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Patent Litigation

By Alexandra Brown | Jul. 2, 2008


Roundtable-Patent Litigation

Jul. 2, 2008

Patent Litigation

A roundtable with Fenwick & West; Lewis Brisbois Bisgaard & Smith; Morrison & Foerster; and Weil Gotshal & Manges.

EXECUTIVE SUMMARY: The forthcoming decision for In Re: Bilski, related to the patentability of business methods, and the Federal Circuit decision that found inequitable conduct in McKesson v. Bridge Medical, present larger issues about patent law's ability to keep pace with technological advancement, the tensions posed by what appear to be greater demands for disclosure during patent prosecution, and a more general shift in what is protected under attorney-client privilege.
      Our panel of experts from Northern and Southern California met in May to discuss these issues, as well as some of the more notable changes to the patent local rules for the Northern District of California, which are often regarded as a harbinger of what's to come nationwide. They are Michael J. Sacksteder of Fenwick & West; David Makous of Lewis, Brisbois, Bisgaard & Smith; Charles Barquist and James J. Mullen III of Morrison & Foerster; Nicholas Brown of Weil, Gotshal & Manges. The roundtable was moderated by freelance writer Bernice Yeung and reported for Barkley Court Reporters by Krishanna DeRita.
     
      MODERATOR: What are the legal issues raised by business method patents in light of In Re: Bilski?
     
      MAKOUS: This case directly affects obtaining process patents, including those that relate to business methods, and the likelihood of invalidating those patents. Essentially, the word "process" in its enriched, present patent context has become an overly broad term, well beyond what it was likely intended to mean at its origin during the first industrial revolution. Given the rapid modern technological advancements, it has become the unknowable term of art now being addressed in Bilski. Essentially, the issue has been complicated by computers, which have, to a considerable degree, replaced mental processes, creating confusion as to whether a process is patentable subject matter or nonstatutory subject matter.
      There's this delicate game that's being played under developing case law, where some argue that if it's the output of a computer-a machine-it is therefore a "useful art." In essence, that anything that results in computer output theoretically qualifies as a patentable method. To me, that's circular and unconvincing. The computer needs to be thought of first as a surrogate or a proxy for the mental process.
     
      SACKSTEDER: When the Bilski decision comes out, I don't think that software patents are going to disappear. I also don't think that business method patents are going to disappear, but it's likely that the Federal Circuit will set out some new test for what is or is not patentable subject matter. So there is going to be something else to argue about and another standard to look at. We just don't know what it is yet.
     
      BARQUIST: In looking at the case, I agree with one of judges who noted at oral argument that the patent is likely invalid under Sections 102 (novelty and loss of right to patent), 103 (nonobvious subject matter) and/or 112 (specification) of Title 35 of the United States Code. But I also agree with those that say that Section 101 (inventions patentable), which is fairly broad, is not the way to decide the case.
      If you look at the actual claim, it's not just an abstract idea. It may be an unpatentable statement of a process because it's been done before, but it does talk about initiating a series of transactions in the first step and then initiating a separate series of transactions in the third step. So I'm a little surprised that so many people think that this case raises the issues about patentable subject matter and business method patents that were debated at the Circuit.
     
      MULLEN: I'm concerned about the U.S. Patent and Trademark Office's interest in Section 101 in this case. The Patent and Trademark Office (PTO) recast the utility standard into a higher standard for patentability. The Constitution makes it pretty clear: An applicant need only show that an invention is useful-a relatively low barrier-for the invention to qualify as statutory subject matter. And in the biotechnology field, which is where I practice, we are seeing the PTO raising 101 issues when what they should really be doing is focusing on section 112, regarding novelty and obviousness issues.
     
      BROWN: I think I can see why. It's harder for the PTO to do searches and objections on business method patents and on some biotechnology patents than on mechanical patents, so if they can use another tool to control the patent docket in those areas, I can see how that's desirable to them. But I don't think it's the right thing to do.
     
      SACKSTEDER: In a way, it's similar to copyright, where you can have many original thoughts. You can speak them out loud, but if those expressed thoughts are not reduced to a tangible medium of expression, they are not covered by copyright. It's a similar issue here-if something can't be performed by a machine, is it an invention?
     
      MULLEN: Perhaps that's a better way to go about it-instead of using a machine-implementation test, perhaps a test of physical transformation of one sort or another is a better approach.
     
      BROWN: Ultimately, I don't think Bilski is likely to have a huge impact. I think it has impact now on prosecutions, but I doubt it will be decided in a way that has significant impact on the existing law.
     
      SACKSTEDER: Although the concern is, of course, that all those business method or software patents could suddenly be found to be invalid.
     
