Court rejects Tenenbaum's position, then it is only unlawful to intercept communications to which one is not a party and that are not generally available to the public. That is the way that it should be; to suggest that a person is limited in her use of information actually transmitted to her to that which appears in the browser is a nonsensical and irresponsible argument to make.

Tenenbaum mentions elsewhere that "KaZaA encrypts the information it sends between different nodes," MediaSentry Motion at 10, but he does not belabor the point. That may be because MediaSentry relies upon the Kazaa client software itself to decrypt the information. Even if not, to suggest that the designated recipient of a file cannot lawfully decrypt that file is bizarre -- we all have the right to open mail that is addressed and delivered to us. Moreover, we all have the right to look at at encoded message posted on a town-square bulletin board (or on Facebook) and try to decrypt it at home. (This paragraph makes a totally separate point from any reasonable expectation of privacy protected by the Fourth Amendment in cases where law enforcement decrypts information and uses it as evidence in a criminal proceeding. This is not a criminal proceeding and the Fourth Amendment is not at issue.)

Tenenbaum misconstrues what it means to wiretap for the purpose of violating another statute:
As noted above, the consent exception to the federal statute does not apply when the purpose of the wiretapping was to violate the law. Thus, under such circumstances, being a party to a communication is not enough to escape liability. Tenenbaum suggests that MediaSentry is not saved by the consent exception to the federal statute because its wiretapping was for the purpose of violating the law, namely for "engaging in the business of a private detective without a license." That is silly for at least two reasons. First, his construction of the detective statute, MediaSentry Motion at 6, would cover his own counsel, who themselves necessarily collect evidence to be used at trial. Every lawyer does. Second, even if MediaSentry's conduct had the effect of violating the licensing regulation, it was not MediaSentry's goal to do so. The courts, on this point, are unanimous. See, e.g., Sussman v. ABC, Inc., 186 F.3d 1200, 1202 (9th Cir. 1999); United States v. Dale, 991 F.2d 819, 841 (D.C. Cir. 1993); Betancourt v. Nippy, Inc., 137 F. Supp. 2d 27, 33-34 (D.P.R. 2001) (purpose of wiretapping was to prepare for a non-frivolous suit). (Puerto Rico is part of the First Circuit of U.S. federal courts, as is Massachusetts, where Tenenbaum's case is pending.)

In sum, Nesson (through Tenenbaum) does a butcher job on wiretapping law to such a degree that he ought to be ashamed to be advancing these arguments. The effect of his proposed construction of law is not merely to expose countless IT professionals and computer hobbyists to criminal penalties, but also to impair law enforcement by preventing them from employing certain non-warrant-requiring surveillance techniques they have been using lawfully for decades.

Supreme Court to Weigh in on Business Method (and Software?) Patents

The Supreme Court granted certiorari today in Bilski v. Doll. (All of the court filings, as well as the docket and the Federal Circuit's decision below, are available here via SCOTUSblog.) Accordingly, the Supreme Court will hear the case in its upcoming term that begins in the fall. This is significant, especially if the Supreme Court issues a ruling broader than did the Court of Appeals for the Federal Circuit when it ruled en banc in October 2008. Specifically, the Federal Circuit avoided the question that parties and amici put to it: whether and when software patents are allowable.
Bilksi was (and is) a patent applicant (i.e., inventor) whose patent claims were rejected by the U.S. Patent & Trademark Office. The Federal Circuit appeal was Bilski's appeal of the administrative decision, and Doll is the acting director of the PTO. Bilski's claims were for a method of hedging risk in commodities trading. A representative claim follows:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said
consumer;
(b) identifying market participants for said commodity having a counter risk position to said consumers; and
(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.
′892 application cl.1.

This type of patent claim is fairly unusual. Despite the fuss over business-method patents (i.e., patents that cover methods of conducting business), there are far more patents sought and granted on methods of controlling the operation of a computer. Put differently, the Bilski patent claim above purports to cover activities that occur on or off a computer whereas there are far more patents that seek to protect the operation of computer software alone.

Without getting into the nitty-gritty history of business-method patents (or of section 101 of the Patent Act), their relative scarcity may be due in part to historical antipathy toward such patents by the law. That changed about a decade ago as a result of the Federal Circuit's State Street Bank case, which for all intents and purposes allowed business method patents. Tens of thousands of pages of commentary have been written about the merits and drawbacks of such patent protection, and the Federal Circuit narrowed the scope of allowable patentable subject matter in Bilski from what it had been in State Street.

The Supreme Court has not in the past always been clear about the exact scope of patentable subject matter, and the Federal Circuit in Bilski struggled to come up with a test. In an odd sequence of legal reasoning, the Federal Circuit cobbled together portions of Supreme Court opinions, cleaved what it believed to be dicta from what it believed to be holding, and arrived at a test that covered the old cases. That test is: "A claimed process is surely patent eligible . . . if: (1) it is tied to a particular machine or apparatus or (2) it transforms a particular article into a different state or thing." The Federal Circuit, realizing that all it had done was patch together a safe-harbor, disclaimed the forward-looking effect of its test: "We recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, we see no need for such a departure . . . ." How very unsatisfying!

That the Federal Circuit abdicated its decision-making function in favor of a case-by-case analysis was and is exceptionally troubling because of what's at stake. Specifically all software patents that can run on a variety of computers and which, therefore, are arguably not "tied to a particular machine." The Federal Circuit expressly dodged this question in Bilski: "We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer [in the text of the claim] suffices to tie a process claim to a particular machine." Judges Newman and Rader, in separate dissents faulted the majority for introducing such uncertainty to the law. That the public expected the Federal Circuit to clarify rather than cloud the issue of software patents is reflected by the fact that the Business Software Alliance, the Computer & Communications Industry Association, Dell, IBM, Philips, Red Hat, SAP, the Software and Information Industry Association, and Yahoo! all filed separate amicus briefs in the Federal Circuit and have nothing to show for it.

Without getting into the pros and cons of software patents here, it would be in everyone's best interest for the Supreme Court to tackle the scope of patentable subject matter in a way that resolves what is and is not patentable for more than Bilski himself. I don't hold out great hope for such a broad holding given the Supreme Court's recent track record in patent cases. The last time the Supreme Court had a chance to resolve issues of allowable subject matter -- in the Metabolite case -- it played a game of chicken and flinched at the last minute, leaving the issue unresolved. And the last time the Supreme Court had a chance to simplify another complex patent-law test, it only made things more complicated. In KSR v. Teleflex (2007), the Supreme Court, while maintaining the jury's job of stepping back in time and analyzing scientific references as they would be understood by scientists with a particular level of skill in a particular field -- good luck with that! -- held that such analyses should "not be confined within a test or formulation too constrained to serve its purpose." After the Supreme Court repudiated the Federal Circuit's test, it offered no legally adequate test of its own.

Maybe I'll be proven wrong and maybe the Supreme Court will provide broad guidance to broad swaths of the nation's industries. I'll keep my fingers crossed.

