What happened in patent law in the past year?

Last Thursday I gave a 25-min recap patent law update to judges and practitioners at the Northern District Practice Program Patent Law Symposium, and I thought blog readers might be interested in my recap of highlights from the past year:

Patent Case Filings and Procedure: Venue, PTAB, and Stays

Lex Machina reports that there were 4057 cases filed in 2017, down 10% from the 4529 in 2016. The biggest procedural change was to venue. As I have explained, in its May 2017 decision in TC Heartland, the Supreme Court held that for purposes of the patent venue statute, a corporation only "resides" in its state of incorporation. The Federal Circuit has since held that this was a change in law, so the venue defense was not "available" under FRCP 12(g)(2), allowing district courts in pending cases to consider venue arguments that were not previously raised by defendants. And the Federal Circuit has offered guidance on the other possibility for proper venue—"where the defendant has committed acts of infringement and has a regular and established place of business"—saying that this requires (1) a fixed, physical presence that (2) is regular and established (not transient) and that (3) is a place of the defendant (not merely of an employee).

TC Heartland is likely responsible for the decline in cases filed in E.D. Tex. and the uptick in districts like D. Del. and N.D. Cal., though in neither of the latter have filings reached pre-2015 levels:

Helsinn v. Teva Oral Argument Recap

In March, I posted about an amicus brief filed by 42 IP profs in Helsinn v. Teva, which argued that contrary to the district court's opinion and position taken by the USPTO, the America Invents Act (AIA) did not change the meaning of "on sale" and "public use" in 35 U.S.C. § 102(a)(1). The case was argued yesterday before the Federal Circuit, and the panel (Judge Dyk, Judge Mayer, and Judge O'Malley) didn't seem eager to conclude that the AIA wrought a significant change.

The appeal involves Teva's challenge to Helsinn's post-AIA patent on the nausea drug palonosetron, which was filed over a year after a secret licensing and supply contract for the drug. In Pfaff v. Wells Electronics (1998), the Supreme Court held that the on-sale bar applies when a product is (1) "the subject of a commercial offer for sale" and (2) "ready for patenting" as of the critical date (one year before filing). Both issues are contested here, as the district court said that the drug was neither ready for patenting nor on sale within the meaning of the post-AIA § 102. I'll focus here just on the AIA issue, but note that Judge O'Malley asked about remanding for further factfinding and whether it is necessary to reach the AIA issue.

The only line of questioning on the AIA issue for Teva was Judge Dyk's criticism of the dueling canons of statutory interpretation for figuring out what "or otherwise available to the public" means in the new § 102. Teva argued that under the "last antecedent" canon, "to the public" modifies only "otherwise available"; Helsinn countered that under the "series qualifier" canon, the concluding phrase "otherwise available to the public" qualifies everything in the series, including "on sale." But Judge Dyk stated that neither canon can apply because the modifier would be "available to the public," leaving just the word "otherwise," which doesn't make sense. Teva pivoted to its argument that "or otherwise available to the public" is a catchall category for new technologies, which the panel seemed comfortable with; Judge Dyk suggested "an oral description at a conference" as something that might fall into this bucket.

Cuozzo: So Right, Yet So Wrong

The Supreme Court issued its basically unanimous opinion in Cuozzo today. I won't give a lot of background here; anyone taking the time to read this likely understands the issues. The gist of the ruling is this: USPTO institution decisions in inter partes review (IPR) are unappealable, and the PTO can set the claim construction rules for IPR's, and thus the current broadest reasonable construction rule will surely remain unchanged.

I have just a few thoughts on the ruling, which I'll discuss here briefly.

First, the unappealability ruling seems right to me. That is, what part of "final and non-appealable" do we not understand? Of course, this leads to a partial dissent, that it means no interlocutory appeals, but you can appeal upon a final disposition. But that's just a statutory interpretation difference in my book. I'm not a general admin law expert, but the core of the reading, that Congress can give the right to institute a proceeding and make it unreviewable, so long as the outcome of the proceeding is reviewable, seems well within the range of rationality here.

