Reason in the Prior Art: Applicability Beyond Chemical

Takeda_Alphapharm_P1

Takeda Chemical Indus. v. Alphapharm Pty., Ltd., No. 06-1329, slip op. (Fed. Cir. 2007).

Alphapharm sought FDA approval to a market generic version of Takeda’s drug ACTOS (U.S. Patent 4,687,777), which is used to treat diabetes. Takeda sued Alphapharm and the district court rejected Alphapharm’s obviousness attack on the patent. The Federal Circuit affirmed. It found that KSR v. Teleflex did not eliminate the prima facie obviousness requirement that a challenger, in cases involving new chemical compounds, "identify some reason that would have led a chemist to modify a known compound in a particular manner."

Takeda and KSR

Citing its Pre-KSR precedents the appellate court stated when an obviousness challenge is based on a structural similarity between the prior art and the claimed compound, the challenger must show the “prior art would have suggested making the specific molecular modifications necessary to achieve the claimed invention.” The court noted the Supreme Court’s indication in KSR that while the TSM test cannot be rigidly applied, the test is not necessarily inconsistent with the Graham analysis.

Is the Federal Circuit’s requirement that a challenger identify a reason to modify a known compound consistent with KSR’s direction that the TSM elements not be applied in a rigid and mandatory way? The Court in KSR acknowledged that "it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does." However the Court immediately thereafter cautioned that insights drawn by considering what reason(s) prompted the combination "need not become [a] rigid and mandatory formula."

Considering a reason that would prompt a person of ordinary skill in the art to combine the elements, is necessarily an art specific inquiry. The KSR Court recognized this by stating, "In many fields it may be that there is little discussion of obvious techniques or combinations, and it often may be the case that market demand, rather than scientific literature, will drive design trends." Will the Federal Circuit extend the Takeda requirement to other arts outside the chemical field?

Takeda’s Applicability to Software Patents

Many, including the Patent and Trademark Office Commissioner, note the particular difficulty that examiners have in finding prior art in the software field. This difficulty is part of the motivation underlying the Peer-to-Patent Pilot, which allows the public to contribute prior art relevant to software patent applicants. If Takeda is extended to software patents, it might be difficult for challengers to identify particular pieces of prior art which evidence a suggestion to combine elements. Challengers would likely argue more flexibility is necessary in showing the prima facie case of obviousness given the nature of the software art.

Noncompeting Plaintiffs: Irreparable Harm Analysis

Previously I reported on the CSIRO v. Buffalo Technology case. There, the district court found CSIRO’s patent (No. 5,487,069) covered all 802.11a/g wireless technology and granted a permanent injunction against a wireless LAN vendor. CSIRO does not practice its patents, but instead seeks licenses from third parties. The court’s irreparable harm analysis is particularly interesting in light of CSIRO’s non-practicing status.

In eBay v. MercExchange, the Supreme Court provided that to obtain an injunction a patent holder must show (1) irreparable harm in the absence of an injunction; (2) inadequacy of money damages; (3) balance of hardship favors an injunction; and (4) the public interest would not be harmed by the injunction.

The irreparable harm portion of the analysis is generally where courts consider whether the plaintiff and the defendant are competitors or whether the plaintiff only licenses their patent rights to third parties.

Factor: Plaintiff’s Use of Additional Licensing Revenue to Solve Important Societal Problems

When a court issues an injunction, the plaintiff is able to obtain greater licensing fees due to the increased bargaining power that the injunction provides. The court emphasized the importance of the projects CSIRO would undertake with additional licensing revenue. The court found CSIRO used its licensing revenue to fund frontier projects. Those projects covered “areas of important research” including “addressing the increasing rate of obesity and the consequential increase of Type 2 diabetes, developing biomaterials that can be used to aid recovery from traumatic damage to the body, and examining the impact of climate change and mitigating its causes.” The court found this, among other things, supported a finding of irreparable harm.

What are the implications of this analysis? CSIRO is a Australian scientific research organization similar to the United States’ National Science Foundation. Can for-profit entities succeed in similarly arguing that they too would use increased licensing revenue to solve important societal problems? Will drug companies benefit from arguing their licensing revenues are to fund further research on particular life saving drugs? What about engineering firms and environmentally friendly products or defense contractors and counter-terrorism inventions? This particular aspect will not be determinative in the injunction analysis, but its interesting that the particular use of additional licensing revenue is a factor.