Expedited Patent Examination for Green Technology

With little fanfare, the U.K. Intellectual Property Office ("UK IPO") has moved patent applications covering so-called "green" technologies to the head of the queue for expedited examination. (Tip to Intellectual Property Watch for picking up on this.) As a result of the priority, the UK IPO expects patents to issue in nine months, rather than in the ordinary two or three years. Is this a good idea for the United States? Probably not. It isn't clear to what degree this "fast track" will actually result in faster or greater commercialization of green technologies. Moreover, while faster patent examination is a laudable goal for any and all patent applications, greater resources are needed in the U.S. Patent & Trademark Office ("US PTO") for other -- arguably more important -- matters, such as reexamination of already-issued patents.

How exactly will the UK's fast track work? The UK IPO has made some details available. "Accelerated search and/or examination of the patent application will be made available to any patent applicant who makes a reasonable assertion that the invention in the patent application is one which has some environmental benefit." See Press Release. The applicant chooses how things can be sped up, by choosing any or all of the following: to accelerate the search for prior art, to combine the search and examination (as opposed to searching first and examining later), to publish the patent application early, and/or to accelerate the patent examination. See Green Channel for Patent Applications. More details for the UK's fast tracks for patent examination -- for green and other technologies -- are available in a short PDF guide. That PDF guide expressly refers to use of the fast track as "jump[ing] the queue." Guide at 3.

I have previously written in this blog about green technologies and the danger of adopting an overbroad definition. Compulsory Licenses & Green Technology. The UK scheme unquestionably suffers this defect. By permitting anyone who can make a "reasonable assertion" that its product or process "has some environmental benefit" to jump the queue, the UK is inviting expedition for a substantial percentage of applications. Manufacturers bear the cost for their raw inputs (whether material, energy, or water) and seek to improve methods of production to make their products cheaper. Accordingly, one would expect many patentable industrial methods to be green in one way or another. Any technology that is smaller than its predecessor has "some environmental benefit" as it uses less material. The UK's low burden of proof for applicants to demonstrate real environmental benefit leaves the system at risk of being heavily overused. Were it adopted in the United States, it would swamp an already overburdened PTO.

Let's assume that the patent bureaucrats could devise a more circumscribed definition of green technology. For the sake of argument, let's pick very a narrow class of technologies, maybe those that recapture carbon dioxide from the air. This enables us to avoid the overbreadth problem. Beyond the fact that we are focusing on a specific technology, we are doing so with regard to a pollutant whose costs are, by and large, not borne by the polluters; the polluters' ordinary method applications would therefore not address that pollutant. Would queue jumping in such narrow circumstances be good for the United States? I still don't think so.

The purpose of the fast track ought to be two-fold: to create research-related incentives (that result in patents) and to accelerate the commercialization of patented technologies. The UK system seems unlikely to fulfill either of these purposes.

First, it is not clear that faster patents will lead to more research. It would be better to fund directly the research we want (or provide tax credits) than to prioritize examination of some patents ahead of all others in the hope that doing so will shift research in some way.

Second, there is little if any relationship between a fast track for patents and their actual commercialization. (Though I do not agree with some of his recommendations, for a very thoughtful overview of legal scholarship on commercialization of technologies, see Ted M. Sichelman, Commercializing Patents, forthcoming Stanford L. Rev.) Entities that practice their inventions -- the General Electrics, Intels, Toyota's and so forth -- don't get much from a fast track. They'll build what they will and will have patent rights covering novel aspects of their manufacturing and other business practices. The argument for a fast track and commercialization would have to be that certain non-practicing-entities (maybe an inventor in a garage, maybe a university engineering department) would be more easily able to license their inventions to those who can practice the inventions. But patent applications can be licensed, as can technical know-how, in the absence of an issued patent.

So the practice of a great idea need not be held up pending the issuance of a patent. What is held up, potentially, is the ability of non-practicing-entities to seek royalties from the General Electrics or Intels of the world who independently create the same technologies. (This gets into the so-called patent-troll problem, where a subset of non-practicing entities endeavors not to practice its own inventions or to have the public learn from its patent applications. Instead, the goal is to extract royalties without actually advancing the state or practice of technology.) But that is not a laudable goal for jumping the queue, as it does not speed up practice of the technology, but merely speeds up resolution of legal rights to some profits from the technology.

So the benefits of queue jumping are dubious. But the drawbacks are clear, at least in the United States. The US PTO is overwhelmed by too many patent applications and too few resources or examiners. Nowhere is that more true than for reexamination of issued patents. For a discussion of patent reexamination in the United States, see my blog post Toothless Changes for Post-Grant Review. Notwithstanding federal law that requires that patent reexaminations jump the queue, the reexamination of some issued patents can take a decade. On balance faster reexamination of patents is more important than faster initial examination. For one, reexaminations often occur after a patent is litigated in the courts, and the pendency of reexamination will ordinarily result in a disruption of the judicial process. For another, patents being reexamined are necessarily practiced and controversial -- otherwise no one would bother to petition the US PTO to initiate a reexamination. By contrast, many if not most patents are never practiced. By one measure, 40% of patents are abandoned after only eight years. William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law 311 (2003); see also Sichelman, supra (citing a survey of British industry that suggests that 40% of the survey respondents' patents are uncommercialized); see generally my blog post China & Compulsory Licenses for "Unworked Patents" (noting the lack of a requirement under U.S. law that patentees practice their patents). Thus, resources devoted to faster examination of green patent applications will often be wasted as the issued patents will not be practiced.

It is dubious that the US PTO has any resources to spare, but if it does, such resources should be used to facilitate reexamination -- which Congress has already declared to be more important than other patent examinations -- and not to benefit some nebulous idea of green technology.

The ACLU Takes on Patent Protection

Earlier this week, the ACLU filed suit in New York federal district court challenging the patents owned, by, among others, Myriad Genetics, the University of Pennsylvania and the University of Utah. The suit is little more than ACLU grandstanding in an area in which it lacks any experience or expertise.

The patents in suit deal with certain human genes, mutations of which correlate to increased risk of breast and ovarian cancers in women. That, of course, explains why the ACLU's Women's Rights Project is involved in the suit. While I have a lot of respect for the ACLU generally - I have represented the ACLU in pro bono matters in the past, and would do so in the future in certain First Amendment and other contexts - that respect does not extend to the ACLU's participation in the patent litigation here.

The upshot of the complaint is that the patents in suit should be deemed to be unconstitutional and/or invalid because society would be better off without patent protection of these particular genetic sequences. But that application of hindsight is ultimately destructive -- virtually every interest group has an interest in practicing for free a patented method. The ACLU Women's Project wants freer study of breast and ovarian oncology. Our domestic auto industry would be better off if it could use for free the drive-train and battery technologies of the Toyota Prius. The open-source community would prefer to be able to ignore the software patents of both reputable and disreputable concerns. Other groups want other freebies, and at the end of the day we're left with patent protection only for those processes not worth practicing or protecting.

That this is ACLU bluster is obvious from the gratuities, eccentricities, and omissions from its complaint. A patent complaint ordinarily is a pretty terse legal document that says who the parties are, in this case also why each plaintiff has standing to sue, and a terse assertion that the patents are invalid or unenforceable. A model complaint is available from the federal court system itself. The complaint is ordinarily not a vehicle for standing on a soapbox to yell. Given that the ACLU has little credibility with patent (or other intellectual property) issues it may well lack any other forum to rail against the patent system. Hence a complaint that is gratuitously long and mostly without any legal effect.