But, even so, the ruling is unpalatable based on what I know about some of the decisions that have been made by the PTO. (Side note, my student won the NYIPLA writing competition based on a paper discussing this issue.) The court dismisses patentee's complaint that the PTO might institute on claims that weren't even petitioned for review as simply quibbling with the particularity of the petition and not raising any constitutional issue. This is troublesome, and it sure doesn't ring true in light of Twiqbal.

Second, the broadest reasonable construction ruling seems entirely, well, broadly reasonable. The PTO uses that method already in assessing claims, and it has wide discretion in the procedures it uses to determine patentability. Of course the PTO can do this.

But, still, it's so wrong. The Court understates, I believe, the difficulty of obtaining amendments during IPR. The Court also points to the opportunity to amend during the initial prosecution; of course, the art in the IPR is now newly being applied - so it is not as if the BRC rule had been used in prosecution to narrow the claim. Which is the entire point of the rule - to read claims broadly to invalidate them, so that they may be narrowed during prosecution. But this goal often fails, as I wrote in my job talk article: The Failure of Public Notice in Patent Prosecution, in which I suggested dumping the BRC rule about 10 years ago.

Whatever the merits of the BRC rule in prosecution, they are lost in IPR, where the goal is to test a patent for validity, not to engage in an iterative process of narrowing the claims with an examiner. I think more liberal allowance of amendments (which is happening a bit) would solve some of the problems of the rule in IPRs.

Thus, my takeaway is a simple one: sometimes the law doesn't line up with preferred policy. It's something you see on the Supreme Court a lot. See, e.g. Justice Sotomayor's dissent today in Utah v. Strieff

How Does the Economy Affect Patent Litigation?

When I was in practice, the conventional wisdom was that litigation (of all kinds) grew during recessions, because people were less optimistic and willing to let slights go, and instead fought over every dollar. Alan Marco (Chief Economist, PTO), Shawn Miller (Stanford Law Fellow), and Ted Sichelman (San Diego) have attempted to tackle this question with respect to patent litigation. They examine litigation rates from 1970-2009 in conjunction with a variety of macroeconomic factors.

Their paper is coming out in the Journal of Empirical Legal Studies, but a draft is on SSRN. The abstract follows:

Recent studies estimate that the economic impact of U.S. patent litigation may be as large as $80 billion per year and that the overall rate of U.S. patent litigation has been growing rapidly over the past twenty years. And yet, the relationship of the macroeconomy to patent litigation rates has never been studied in any rigorous fashion. This lacuna is notable given that there are two opposing theories among lawyers regarding the effect of economic downturns on patent litigation. One camp argues for a substitution theory, holding that patent litigation should increase in a downturn because potential plaintiffs have a greater incentive to exploit patent assets relative to other investments. The other camp posits a capital constraint theory that holds that the decrease in cash flow and available capital disincentivizes litigation. Analyzing quarterly patent infringement suit filing data from 1971-2009 using a time-series vector autoregression (VAR) model, we show that economic downturns have significantly affected patent litigation rates. (To aid other researchers in testing and extending our analyses, we have made our entire dataset available online.) Importantly, we find that these effects have changed over time. In particular, patent litigation has become more dependent on credit availability in a downturn. We hypothesize that such changes resulted from an increase in use of contingent-fee attorneys by patent plaintiffs and the rise of non-practicing entities (NPEs), which unlike most operating companies, generally fund their lawsuits directly from outside capital sources. Over roughly the last twenty years, we find that macroeconomic conditions have affected patent litigation in contrasting ways. Decreases in GDP (particularly economy-wide investment) are correlated with significant increases in patent litigation and countercyclical economic trends. On the other hand, increases in T-bill and real interest rates as well as increases in economy-wide financial risk are generally correlated with significant decreases in patent suits, leading to procyclical trends. Thus, the specific nature of a downturn predicts whether patent litigation rates will tend to rise or fall.

The authors also have a guest post at Patently-O discussing their findings.