Injunction Granted for License-Only Plaintiff: IEEE 802.11a and 802.11g Technology

Information Week reported that the Federal District Court for the Eastern District of Texas issued a permanent injunction against Buffalo Technology, a wireless LAN equipment vendor, in favor of the Australian science agency CSIRO. The court found Buffalo was violating CSIRO’s patent (U.S. Pat. No. 5,487,069) that is a core component of the IEEE 802.11a/g wireless LAN technology standard widely used in business and home networks.

The Information Week article reported:

Judge Davis’ decision is noteworthy because it seemingly contradicts the Supreme Court’s May 2006 ruling in another patent case, eBay v. MercExchange, in which the Court found that an injunction could be issued in an infringement case only if the plaintiff is actually in competition with the defendant — in other words, companies or individuals who seek to make money from patent holdings, rather than actual products and services, were unlikely to get injunctive relief.
[emphasis added]

Ebay’s Majority
However, the Supreme Court did not say that an injunction would never issue when the plaintiff is a non-competitor. In Ebay [PDF], the court specifically rejected categorical rules like the one suggested by Information Week. The Court said the district court in Ebay, went too far when the district court concluded “that a ‘plaintiff’s willingness to license its patents’ and ‘its lack of commercial activity in practicing the patents’ would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue.” 126 S.Ct. at 1840.

The Supreme Court recognized that “some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves.” The Court concluded that such patent holders are not categorically excluded from the opportunity to obtain an injunction under the traditional four factored test.

In the Texas case, the court noted CSIRO is a scientific research organization of the Australian Federal Government. Like a university, CSIRO conducts scientific research and applies the efforts of that research to benefit the public at large.

Justice Kennedy’s Concurrence
Justice Kennedy noted that some firms use patents to obtain license agreements rather than to produce products. He warned that an injunction used by such firms could be “employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.” But in the next sentence he stated: “When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.”

So Justice Kennedy’s comments about license-only plaintiffs might be limited to those whose patents cover only a small component of the defendant’s product. In any event, Justice Kennedy’s comments cannot be read to always prohibit injunctions in favor of license-only plaintiffs because that categorical rule was rejected by Justice Kennedy and the majority.

The Texas court referenced Justice Kennedy’s statement, and noted that CSIRO’s patent does not cover a small part of Buffalo’s product, but instead is the “core technology embodied in the IEEE’s 802.11a and 802.11g standards.”

Conclusion
The Texas court’s ruling does not contradict Ebay in the way suggested by Information Week.

[Commonwealth Scientific and Industrial Research Organisation v. Buffalo Technology Inc. — F.Supp.2d —-, 2007 WL 1739999 (E.D.Tex. 2007).]

[eBay Inc. v. MercExchange, L.L.C., 126 S.Ct. 1837 (2006).]

Commissioner Doll on Peer-to-Patent Pilot

Listen to the Patent and Trademark Office Commissioner John Doll discuss the Peer-to-Patent pilot, which is now live. He notes the particular difficulty that examiners have in finding prior art in the software field. Consequently the pilot is limited to technology center 2100, which handles computer hardware and software applications. The goal the pilot is allow public participation to improve the quality of issued patents.Also, Comissioner Doll predicted the PTO will have a backlog of 800,000 patent applications by the end of the year despite their effort to hire 1,200 examiners.

Test Marketing Your Invention

The Invent Blog linked to an article from the Wall Street Journal entitled Testing the Marketability Of Your Product Idea. The article suggests that you should test market your product or invention by soliciting feedback from (1) friends and family, (2) those who might understand your product’s industry or customers, (3) employees and customers in stores that sell similar items, and (4) online surveys.

What’s missing here? Google AdWords.

You can test market any idea in a short time using Google AdWords. Here’s how it works:

You create your ads
You create ads and choose keywords, which are words or phrases related to your business [or invention].

Your ads appear on Google
When people search on Google using one of your keywords, your ad may appear next to the search results. Now you’re advertising to an audience that’s already interested in you.

You attract customers
People can simply click your ad to make a purchase or learn more about you [or your invention]. You don’t even need a webpage to get started – Google will help you create one for free.

You can experiment with different keywords to determine which works to generate the most traffic. The traffic will help you gauge the market for your invention. For step by step details on how to test market your invention using AdWords, check out chapter 10 of The Four-Hour Workweek by author Tim Ferriss or read this blog entry.