The actual plaintiffs represented by the ACLU are doctors and cancer victims whose standing to participate as plaintiffs is dubious. As the ACLU notes in the tail end of its complaint, the defendant pharmaceutical company Myriad has apparently not taken action against researchers conducting experiments (Complaint, paragraphs 97-98). The ACLU claims the patents create a chilling effect on research, but that is not a cognizable basis for declaratory jurisdiction or relief here. (A chilling effect, while sufficient in a First Amendment case, is not sufficient as a matter of law in other contexts including patents.) As to the patient-plaintiffs, their own standing is questionable, as they do not practice any of the patented methods themselves.

There are three basic ways to nullify the defendants' patents here. First is to declare them to be invalid under section 101 of the Patent Act. Second is to argue that the patent owner's bad conduct renders the patents unenforceable. Third is to find the patents invalid, here because they are supposedly obvious over the prior art. I will discuss each of these three challenges briefly in turn.

Section 101 of the Patent Act specifies what subject matter is patentable, and is (slightly) constrained by the U.S. Constitution. Were the ACLU grandstanding less, they would characterize their claim not as whether the patents in suit are unconstitutional but whether they are invalid under a proper reading of section 101 of the Patent Act. The trouble with the ACLU's constitutional argument is that in challenging the unconstitutionality of the patentability of gene sequences, the ACLU ignores settled law, going all the way back to the Supreme Court's decision in Diamond v. Chakrabarty in 1980. The gist of the ACLU case is that genes are not invented but discovered, and that there is something wrong for providing patents for discoveries as opposed to inventions. Denying patent protection for things that can be discovered and isolated is far-reaching: before the gene cases came about, there was a lot of law on how tricky the isolation step needs to be in order for a discovery to be patentable. See, e.g., Janice M. Mueller, An Introduction to Patent Law 226 (2d ed. 2006). As Professor Mueller notes, "the USPTO has a long history of granting patents on purified forms of natural products; for example, the famous scientist Louis Pasteur was awarded a U.S. patent for purified yeast in 1873."

The law as it stands is pretty settled, in a way that is not favorable for the plaintiffs. Because the law is based on Supreme Court precedent - to which the lower courts are bound - the ACLU has no chance of prevailing on this "constitutional" basis until and unless the Supreme Court takes the case years from now. At present, it seems unlikely that the Supreme Court is interested in revisiting the issue; the last time the Supreme Court had the opportunity to do so in the Metabolite case, it demurred, and Justice Souter will have since left the Court.

So, for at least the foreseeable future -- i.e., in the lower courts -- the ACLU's arguments are going to have to be based on unenforceability or invalidity of the patents in suit. But while the complaint requests that the district court find the patents unenforceable, there are no facts pleaded in the complaint to support any legally cognizable theory of unenforceability.

That leaves, as the only remaining theory, patent invalidity. And it may well be that some of the defendants' patent claims are invalid: because they are obvious in view of the prior art or because they are obvious in view of one another (so-called "obviousness-type double patenting"). If some of the patent claims are so flawed, then they should be invalidated. These are complex issues based on the text of the patents, the history of the procurement of the patents, and the scientific literature that existed at the times the patent applications were filed. I suggest that these analyses are beyond not merely the ACLU's expertise, but beyond its competence. Moreover, the issues are wholly unrelated to the admittedly tragic stories of certain cancer victims and survivors, around whom the ACLU frames its complaint.

A lot of the ACLU's moral qualms with the patents in suit deal with the difficulty of conducting research with gene sequences patented by others. That is a real problem that can and should be addressed, not by eliminating patent protection, but by expanding patent law's remarkably narrow experimental-use exemption. In other years, one might say that it's too difficult to get Congress to take action to change the patent laws. But Congress is presently in the midst of reforming patent laws, and has been busy doing so for the past two years. Where has the ACLU been?

There are a number of other oddities that leap out from the ACLU's complaint. Among other things, the ACLU (for publicity's sake) has sued the Patent and Trademark Office. This frivolous inclusion of the PTO does nothing but waste taxpayer dollars paying civil-service lawyers to defend the suit until the court lets go the PTO. The PTO acted in compliance with existing law and existing constitutional constructions; it engaged in no unlawful activity. Furthermore, venue is not proper in New York; the federal courts in New York lack the authority to hear a case against the PTO, which the law (35 U.S.C. 1(b)) deems to be a resident of Virginia. Finally, the ACLU has taken an oddly cavalier approach to leaving out of the suit some of the owners of the patents. (See paragraph 29 of the complaint). The owners are always necessary, and ordinarily indispensible, parties to suit under Federal Rule of Civil Procedure 19.

There is far less to the ACLU's complaint than first meets the eye, and it is unfortunate that we cannot debate the validity or invalidity of the patents in suit without the ACLU's histrionics. To the extent anyone should have to suffer this, it should be Congress, not the courts.

Patent Reform: Toothless Changes for Post-Grant Review

After the reintroduction of the patent reform bill in the Senate, I posted some of my initial thoughts on this blog. This post follows up with some more thoughts about the revised schemes for reexamination and cancellation. These procedures provide redress when a patent should never have been granted in the first place. The trouble with the current system is that it is too slow and expensive. The delay prejudices patentees for whom reexaminations cast clouds on their patent rights, and for members of the public, for whom long-pending reexaminations cast clouds on their ability to practice potentially infringing inventions. Although a substantial portion of Congress's attention to patent reform has been directed to fixing the reexamination scheme, the changes to reexamination procedures are too modest to have any measurable effect. Meantime, Congress's new "cancellation" procedure suffers from judicially unenforceable deadlines and is likely to be abused.

Reexamination is the process of asking the Patent & Trademark Office (PTO) to examine aspects of the validity of a patent that has already issued. It is a "re"-examination because the PTO necessarily went through the process of examining validity prior to the issuance of the patent. But the PTO examination process is not free of oversights, and reexamination enables issued patents to be challenged administratively without resort to expensive (and slow) lawsuits.

We currently have a system for reexamination. For the administrative procedures, see here and here. There are two types of reexaminations: ex parte and inter partes. In an ex parte reexamination, a member of the public "requests" that the PTO reexamine the patent. This happens roughly 600 times per year, and roughly 90 percent of these requests are granted. For the most recent annual statistics, see here. Once granted, the reexamination acts in much the same way as the initial examination of a patent application -- there is a lot of back and forth between the patentee and the examiner. Other than by an initial counterstatement, the requestor does not participate in the administrative process. A helpful PTO flowchart can be found here.

There are about 150 inter partes requests for reexamination each year, and hardly any requests are denied. (Annual statistics here.) Unlike the ex parte process, in an inter partes proceeding, the requester gets to challenge the assertions made by the patentee. The PTO has a useful flowchart for this too, which demonstrates the process.

Congress separately enacted ex parte reexamination and inter parte reexamination, but for both, Congress hoped that the procedures would be quick and inexpensive ways to nullify patents that never should have issued. Congress demanded that reexamination be conducted with "special dispatch" for both types of reexamination. See 35 USC 305, 314. The examiners' guidelines reiterate this requirement. MPEP section 2261. Those guidelines provide that patents undergoing reexamination that are in dispute in pending litigation are to undergo essentially special special dispatch -- they are to be prioritized ahead of non-litigated reexaminations.