      MAKOUS: Any invalid patent has a worth of at least $500,000, which is at a minimum how much it costs in court to invalidate it. With more sophisticated art, of course, it goes up. So I would prefer that the patent office serve as a gatekeeper and keep this stuff off the books so we don't have to defend claims on methods patents that have no business being patented.
     
      MODERATOR: What are some of the effects you've seen in the past year as a result of the Federal Circuit's decision in McKesson v. Bridge Medical?
      MULLEN: In McKesson the court's finding of inequitable conduct was based on three independent grounds. The first was the failure to disclose a reference. The second, which is a little more disturbing from the patent bar's standard point of view, was a failure to disclose an office action that dealt with that reference. The third was that the patentee didn't disclose a notice of allowance in a related case. Perhaps most troubling was that the court found that the applicant should have disclosed the notice of allowance to the same examiner who issued it. This part of the ruling is breathtaking at first glance, but if you keep in mind the high turnover rate of examiners at the patent office, perhaps it is understandable.
      Another troubling aspect of this case comes from the fact that the court found two otherwise unrelated patent families to be substantially similar and related, but it didn't really give any guidance as to how to analyze this issue. Since a failure to disclose prior art in substantially related cases lead to a finding of inequitable conduct in this case, applicants will have to be very sensitive to this issue going forward.
     
      SACKSTEDER: For patents that have already been issued, the decision certainly makes it more potentially rewarding for defendants to do an earlier and more widespread search of other related patent applications, and it gives you a basis to explain to your client why you need to do it and why you need to incur the expense of doing it early.
      But I don't see it as being a huge additional litigation weapon because the standard for making an inequitable conduct case is so high.
     
      BARQUIST: One fact that stands out in this case was that the same examiner was handling two different applications, and yet the court found that the examiner had failed to officially disclose to himself what he had done in the other application.
      I found that significant because the Court seemed to give some weight to making disclosures.
     
      BROWN: It's also not unrealistic for an examiner who has issued a notice of allowance in one case to not notice that it might have bearing in another case. But it seemed to me that the decision was driven primarily by the nondisclosure of the reference, not by the notice-of-allowance issue. So I don't think that this case necessarily stands for the proposition that you can be found to have committed inequitable conduct solely because you failed to submit a notice of allowance from a related case.
     
      SACKSTEDER: McKesson has definitely increased the anxiety level among patent prosecutors, but to the extent that it is causing prosecutors to include more and more prior art in the application, it also may have an impact on litigation. The examiner is not going to have time to review all of the art, and then there's going to be more art cited against an issued patent than there was before, which can, to a certain extent, inoculate the patent against that cited art if the art is raised in litigation.
     
      MAKOUS: For me, I have a level of concern for what I see as an erosion of the ethical obligations of the attorney-client relationship by passing more obligations of patent applicant's counsel to a non-client third party, like the PTO. While this is not new, it does seem to be expanding.
     
      BARQUIST: It is easier for the applicant who has that knowledge to disclose, rather than for the patent office to manage it. In that sense, it's reasonable.
      But that leads to another question: It's easy if you have one prosecuting patent lawyer handling all of these applications. What about larger companies? Are they adopting procedures to ensure that the patent prosecutor at firm A knows what the patent prosecutor at firm B is doing?
     
      MULLEN: I advise my clients to develop procedures to manage the references they are disclosing in all the cases in their portfolios.
      McKesson is going to motivate people to disclose more references to the patent office. I'm going to disclose all my office actions and responses to the patent office going forward, and I was already disclosing all of my references. If the new Information Disclosure Statement (IDS) rules come out, it's going to open up a whole new can of worms as far as disclosure is concerned.
     
      BROWN: McKesson points to a recurring problem that also came up in another recent decision on inequitable conduct, Aventis v. Amphastar. In both McKesson and Aventis, the dissenting judge wrote something along the lines of, "We are going back to the plague of encouraging unwarranted charges of inequitable conduct."
      Inequitable conduct is not a remedy for making a mistake. It is a remedy for intending to deceive the patent office. The problem is the standard of proof for intent. Cases like McKesson and Aventis seem to lower that standard, and lead patent prosecutors to think, "Well, I have to disclose everything. Otherwise I am going to be found to have acted with intent to deceive the patent office." That strikes me as unfair to patent prosecutors, and bad for the patent office because "everything" is a lot and is difficult to review. The governing Kingsdown rule requires a fairly high standard of intent, which at least some of the Federal Circuit judges feel their colleagues are not applying.
     