Microsoft’s Patent vs. IL Eavesdropping Statute

The PTO recently granted Microsoft patent 7,231,019. It covers a method and system of identifying callers by (1) capturing the acoustic properties of the caller’s voice, (2) creating an acoustic model of the caller’s voice, and (3) comparing that model to stored models of prior callers. It also compares the caller’s words with language models compiled for previous callers to assist in caller identification.

Illinois has a relatively strict eavesdropping statute. So, I wondered whether a person could violate the eavesdropping statute by using this system.

Microsoft’s system is capable of identifying a caller from a single utterance. The system is able to identify a caller “without alerting the caller to the identification process.” The patent claims the system is useful for, among other things,(1) “easily filter[ing] unwanted calls of telemarketers, for example, from desired calls from known callers,” and (2) efficiently routing calls at a large call center to the correct recipient or information database.

Eavesdrop Statute

The eavesdropping statute states, in part: A person commits eavesdropping when he: (1) Knowingly and intentionally uses an eavesdropping device for the purpose of hearing or recording all or any part of any conversation . . .unless he does so (A) with the consent of all of the parties to such conversation or electronic communication. . .” 720 ILCS 5/14-2 (2007). The statute defines eavesdropping device as “any device capable of being used to hear or record oral conversation. . .” Id. at 14-1. The statute defines “conversation” as “any oral communication . . . ” Id.

The eavesdropping statute covers more than just listening in on other people’s conversations. You can violate the eavesdropping statute if even one person to the conversation agrees to the recording, i.e. if the person participating in the conversation is doing the recording. Basically, you can’t record a phone conversation unless all other people on the line agree. Also a back-and-forth conversation is not necessary, one person speaking is enough under the statute because a conversation means any oral communication.

Microsoft’s System vs. Eavesdrop Statute

So if I’m using Microsoft’s system to filter unwanted calls of telemarketers without alerting the caller will I violate the eaves drop statute? It depends on whether the system is used “for the purpose of . . . recording … [the] conversation.” The system uses a computer to analyze the caller’s voice. In order for a computer to analyze a voice it must record the speakers voice into the temporary memory of the computer. Once in the computer’s temporary memory the system can analyze the caller’s voice, recognizing words and creating a acoustic profile. Therefore, the system makes a recording of the caller’s oral communication.

However, its not enough for the system to record a communication. The person using the system must use the system for the purpose of recording the communication. That’s a harder leap to make. When someone records a conversation, that usually implies the person can later play back the recording for themselves or others. Microsoft’s system does not seem to allow the user to playback the recorded caller’s voice. If the system also allowed the user to play back the caller’s voice then the user might run into problems under the eavesdropping statute.

If recording an unconsenting caller’s voice violates the statute doesn’t the use of an answering machine violate the eavesdropping statute? No, courts recognize callers implied consent to the recording when they leave a voice message. Here, however, Mircosoft’s patent claims to identify callers “without alerting the caller to the identification process.” Its unlikely that a caller can impliedly consent without knowing it.

Victory: Microsoft’s Patent

Absent a voice playback feature, the person using the caller identification system is likely not using the system for the purpose of recording the communication, but rather is using the system to identify the caller. As a result, he or she is likely safe from the reach of the eavesdrop statute.

Product Firms More Likely To Patent Than Service Firms

Business Professor John R. Allison, Economist Abe Dunn, and Law Professor Ronald J. Mann posted their article “Software Patents, Incumbents, and Entry” on SSRN. The article provides data showing that product based firms (e.g. Microsoft) are more likely to seek and obtain software patents than service based firms (e.g. EDS).

The article examined the relation between patents and different business models used by firms in the software industry. Part of the article analyzed firms’ pattern of patenting (how many patents the firms sought and received). The authors stated, “if the desire to build portfolios for defensive purposes were the main justification for patents in the industry . . . one would expect portfolios roughly proportionate to litigation exposure.” Id. 1594. They assert that a firm’s size is a reasonable proxy for its litigation exposure. Therefore, “if the defensive portfolio hypothesis is correct, patent portfolios would correlate closely with size, and there would not be a great deal of variation tied to other factors such as market sector or R&D intensity.”