Yet the reexamination system has ground to a halt. Litigations are routinely stayed for years pending the resolution of reexamination. The median ex parte reexamination lasts about 20 months, but he mean is 25 months, meaning that a lot of reexaminations are lasting a lot more than 25 months. Statistics here. Inter partes reexamination is even slower. The median is 33 months and the mean 35 months. Statistics here. Although inter partes reexamination has existed for about a decade, no contested proceeding has yet reached a conclusion. See Dennis Crouch's observations here.

The proposed reforms to the reexamination system are not likely to fix this problem. Reexaminations will be allowed under the proposed legislation for challenging the validity of a patent based on public use or or an on-sale bar. That's sensible, but will result in more reexaminations. The ex parte reexamination process will otherwise remain the same.

Inter partes reexaminations are also likely to be far more common. Besides the public-use/on-sale-bar challenges that will now be appropriate for inter partes reexamination, the scope of estoppel is greatly reduced. Inter partes reexaminations have been comparatively unpopular compared to ex parte reexamination because the party requesting inter partes reexamination is presently precluded from arguing later on -- in court, before the International Trade Commission, etc. -- any argument that actually was raised or could have been raised in the reexamination. That dissuades would-be requestors who are afraid of compromising their future litigation defenses. The proposed legislation limits preclusion to validity challenges actually raised in the inter partes reexamination, making it less dangerous for parties to request reexamination, with the expectation that more people will do so.

The legislation also makes changes to the internal procedures governing inter partes reexaminations. Inter partes reexaminations will no longer be heard by patent examiners, but by an administrative patent judge (an administrative law judge, or ALJ, employed by the PTO). Doing so promises to cut through the examiner-level bureaucracy in the PTO. But there are some potential drawbacks to this change. While examiners may be overworked, at least they have technical competence in the area of the invention. The administrative law judges likely will not. (The lack of technical expertise matters much less for patent interferences, which are currently heard by ALJs and which mostly address the timing issue of who invented something first.) And there is no reason to believe that the ALJs will somehow avoid the backlog to which the examiners have succumb under the present regime. To the contrary, while the number of inter partes reexaminations has been growing year over year, at least there is an almost bottomless well of patent examiners to draw upon; there is no such reservoir of ALJs. The details remain to be determined -- in the legislation, Congress expressly instructs the PTO to develop itself the procedures for the revised inter partes system -- but there is little reason to be particularly optimistic.

If it is unreasonable to rely upon either form of reexamination to provide quick redress for ill-issued patents, the only remaining hope is in the new "cancellation" procedure created in the reform legislation. A petition for cancellation can be filed within 12 months of issuance of a patent, and the PTO has 60 days to choose whether to initiate cancellation proceedings.

These cancellation proceedings look a lot different from reexamination. The most fundamental difference is that there is no presumption of validity of the issued patent; instead, a patent can be proven invalid based on a preponderance of the evidence. Thus, patentees really lack a certain degree of repose in the strength of their patent until the first year after issuance has passed. This concept is not much different from the idea that a trademark becomes incontestable after a certain amount of time. Another fundamental difference is that instead of the usual back and forth between the PTO and applicant (in the case of patent examination) or the patentee (in the case of reexamination), the patentee in a cancellation proceeding gets only one shot to amend its claims -- after that it needs "good cause" to do so. What constitutes good cause in this context has yet to be determined.

The final difference between cancellation and reexamination is that cancellation proceedings are adjudicated by the Patent and Trial Appeal Board, whose findings are appealed directly to the Federal Circuit. This cuts a couple of layers out of the ordinary exhaustion-of-administrative-remedies process. Yet Federal Circuit appeals can be slow and unpredictable, and may well result in remands back to the Board. Nowhere is this more true than where the Federal Circuit deals with questions of claim construction, which are bound to be implicated in many, if not most, validity challenges at issue in cancellation proceedings.

There are three additional potential drawbacks to cancellation. First, members of the public need to become aggrieved within a year of a patent's issuance. That's a pretty tight deadline, especially given that the current draft of the Senate bill strips away publication of the patent application for applications filed only in the United States.

Second, if members of the public are so alert to detect an improperly issued patent, there is no reason to believe that cancellation proceedings will be administered quickly. While the bill has an ostensible deadline of one year for conclusion of cancellation proceedings (extendable for another six months by the PTO upon good cause), these deadlines are probably not legally enforceable as a matter of administrative law. When an agency misses a deadline, the recourse is to petition the courts for mandamus. But courts are loathe to grant such relief. The leading case on the issue, Telecommunications Research & Action Ctr. v. FCC, 750 F.2d 70 (D.C. Cir. 1984) makes clear that the failure of an agency to meet a statutory deadline is not in and of itself actionable, and there is no reason to believe that the Federal Circuit will disagree. Rather, when deciding whether to grant mandamus relief, the court needs to take account of "the effect of expediting delayed action on agency activities of a higher or competing priority," and the "nature and extent of the interests prejudiced by delay." Moreover, the courts are more tolerant of delay "in the sphere of economic regulation" as opposed to activities that touch on "human health and welfare." This bodes poorly for the enforceability of the one-year deadline. Moreover, if an agency is overwhlemed, there's really not much a court can do, particularly if, by the time the court rules, the cancellation petition has run its course.

Despite the extraordinary delays in the current reexamination process, I am not aware of any mandamus action by the federal courts to speed reexaminations up. Given the statutory and administrative requirements of "special dispatch," a mandamus petition would hardly be frivolous. I am also not aware of any beneficial effect of petitioning the Director of the PTO administratively to try to get a reexamination moving. See 37 C.F.R. 1.181. It is notable that a patent applicant is not likely to be aggrieved by agency delay because the applicant is compensated with an extension of the patent term. See 35 U.S.C. 154(b)(1). The patentee whose patent is stuck for years in reexamination and who has no judicial recourse to block infringement during that time gets no comparable remedy. While the bill suggests that cancellations may be stayed pending litigation and that the patent owner can commence actions for infringement, there is little reason to believe that district courts will actually choose to go forward (instead of staying their own cases) pending these administrative procedures.

Third, if members of the public are in fact quick to discover wrongly issued patents, there is a real danger of the administrative process becoming overwhelmed. There is no standing requirement that blocks any member -- or every member -- of the public from petitioning for cancellation. The only gatekeeper realistically is the fee that the PTO will assess for filing such a petition, but that fee has yet to be determined.

Under all these circumstances, I think that anyone unduly hopeful that the patent-reform bill "fixes" post-grant review procedures suffers a trace of naivety or political self-interest (in slow reexamination schemes). Maybe there's no good fix for post-grant review, in which case more attention should be paid to fixing the patent document itself to make its scope clearer. Greater patent clarity would mean that it would not take years to conclude whether one or all claims of a patent are valid in light of certain pieces of newly-discovered prior art.

Trademarks and Search-Engine Ads: What's Permissible?