I don't have too much to add to their analysis; the notion that a credit crunch will reduce litigation makes a lot of sense.

My two primary additional comments are as follows:

1. There is a lot more to the findings and the authors' analysis than presented in the Patently-O post. For example, there was a shift as litigation changed from competitor to licensor-based claims. The full paper is worth a read.

2. I am not fully convinced what this tells us about the period from 2010-2014. The authors hint that economic growth during that time correlates with a drop in litigation, but the drop in litigation was only in latter 2014 (and reversed itself in early 2015, as they note). This is further complicated by the change in how we count litigation after the America Invents Act requirement that each defendant be joined in a separate case. I think a lot more work (and creative thought) needs to be done to meld the pre- and post-AIA data into a coherent data set.

[UPDATE: I've been corrected - patent litigation by defendant count apparently decreased more than I let on (see, e.g. here) if you exclude false marking claims. This tempers some of my skepticism, though I would still like to see the post AIA data combined with pre-AIA data]

Wasserman on Chevron Deference for the PTO

The America Invents Act (AIA) shifts interpretive authority over patentability standards from the courts to the PTO, argues Melissa Wasserman in her forthcoming article, The Changing Guard of Patent Law: Chevron Deference for the PTO. My co-blogger Sarah Tran has argued that the AIA gives the PTO some substantive rulemaking authority, though not over core patentability standards. Arti Rai has stated that post-grant review proceedings "bear the hallmarks of formal adjudication" and that the PTO could ask for Chevron deference under the AIA. But Wasserman’s article is the first detailed examination I've seen of this issue, and it illustrates how a compelling legal challenge seeking greater deference to the PTO on patentability issues might proceed.

Guest Blogger--David Taylor on Patent Misjoinder

Many thanks to Sarah Tran for highlighting my most recent scholarship on the Written Description blog yesterday and permitting me the opportunity to post a short response.

The blog entry was particularly timely. Just this past Friday the Federal Circuit resolved the split of authority among district courts applying Federal Rule of Civil Procedure 20, which governs permissive joinder, in patent infringement cases. See In re EMC Corp., slip op. (Fed. Cir. May 4, 2012) (granting a petition for writ of mandamus). The Federal Circuit ultimately ordered the district court to reconsider the issues of severance and joinder of accused infringers using a standard articulated in the opinion.

David Taylor: Patent Misjoinder

How should district courts interpret the joinder provisions of the America Invents Act? In Patent Misjoinder (forthcoming New York University Law Review), Professor David Taylor provides a comprehensive analysis of 35 U.S.C. § 299 and offers a statutory interpretation that would maximize judicial efficiencies and avoid undue prejudice to accused infringers. To develop his interpretation, Professor Taylor considers the policy concerns of permissive joinder and how these concerns have led to divergent joinder standards.

Donald Chisum: Priority Among Competing Patent Applicants Under the America Invents Act

How will the “First Inventor to File” provisions of the America Invents Act (AIA) impact patent applications filed after the March 16, 2013 implementation date? Donald Chisum’s article, Priority Among Competing Patent Applicants Under the America Invents Act, utilizes a patent bar-esque hypothetical to highlight several important features of the new legislation. Chisum begins his article by outlining a fact pattern involving inventors A and B and the independent steps each inventor takes to patent invention X, a protein that controls muscle spasms.

Jason Rantanen & Lee Petherbridge - Toward a System of Invention Registration: The Leahy-Smith America Invents Act

Does the America Invents Act create a process for patent amnesty? The economic ramifications of the newly created supplemental examination process are discussed by Professors Jason Rantanen and Lee Petherbridge in their highly engaging article, Toward a System of Invention Registration: The Leahy-Smith America Invents Act.

Scott Kieff – The Perils of Patent Reform & Welcome to Patent Purgatory

What effect will the recently enacted America Invents Act (AIA) have on the commercialization of patents? Professor Scott Kieff’s essays, The Perils of Patent Reform and Welcome to Patent Purgatory, explore some reasons why the AIA may negatively influence the rate and the manner by which invention is brought to market.