However, the authors predicted the pattern of patenting would “depend not only on size, but also on [1] whether the firm focuses on selling products or services, [2] how devoted the firm is to R&D . . ., [3] whether the firm is primarily a software firm or a hardware/electronics firm, and [4] competitive issues in the specific sector of the software industry in which the firm is located.

The authors found that whether a firm sought and obtained patents depended, in part, on the extent to which the firm sold products as opposed to services. The data showed that “[a] firm that derives all its revenues from products . . . is expected to produce 230% more patents than a firm entirely devoted to providing services.” Id. at 1601. They found that the data did not show that some industry sectors merely relied more on products and some more on services, but rather the differences between patenting practices of products firms and services firms existed even within particular industry sectors.

The authors were not sure what caused this difference between products and services firms. The causes might be that (1) patents have a greater ability to protect innovation in products, (2) there is a “greater need to protect innovation that is disclosed through the distribution of products,” or (3) “a patenting culture in a firm’s early days . . . contribute[s] to its survival as a products firm.” Id. at 1063.

[Allison, John R., Dunn, Abe and Mann, Ronald J., “Software Patents, Incumbents, and Entry” . 85 Texas Law Review 1579 (June 2007) Available at SSRN: http://ssrn.com/abstract=989592]

PTO Wants More From Applicants

The New York Times reports that Jon Dudas, director of the United States Patent and Trademark Office, wants changes in the patent law that would require the applicants to conduct a thorough search of prior art, and provide a explanation why the patent being sought represents a significant innovation in the field.

Patenting Software Security Fixes

The Register reports on a company called Intellectual Weapons, which offers to patent fixes for newly discovered security vulnerabilities, weaknesses, or technical flaws in software. Then the company will seek to license the fixes to vendors of the vulnerable products and other security providers.

Intellectual Weapons describes their process:

  1. You submit vulnerabilities you have discovered, without telling anyone else.
  2. If we accept them, we work together to develop a fix.
  3. We develop intellectual property relating to the fix, and license or enforce it
  4. You share in the profits

The company acknowledges enforcement may be tough:

Enforcing the IP may not be straightforward-we fully anticipate major battles. . . .We only want people who dare to play for high stakes.

Consumers Empowered?

A patent targeted by EFF’s patent busting project caught my eye. A company called NeoMedia claims:

the general concept of reading an “index” (e.g., UPC number1) off of what it calls a “data carrier” (e.g., consumer product) and crossreferencing that index in a database in order to find the necessary information to look up and connect to a remote computer (e.g., URL fetched out of a database which is then inserted into a web browser).

The November 15, 2006 edition of the EFF’s Effector email newsletter summarizes the patent:

NeoMedia claims to have invented the basic concept of any technology that could, say, scan a product on a supermarket shelf and then connect you to price-comparison website.

This technology has the potential to empower consumers and force prices to reflect real-time supply and demand. Think about scanning the bar code of a product at a retail store with your phone. The information is transmitted to a price-comparison site and the results display on your phone. Now you know instantly whether the price there at the retail store is the best price.

This technology has the power to put some real teeth into those lowest-price-guarantees. What if the price-comparison surveyed not only online retailers but also traditional retailers? So you could scan a product at Circuit City and find out it is available for $50 less at the Best Buy store one mile down the road?

A company called Scanbuy already provides a free service that allows consumers to enter a bar code into their cell phone and receive: best price, other online prices, product reviews, and information about the product. This service will probably only really catch on when it is easy to use, i.e., when the users cell phone scans the barcode instead of requiring the user to manually enter the number.

Will retailers honor their lowest-price-guarantee when a customer shows the retailer the price comparison results on their phone? Some guarantees do not apply to prices of online retailers, and some match only in-print advertisements from competitors. The cost of redeeming a lowest-price-guarantee has been described as a hassle cost. Can retailers afford to continue providing guarantees when the consumer’s search cost incurred in discovering a lower price is virtually eliminated? Will this technology be the death of low-price guarantees? Or will retailers just retreat to price matching only in-print advertisements from competitors? If they retreat will the guarantees loose their effectiveness (if they are effective in the first place)?

Price-guarantees aside, a service like Scanbuy, should offer the option to “buy it now” that lets the user purchase a product using their phone from the online retailer with the lowest price. E-commerce continues to expand. The ability to purchase products with your phone while standing in a retail store maybe the next step in the evolving way we purchase goods.