If I search for "Proflowers" on Google, can Google lawfully sell FTD Florists the right to have an advertisement that appears alongside my search results? There has been no authoritative answer to this seemingly simple question. The Second Circuit's recent decision in Rescuecom v. Google brings us a step closer to resolving the issue. The court's decision, while failing to give Google everything it wanted, strikes a good balance between consumer protection and Internet commerce.

Rescuecom is a company that offers certain on-site computer services; the name Rescuecom is a registered trademark that the company uses to provide those services. Google sold the term "Rescuecom" to Rescuecom's competitors so that a search for "rescuecom" would bring up Google's text ads for those competitors. Google's software actually suggested that competitors place ads when users search for Rescuecom. Rescuecom argued that this constituted unfair competition under the federal Lanham Act, and sued Google.

The federal district court dismissed the case, holding that the search ads never displayed the word "Rescuecom," and therefore that the trademark was not "use[d] in commerce," as required by the Lanham Act. By way of example, if I search for Proflowers on Google, nothing in the FTD ad that appears actually mentions Proflowers. The district court was one of several that took the position that such use of a trademark in an entirely behind-the-scenes manner is not a "use in commerce." That seemed to be the way the law was coalescing in other courts as well, but the Second Circuit halted that. This is a big deal because the Second Circuit is the most prominent federal appellate court on trademark issues, and the author of the opinion, Pierre Leval, is one of the most prominent intellectual-property jurists on that court.

The question going forward -- and the question for the district court in the remand of this case -- is going to be whether there is any confusion caused by the appearance of the search ads. Rescuecom argues that the search ad that appears directly above the search results -- as opposed to those that appear on the right -- is particularly likely to confuse Google users as to whether it is affiliated with Rescuecom or someone else. (See opinion at 14.) Given that the ads themselves say "Sponsored Links," it's hard to believe that a court would find Google's conduct actionable. To the extent that there is confusion among Luddites, Google could easily call the "Sponsored Links" what they are -- "Advertisements" -- and be done with any potential liability.

Why does this matter? In Google's case it really doesn't: There isn't likely any confusion, and therefore Google will likely win, albeit not as easily as if the district court decision had been upheld. And once Google gets one or two decisions in its favor that consumers are not confused by ad placement among search results, the issue will be over for Google.

The decision, however, does protect against potential bad-faith uses of trademarks by companies other than Google. For example, "sellers of products or services could pay to have the operators of search engines automatically divert users to their website when the users enter a competitor's trademark as a search term." (opinion at 13 n.4.) Under Google's reading of the Lanham Act, this would have been permissible. While there are other statutes, such as the Federal Trade Commission Act, that might come into play to prevent such behavior, there's no reason why the Lanham Act shouldn't also guard against such use of trademarks.

The upshot of all this? Companies are going to have to be a little careful to ensure that users know when someone other than the trademark owner is using that owner's trademark. That doesn't appear to be onerous for Internet commerce generally, or for Google specifically.

Finally, an R&D Tax Credit Done Right

The Obama administration's recent budget calls for a ten-year extension of the tax credit for private-sector research and development expenses. See the White House press release. That is welcome news.

The exact details of the credit are, like all other things tax-related, rather complicated, but it costs the Treasury about $7.5 billion per year. Also complicated is the history of the tax credit: For the nearly thirty years that the tax credit has existed, it has been often granted annually, and sometimes retroactively. It has expired some thirteen times in its existence; sometimes Congress steps in to provide retroactive credit, and sometimes there is no credit at all. A useful timeline of the R&D tax credit appears on page 3 of this report. Most recently, it was not until October 2008, as part of the emergency economic stimulus, that the tax credit was provided retroactively for fiscal year 2008.

President Obama notes that every dollar of the tax benefit "stimulates as much as an additional dollar of private R&D spending in the short run and two dollars in the long run. Every $1 of R&D adds $2 of benefit to our economy and society as a whole." A little online research will show that some detractors cast doubt on those numbers and see the credit as an unreasonable subsidy to large corporations. An economic analysis of the exact benefits of the R&D tax credit is beyond the scope of this blog entry; it seems safe to assume, however, that the tax credit spurs a substantial amount of R&D.

Using tax policy to spur R&D seems eminently reasonable. The alternative to private sector R&D is, of course, public sector R&D or directed research grants. That's a tricky thing for this or any government to do well. Where public money should be allocated is highly politicized and highly charged. Public investment in R&D forces the government to make big bets on the direction of technology. But technology is by its very nature highly unpredictable. I would rather have a thousand companies themselves bet on the direction of technology than the government by fiat.

The way in which the tax credit has been doled out in past years, however, gives credence to some of the detractors of the R&D tax credit. A tax credit meant to serve as an incentive for R&D spending should actually provide that incentive. Retroactive tax breaks arguably fail to provide any incentive. This concept comes up all the time in connection with intellectual property rights: Should patent terms or copyright terms be allowed to be extended retroactively? See, for example, the Supreme Court's 2003 decision in Eldred v. Ashcroft regarding copyright term extension. Retroactive payouts do not increase incentives to invent; they reward people who have already done so.

Research labs do not spring up overnight, and they do not disappear like Cinderella's carriage at the stroke of midnight New Year's Eve. Any reasonable reliance on a tax credit for R&D necessarily will span several years. Accordingly, the tax credit itself should also span several years. That way, the private-sector can make reasonable and informed decisions. The Obama budget should be commended for doing just that.

Senator Kyl's New Patent Bill -- Reopening the Patent-Reform Debates

Earlier this week, Senator Kyl introduced a new patent reform bill of his own. This one will compete with the bill introduced by Senators Leahy and Hatch a few weeks ago. I wrote about my first impressions of the Leahy-Hatch bill here.

Dennis Crouch at Patently-O has noted that the Kyl bill is more patent-holder friendly than the Leahy-Hatch bill. That it is. The bill stirs up a lot of issues that I had considered resolved by now. To the extent that the Kyl bill garners some support on the Judiciary Committee, it calls into question how quickly the Senate will be able to pass any patent reform measure this session.

The most contentious issue for patent reform (lately, at least) regards calculation of damages. Damages consumed much if not most of the time during the Senate hearing on the Leahy-Hatch bill a few weeks ago. At the risk of over-simplification, the Leahy-Hatch bill tried to ensure a couple of things regarding reasonable royalties for damages:

(1) If a patent covers a discrete component of an infringing system (e.g., the modem in a computer), damages should ordinarily be based on the value of the modem and not the entire market value of the computer. This is the "entire-market-value rule" question and is currently up for decision in the Court of Appeals for the Federal Circuit. (Disclaimer: Several years ago, I worked on that case at the trial level.)
(2) Damages should be assessed with reference to the "claimed invention's specific contribution over the prior art." (quoting from page 27 of the Leahy-Hatch bill). An extensive critique of such methodology appears here. Such critics argue that the "specific contribution" formulations are unreasonably vague and sell short the value of patented inventions.

The Kyl bill backs off of both of these reforms. That is unfortunate for the entire-market-value rule, which I think makes a lot of sense in the manner in which it has been addressed by Leahy-Hatch. I am more sympathetic to Senator Kyl's questioning of the "contribution over the prior art" language. The language in the Leahy-Hatch bill is, indeed, highly subjective. I have also not seen any empirical evidence that such reform is necessary, though I'm open-minded to persuasion.