      MULLEN: It's rare to find the smoking gun of intent to deceive the patent office in an inequitable conduct case. The intent is going to be inferred from that reference or that office action that you didn't disclose, so that's what's prompting this mass filing of references.
      This goes back to the comment by David [Makous] earlier on work product because that was an issue in this case, and the court noted that patent prosecutors are supposed to keep records about which references are disclosed and which ones are not disclosed. The Manual of Patent Examining Procedure mentions that that's the preferred course of action.
     
      BARQUIST: And in McKesson, the court said that because the prosecutor didn't have the notes, his explanation was not credible. So that puts an incentive on prosecutors not to clean out their files when the patent issues.
     
      MULLEN: Right. It is already required that all business transactions with the patent office be conducted in writing. So the patent should stand or fall on that record, not my barely legible notes regarding the references in the file.
     
      MODERATOR: What are some of the issues raised by the changes to the Northern District of California patent local rules?
     
      MAKOUS: The first notable change is that the parties must identify, in their joint claim-construction statement, the ten most significant claim elements that will be the subject of dispute and require construction. It's artificial, but it is an effort to try to get the litigants down to the nitty-gritty. I do expect that it's going to require some give-and-take, that some problems will arise as these claims are raised, and that some multi-party disputes will result.
      Another less significant change relates to patent disclosures under 3.2 (a), Document Production Accompanying Disclosure, where a litigant will need to disclose all documents "sufficient to evidence each discussion with, disclosure to, or other manner of providing to a third party, or sale of or offer to sell, or any public use of, the claimed invention prior to the date of application for the patent in suit." So in essence, you have to construe all documented conversations, comments, meetings, and so forth as comprising an "offer to sell," or "prior use of the claimed invention" in response, which comprises another type of adverse self-advocacy.
      Also, under changes to rule 3.7, Advice of Counsel, there's an obligation, 50 days after the claim construction ruling, to disclose all advice of counsel and attorney-client communications you rely on for any purpose in litigation. This has some relationship, certainly, to the scienter requirement in the proof of indirect infringement allegations, and opinions as defense thereto.
     
      BROWN: I agree that the requirement to identify the ten most important terms is an important change. The requirement, which I see as forcing litigants to figure out both for themselves and for the judge what's really important in the case, is a good thing. One of the problems of complex patent litigation is that sometimes even the parties have a hard time figuring out what really matters and what doesn't. And that can lead to satellite litigation about unimportant issues, which then adds to the cost and complexity. If you can somehow push people to really figure out what matters early in a case, that's a really good thing, and that seems to be the intent of the rule change. Whether it will work to do that is an open question.
     
      SACKSTEDER: There are some judges in the Northern District that already have something like this in their standing orders and it's usually a little bit more stringent-you negotiate down to ten terms and submit just those, unless you can show good cause for submitting more. The way I read this rule change is that we need to identify ten terms as the most significant, but presumably, you are not precluded from raising others. I would think that the judge has an obligation, if there is a legitimate dispute concerning additional terms, not to ignore a claim term that is legitimately disputed.
      Another rule change of note involves infringement contentions, a rule that has swung like a pendulum through the years. It used to be that it was very difficult to amend your infringement contentions if you got, for instance, a claim construction that you weren't expecting. Then the rule was changed to provide for preliminary infringement contentions and final infringement contentions, the latter happening after claim construction. The current rule change seems to fall in the middle, where there's only one set of infringement contentions, but those can be amended with good cause, and an example of good cause is if you don't get the claim construction you were expecting. I'm predicting quite a lot of continued argument on the "good cause" issue, as well.
     
      MULLEN: So with that in mind, do these rules increase efficiency? It sounds like they are actually going to generate more argument.
     
      BARQUIST: Well, the problem with the old rule was that people were taking advantage of the automatic final contention opportunity to throw in things that really weren't justified by a new claim construction, or some other legitimate development in the case.
     
      MULLEN: From a client-counseling standpoint, the timing of the claim construction, as well as the mechanism, always struck me as odd.
     
      BARQUIST: There are pros and cons to the timing of claim construction. One reason to do it later is that you learn more about the accused product and the issues become more crystallized. On the other hand, it increases the uncertainty. But if the claim construction is done at summary judgment, as is common, then you need expert reports that deal with a range of claim constructions. Otherwise, you might be precluded if you don't have an expert that addresses a claim construction that's adopted later on.
     
      SACKSTEDER: This is somewhat unrelated to the rule changes, but claim construction, in addition to being a procedural tool, is a settlement window. It really can be case dispositive. If claim construction becomes appealable through Congressional patent reform, we have to think about how that's going to impact the handling of claim construction disputes and whether a ruling on claim construction will still give parties the same settlement window.
     
     
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Alexandra Brown

Daily Journal Staff Writer

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