The Kyl bill also has a substantially different reexamination scheme than the Leahy-Hatch bill. Senator Kyl tries to ensure that litigation will not be slowed by manipulative reexamination filings by litigation defendants. This is sensible. District court cases are routinely stayed for five or more years pending reexamination by the Patent & Trademark Office of the patents in suit. That is unacceptable. I am not familiar with any other types of agency action (in non-patent cases) that routinely result in multi-year stays of district court litigation; in non-patent contexts, such stays would be considered abhorrent. Allowing litigation to go forward (under the Kyl bill) is really just the second-best solution, however. The best solution would be to develop a reexamination scheme where litigation could be stayed briefly pending an expedited reexamination by the PTO. Yet despite the existing (and illusory) administrative requirement that such patent reexaminations be conducted with "special dispatch," the reexamination process still takes far too long. As best as I can tell, neither the Kyl bill nor the Leahy-Hatch bill adequately fixes that real underlying problem.

Senator Kyl also has a different take on the question of patent venue. As a former patent litigator and civil procedure professor, this is an issue dear to my heart, and one that I wrote about in some depth not long ago. The Leahy-Hatch bill looks just like the proposals from last year that were the subject of my paper. As I explained in my paper, the venue language was too vague and subjective. Moreover, because venue was so restrictive, it risked creating situations where venue against multiple defendants was appropriate nowhere. Under such circumstances, a plaintiff would have to bring suit against separate defendants separately, which is as inefficient for the courts as it is for the plaintiff.

The Kyl bill's venue provision seems to account for multiple defendants -- it provides venue where "a party has a regular and established physical facility" related to the patent in suit. Thus, so long as one party has a facility and so long as personal jurisdiction exists for all defendants, then venue will exist. So that's better than the Leahy-Hatch bill. But by providing venue wherever any party has such a facility, the bill risks allowing concentration of cases in inappropriate places like the Eastern District of Texas. Moreover, to the extent that the committee reports from the last Congress are correct that there is a risk of plaintiffs moving to reincorporate in favorable patent venues, then Kyl fails to resolve that problem. There are some other oddities in Senator Kyl's bill. Just as we eliminate the importance of "conception" and "actual reduction to practice" by moving from a first-to-conceive to first-to-file system, he exhumes those concepts for purposes of venue. I'm not sure why. He would also base venue on the location where a party has, for instance, manufactured "a product that embodies an invention claimed in a patent in suit." Is that language really meant to turn on which products of the defendant infringe? I hope not. Given that plaintiffs rarely plead what the accused products are, Senator Kyl's overall scheme is at odds with patent litigation practice.

Another oddity in the Kyl bill is a provision (to be enacted as 35 U.S.C. s 298) that codifies aspects of Daubert for, and only for, patent cases. I don't think that there is any reasonable justification for having a special set of standards for the qualification of experts in patent cases, as opposed to other highly technical cases. Some of the most egregious examples of patent law run amok have occurred when patent law is interpreted differently than other areas of law, even when it ought not. The Supreme Court has occassionally stepped in to help. See, e.g., EBay (overturning Federal Circuit's special rules for injunctions in patent cases) and Zurko (overturning Federal Circuit's special rules for deference to PTO). The Kyl bill's Daubert provision is a step in the wrong direction.

I'm sure there are many other significant differences, but these were my preliminary thoughts. I'd be happy to hear yours.

Bogus Reliance on the Clean Air Act's Compulsory Patent Licensing

Advocates for compulsory licenses of patented technologies in developing nations like to assert that such licensing is common in the United States. If it's OK in the United States, then it ought to be OK elsewhere. In my recent paper directed to Joseph Stiglitz's arguments, I explained in detail the impertinence of relying on the use of compulsory licenses in merger and antitrust proceedings in the United States. See here at pages 17-20.

But the compulsory-license advocates make a lot of other misleading arguments. This post focuses on one: the compulsory licensing provision, section 308, of the Clean Air Act, codified at 42 U.S.C. s 7608. (This provision is particularly noteworthy in light of my previous post about the inappropriateness of compulsory licensing for green technologies.)

Jamie Love likes to cite the example of the Clean Air Act because it establishes, as he puts it, "norms" for compulsory licensing in the United States. What Love never mentions is that in the forty years this provision of the Clean Air Act has existed, it has never been invoked, and the structure of the provision seems designed to ensure that it never will.

Section 308 was created by the 1970 amendments to the Clean Air Act. Pub. L. 91-604, 84 Stat. 1676 (1970). It covers a compulsory license for certain air-pollution control technology only if all of the following substantive conditions are met:

-- the patented technology is "being used or intended for public or commercial use";

-- the patented technology is "not otherwise reasonably available" but for a compulsory license;

-- the patented technology "is necessary to enable" compliance with the Clean Air Act;

-- there are no "reasonable alternative methods" for complying with the Clean Air Act; and

-- "the unavailability of" the patent "may result in a lessening of competition or tendency to create a monopoly in any line of commerce."

One can see that these factors are exceedingly narrow. As I noted in my earlier post, a single pollution-control technology is unlikely ever to be necessary given the likelihood of substitutes. But the last requirement above is a real sticking point: even if, say, a particular manufacturing plant needs to use a particular patent to comply with the Clean Air Act, a compulsory license will only issue if antitrust concerns arise. Under U.S. law, a patentee has an almost unbounded right not to license its technology if it so chooses. See In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322 (Fed. Cir. 2000). Thus, the language in the Clean Air Act probably deals not with the market in the patented technology, but with the market in which the (compulsory) licensee operates. Thus, if I refuse to license my steel-plant smokestack-scrubber patent to you, you may be able to invoke the Clean Air Act's provision only if there are no alternatives to my patent and if, should your steel plant be forced to close down, there be a risk of monopolization in the steel industry. That seems unlikely to happen.

But the limitations of the Clean Air Act do not end there. The procedural roadblocks are even more formidable than the substantive roadblocks discussed above, First, the Administrator of the Environmental Protection Agency needs to sign off on the compulsory license requested by the ostensible licensee. Next, EPA then needs to get the Attorney General's approval. Good luck with that. But still there's more, because the Attorney General does not have the authority to grant compulsory licenses. Instead, the Attorney General must choose to file a lawsuit in the federal district court, where the presiding district judge "may" -- or may not -- herself choose to authorize a license "on such reasonable terms and conditions of the court." Only after the disputed judicial process does a license issue -- presumably years later. Thus, getting a license under the Clean Air Act is like hitting the trifecta at the racetrack -- getting the EPA Administrator to take up your cause to the Attorney General, getting the Attorney General to become interested enough in your case personally to devote manpower to bringing a lawsuit, and then convincing a district court that the license is necessary.

All of these limitations help explain why in forty years the provision appears never to have been utilized. There are no reported cases of district court proceedings under section 308 and no discussion by commentators of any unreported cases.

The legislative history of section 308 helps explain why we have an uninvoked and uninvokable provision in the law. Originally, the section was part of a much broader licensing proposal by the Senate. The House of Representatives, however, proposed no compulsory licensing whatsoever. As a "compromise" that enabled the Senate to save face, the House cut back on the scope of the proposed compulsory license and added the layers of review by the Attorney General and the federal district court. E.g., Conf. Rep. 91-1783, 1970 U.S.C.C.A.N. 5374, 5390. The provision was bound never to be invoked and never has.

In order to make sure that U.S. law comported with article 1709, paragraph 10, of NAFTA, EPA issued rules in 1994 that heaped on additional requirements. See 42 C.F.R. sections 95.1 - 95.4 (promulgated by Final Rule, 59 Fed. Reg. 67637 (Dec. 30, 1994)). (Section 95.4 deals particularly with NAFTA-related requirements.) Some regulatory limitations have nothing to do with NAFTA but make it even less likely that a section 308 license will ever issue. For example, a compulsory license can only cover one patent, 42 C.F.R. s 95.3(a). Thus, the ostensible compulsory licensee who needs to make use of several patents will have to obtain separate approval from the EPA Administrator, the Attorney General, and the district court for each and every patent.

What can we learn from all this? If this provision of the Clean Air Act is used to support the "norms" regarding compulsory licenses in the United States, those norms suggest that compulsory licensing be so tightly circumscribed as never to be used.

China & Compulsory Licenses for "Unworked" Patents

Last month, Ronald Cass, the former dean of the Boston University School of Law, penned an op-ed in the Wall Street Journal about China's ongoing patent reform efforts. (For a useful summary of all the changes in the Third Amendment to China's patent law, see this report by the attorneys at the Jones Day law firm.) The op-ed focused upon on one particular change, namely the authorization of compulsory licensing for non-use of a patented technology. The idea is that if a patentee does not practice its patented invention, then the state should be able to ensure that someone else will. I thought I'd take the time to provide some background about such provisions (which I will call, interchangeably, "non-use provisions" or "worked requirements") and why China's amendment is potentially dangerous.

This concept that patent rights will be taken away if the patent is not practiced is anathema in the United States, where there is no requirement that the patent be "worked." That's been well recognized for a long time. The Supreme Court so held in a century-old decision, Continental Paper Bag v. Eastern Paper Bag, 210 U.S. 405, 409 (1908), that explained that no such requirement has existed under U.S. law since 1836. Concerns about any unfairness from letting a patented technology lay fallow are accommodated somewhat in the United States by providing the authority for a court to deny an injunction to a patentee who does not practice its invention. EBay v. MercExchange, 547 U.S. 388 (2006).

Such requirements that a patentee "work" its technology have a more significant pedigree outside the United States. The Paris Convention of 1887 provided for compulsory licenses "on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons." Paris Convention for the Protection of Industrial Property, art. 5(A)(4).

Prior to TRIPS in 1994, many countries, including Australia, Canada, and France, for instance, provided for the authority of the state to license non-worked patents with provisions that track the Paris Convention. See Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349, 372 (1993). (Canada no longer appears to have such a provision, although Australia does.)

TRIPS, though, imposes additional limitations on compulsory licensing. Article 30 states that members may craft exceptions to patent rights only to the extent that those exceptions do not "unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. Article 31 imposes a number of very specific limitations on the grant of a compulsory license including that negotiations generally be held regarding "reasonable commercial" terms for a license; should such negotiations fail, the patentee is entitled to be "paid adequate remuneration."

These limitations from TRIPS act as a check on the use of compulsory licenses, which brings us to China's amended provision. An unofficial translation prepared by a Spanish NGO reads in relevant part as follows:

Article 49: "In any of the following cases, the Patent Administrative Department under the State Council may, upon the request of the entity or individual which is capable to exploit, grant a compulsory license to exploit the patent for invention or utility model:

"(1) where the patentee, after the third anniversary of the grant of the patent right and fourth anniversary of the filing date of patent application, has not exploited the patent or has not sufficiently exploited the patent without any justified reason;

"(2) Where it is determined through the judicial or administrative procedure that the patentee's exercise of the patent right thereof is an act of eliminating or restricting competition, thus there's a necessity to grant a compulsory license to the applicant."

Thus, the law purports to adopt a relatively unfettered application of the Paris Convention, ignoring China's obligations under TRIPS including the establishment of appropriate compensation. It is also potentially much farther reaching than compulsory licenses limited to drugs for combating epidemics and the like. Moreover the language itself is inscrutably vague. As Ronald Cass pointed out, "sufficiently exploited" and "justified reason" are terms that are inherently ambiguous.

Even if China's new law is applied in a manner that comports with China's treaty obligations, it is still very troubling. Non-use provisions are protectionist because they allow a nation to appropriate patent rights -- which in China will generally be possessed by foreigners -- for the benefit of domestic industry. China's government has an unusually close relationship, of course, with its domestic industry. Accordingly, providing for the power to aid that industry, at the expense of foreigners, is alarming.

There seem to be two reasons why non-use provisions don't cause much of a stir elsewhere. First, other governments are more detached from their domestic industries. Second, such governments likely set the bar quite high before a compulsory license is awarded. By way of example, see sections 133-140 of Australia's Patents Act of 1990, which impose complicated limitations on the compulsory license for non-use. I couldn't find much written about these non-use provisions, at least as they involve developed countries. It could just be that the provisions are never actually invoked in practice.

It is too soon to tell how China will implement its new compulsory licensing authority. China's amended patent law goes into effect on October 1, 2009. China is currently drafting its regulations that implement the new law, but I have not been able to come upon an English translation. One hopes that concerns about the breadth of the law are mooted by limitations imposed by the regulations. If not, the entire premise of patent protection -- exclusive rights -- risks being cast away: Those who invest in technology in order to stay a step ahead of the competition everywhere else in the world will find instead in China that they are a step behind state-authorized copycats who enter the market first.

Compulsory Licenses & Green Technology

I just wrote a lengthy article that covered, among other things, compulsory licensing in the public-health context. (article at pages 20-24). A compulsory license occurs when a government decides that it "needs" a product; it then authorizes others to breach any intellectual-property rights associated with that product. Thus, in the public-health context, a developing nation may conclude that it needs a particular drug.

I noted that in the public-health area, people like Joseph Stiglitz at Columbia University recommend illusory limitations on such licensing. Thus, he advocated the forfeiture of intellectual-property rights covering anything that could be deemed "lifesaving." I argued in response that virtually any medicine can be used in a lifesaving capacity.

That got me thinking, in what contexts other than medicine are bureaucrats or commentators actually advocating compulsory licenses? The answer seems to be "green" technologies, i.e., technologies that, for instance, result in increased energy efficiency. Tim Wilson, at the Institute of Public Affairs (Australia), wrote a helpful short report on the subject last summer. Tom Giovanetti at IPI noted the issue in his blog last month.

There are a number of dangers in advocating compulsory licenses for green technologies.

One is definitional. Many, and maybe most, patents could be called green. For example, every time Intel brings out a new microprocessor that is smaller and faster than its predecessor, but uses the same amount of electricity, we're dealing with something green. Whenever a company figures out how to make its products last longer, we're dealing with something green. You get the point.

When we speak of "green" technologies, though, I think that we intuitively think of things like wind farms, battery technologies, and the like. Yet, circumscribed as such, we have another problem because those are the types of industries that need patent rights the most. William Landes and Richard Posner in their book The Economic Structure of Intellectual Property Law, have observed that the biotechnology industry "would not have come into existence without the prospect of a patent" because patent protection is needed "to make their profits, and to attract capital." It would be hard to argue that green technologies are any different: these firms have large capital expenses and are drawing gobs of VC funding as their principal lifeline (as their biotech predecessors did before them). Intellectual-property protection is the foundation of their existence.

Compulsory licensing in the "green" context is even less explicable than compulsory licensing in the public-health context. That's because there won't be one technology that will be necessary or sufficient on its own to solve climate change or any other environmental problem. So we would not expect any technology to obtain market power in the market for "green" technologies. Rather, the solutions will have to compete in the marketplace.

Moreover, it will be easier for green-technology firms to price their products in a way that accounts for the needs and wealth of each nation. That's because of lessened risk of reimportation: The wind farm or smokestack scrubber installed in China won't likely be put on a barge headed for the United States. That's quite different from a bottle of Plavix pills distributed in Bangkok (or Toronto).

Under these circumstances, it's terrible policy to advocate for compulsory licenses for green technologies. Given the state of the industry and the nature of the problem, such advocates should be called out for what they are: hopelessly naive or foolishly greedy.

The Patent Reform Act of 2009 (Here We Go Again)

The leaders of the Senate and House Judiciary Committees today introduced the Patent Reform Act of 2009. The bills - identical in both houses - promise the most substantial overhaul of the patent laws in the last fifty years.

Congress's last effort at patent reform ended in January 2008 when the Senate version of the Patent Reform Act of 2007 failed to make its way to the floor of the Senate. (A somewhat different version of the legislation passed the House in late 2007.)

The patent system clearly needs revamping, principally to accomplish two, arguably opposite, goals: more thorough, yet faster, examination of patent applications and reexamination of issued patents. The real risk of reform legislation is that by passing new statutes and implementing new procedures, the already complex system will struggle even more.

A first read of the reform legislation is both promising and frustrating. (More after the break.)

On the promising side: The new bill (adopting the House approach from 2007) tries to fix the broken reexamination process instead of implementing (as the previous Senate bill would have) a completely new and untested scheme for post-issuance challenges. The bill also eliminates a provision from the earlier Senate bill that would have essentially imposed a compulsory license for certain electronic-check-processing technologies. Finally, the bill keeps from the 2007 legislation the first-to-file protection for patentees, which is consistent with practice everywhere else in the world and provides greater notice to the public about the validity of patents.

On the frustrating side: I'll put patent reexamination here, too, because while it's good not to dispense with the reexamination scheme, it is not clear that the proposed language can fix a system in which it can take eight or more years for reexamination to conclude. Congress proposes eliminating the publication requirement for patent applications; no longer will patent applications filed in (and only in) the United States be published eighteen months after issuance. The idea, apparently, is that certain patent applicants want to obtain patent rights in the United States and yet maintain trade secrecy overseas. The maintenance of secrecy is at odds with the patent system in the first place, contravenes the practices of other Western nations, and hampers the patent examination process for later-filed applications. Also frustrating is that today's venue provision is flawed for the same reasons as that from 2007, about which I recently wrote.

The most noted reform in today's bills - perhaps the one that received the brunt of industry lobbying - is that to patent damages. As in the 2007 bills, damages are to limited to the economic value of the patent. There is a lot of sense in such a provision: a patent that covers a $5 modem in a computer should not result in damages based on the value of the $1000 computer in which it is incorporated. Yet, the risk of such a provision is that it will be used to create a system where patentees can only receive a modest "reasonable royalty" for the infringement that fails to sufficiently reward the patentee for the risks and efforts undertaken in litigation. Thus, while the damages provisions go in the right direction, one wonders whether Congress may have gone a bit too far. Senator Arlen Specter of Pennsylvania apparently felt that way about the 2007 legislation, which is what caused it to derail in the Senate Judiciary Committee. There is no indication, publicly, that Senator Specter has retreated from that position. It thus remains to be seen whether the 2009 bills suffer a similar fate at similar hands. In light of these uncertainties, hearings on the House bill are being held in abeyance pending developments on the Senate side. Senate hearings on the bill start next week.

Apple's Patent on Touch-based Gestures

On January 20, 2009, the U.S. Patent & Trademark Office issued Patent No. 7,479,949 to Apple, entitled "Touch screen device, method, and graphical user interface for determining commands by applying heuristics." Steve Jobs is one of the co-inventors.

Although the patent itself is complex (it includes more diagrams than I've ever seen in a patent, and has a maze of related patent applications), the claims purport to cover a broad swath of tools available in a touch-screen user interface.

A quick look shows that the patent claims all deal with, essentially so-called "heuristics," which the patent defines as techniques "to translate imprecise finger gestures into actions desired by the user."

The broadest patent claims cover touch-based systems that have at least three particular heuristics built-in. They are all essentially flicks:
(i) a "vertical screen scrolling heuristic" that scrolls the screen vertically (ignoring any accidental sideways movement of the touch);
(ii) a "two-dimensional screen translation heuristic" that drags the screen around, taking into account both horizontal and vertical motion of the touch; and
(iii) a "next item heuristic" to recognize that the touch should result in the display of the next item among a set of items.
(See patent claim 11; see also patent claims 1, 9, 17.)

Narrower patent claims clarify that the choice whether to scroll vertically or in two dimensions is for web browsers, and the "next item" heuristic is for photo albums. (See patent claim 12.)

It's always a dangerous game to interpret patents without reviewing the back-and-forth dialogue between Apple and the PTO, which resulted in the issuance of the patent. And it may be especially dangerous here, where Apple purports to incorporate by reference some 17 other related patent applications and patents into this one.

This patent really highlights the complexity of the US patent system. Although the patent claims themselves seem straightforward, a diligent review of the patent would necessitate reviewing not only this patent's file history, but the 17 related patent applications and patents.

Moreover, it's tricky to figure out what the relevant date is for art to invalidate the patent. We know that the earliest date of priority in the patent is September 6, 2006. So any printed publication or public use/sale more than a year before that is potentially invalidating (35 U.S.C. s 102(b)).

But there are other ways to invalidate the patent, which can't be discerned from a patent's face. When did Apple invent this system of heuristics? Was it after September 5, 2005? Art that precedes Apple's invention of the patent (35 U.S.C. s 102(a)) can invalidate the patent. The dates for invention are never disclosed in a patent, and only come out through litigation. Thus, while there is a chance that post September 5, 2005 art can invalidate one or more claims, there's no way to know.

It is striking how protection for user interfaces has changed over the years. It is not clear that patent protection for user interfaces is a step in the right direction, even for iconic breakthroughs in interfaces such as for the iPhone and iPod Touch. The 300 diagrams in this Apple patent call to mind the 189 graphical user-interface elements of the Apple v. Microsoft copyright infringement case from the early 1990s. The Apple v. Microsoft case prevented Apple from obtaining the protection on the overall look-and-feel of its software, and instead treated as discrete each element of the user interface. This patent, and others like it, purport to cover the combination of several elements -- here the web scrolling with the photo-album browsing -- and not the discrete elements themselves. With the Apple v. Microsoft case largely having thrown copyright out the window, and with trade dress protection excluding functional elements, patents are really the only option for companies like Apple, until and unless another solution is found.