Tafas v. Doll.

CAFC Finds the USPTO Final Rules Limiting Continuations to Conflict With 35 USC 120, But Final Rules Limiting Claims, RCEs, and ESDs are Within USPTO’s Rulemaking Authority.

(Fed. Cir. 2009, 08-1352)

Triantafyllos Tafas, SmithKline Beecham Corporation, and Glaxo Group Limited (collectively “Appellees”) originally filed suit against the USPTO in relation to Final Rules published by the USPTO that placed new limits on the claims and continuations.  On October 31, 2007, the district court preliminarily enjoined enforcement of the Final Rules.  Appellees then moved for summary judgment that the Final Rules are invalid and sought a permanent injunction against their enforcement.  Appellees’ summary judgment motions alleged that the Final Rules were impermissibly substantive, inconsistent with law, arbitrary and capricious, incomprehensibly vague, impermissibly retroactive, and procedurally defective.  The district court agreed with Appellees that the Final Rules were substantive rules that change existing law and alter the rights of applicants under the Patent Act.   Accordingly, the district court granted Appellees’ motion for summary judgment that the Final Rules are invalid and granted a permanent injunction.  The USPTO appealed to the CAFC. 

Four of the Final Rules 75, 78, 114, and 265 were at issue in the appeal.  Final Rule 75 requires an applicant who submits either more than five independent claims or twenty-five total claims to provide the examiner with information in an examination support document (“ESD”).  Final Rule 78 governs the availability of continuation and continuation-in-part applications.  Under the rule, an applicant is entitled to file two continuation applications as a matter of right.  If an applicant wishes to pursue more than two continuation applications, the applicant must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application.”  If the applicant cannot make the requisite showing, the USPTO will accept the application  for examination but will “refuse to enter, or will delete if present, any specific reference to a prior-filed application.”  Final Rule 114 provides for similar treatment of RCEs, stating that the applicant must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted prior to the close of prosecution in the application.”  The requirements for ESDs are set forth in Final Rule 265.  To comply with Final Rule 265, an applicant must conduct a preexamination prior art search, provide a list of the most relevant references, identify which limitations are disclosed by each reference, explain how each independent claim is patentable over the references, and show where in the specification each limitation is disclosed.

On appeal, the CAFC (majority of panel including Judges Prost and Bryson, with dissent by Judge Rader) concluded that the following USPTO Final Rules are procedural and within the scope of the USPTO’s rulemaking authority.

• Final Rule 75 – Claims – requiring an applicant who submits either more than five independent claims or twenty-five total claims to provide the examiner with information in an examination support document (“ESD”);
• Final Rule 78 - Continuations – requiring a “showing that the amendment, argument, or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application” for more than two continuations;
• Final Rule 114 – RCEs – requiring a “showing that the amendment, argument, or evidence sought to be entered could not have been submitted prior to the close of prosecution in the application” for more than one RCE; and 
• Final Rule 265 - ESDs – this rule setting forth the specific requirements for ESDs.

However, the CAFC further found that Final Rule 78 conflicts with 35 U.S.C. § 120 and is thus invalid.  Section 120 states, in part, that “[a]n application for patent . . . filed by an inventor or inventors named in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application”.  Final Rule 78 would allow the USPTO to accept a continuation application without the requisite showing, but the USPTO would “refuse to enter, or will delete if present, any specific reference to a prior-filed application.”  Accordingly, the effect of Final Rule 78 would be to impermissably remove the application from the scope of 35 U.S.C. § 120, which would otherwise entitle the application to the filing date of the prior-filed application.

The CAFC affirmed the district court’s grant of summary judgment that Final Rule 78 is invalid, vacated the grant of summary judgment with respect to Final Rules 75, 114, and 265, and remanded for further proceedings.

Leaving the door open to further mischief, the CAFC concluded:

Because of the complexity of this case and the numerous arguments presented on appeal and before the district court, we think it is important to expressly summarize what we believe remains for the district court on remand. This opinion does not decide any of the following issues: whether any of the Final Rules, either on their face or as applied in any specific circumstances, are arbitrary and capricious; whether any of the Final Rules conflict with the Patent Act in ways not specifically addressed in this opinion; whether all USPTO rulemaking is subject to notice and comment rulemaking under 5 U.S.C. § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.

Judge Rader notably dissented, stating:

. . .  I would affirm the district court’s conclusion that the PTO exceeded its statutory rulemaking authority in promulgating these rules. For that reason, I concur in part with this court’s ultimate conclusion regarding Final Rule 78, but dissent in part with respect to Final Rules 114, 75, and 265.

This case presents a threshold question about the nature of these rules—substantive or procedural . . . .  Because the Final Rules drastically change the existing law and alter an inventor’s rights and obligations under the Patent Act, they are substantive and the PTO exceeded its statutory rulemaking authority under 35 U.S.C. § 2(b)(2).

JW Note:  See also our previous posts relating to the USPTO Claims and Continuations Rules here.  The saga continues . . . .

Welker Bearing Co. v. Phd Inc.

The generic terms “mechanism,” “means,” “element,” and “device,” do not connote sufficiently definite structure to avoid means-plus-function treatment.

(Fed. Cir. 2008, 08-1169)

The U.S. District Court (E.D. Virginia) granted summary judgment of noninfringement of Welker Bearing Co.’s U.S. Patent Nos. 6,786,478 (“’478 patent”) and 6,913,254 (“’254 patent”) in favor of PHD, Inc.  The CAFC affirmed the summary judgment, stating that the district court correctly construed the critical claim element of the ’254 patent as a means-plus-function limitation subject to 35 U.S.C. § 112 ¶ 6.

The technology of the Welker patents relates to locating pins for inserting into a work piece to position and hold the work piece on an assembly line.  Specifically, Welker claimed pin clamps that hold a work piece securely in place during welding and other manufacturing processes.  The critical claim language was the phrase “said assembly characterized by a mechanism for moving said finger along a straight line into and out of said locating pin perpendicular to said axis A in response to said rectilinear movement of said locating pin”.  In determining that PHD did not infringe Welker’s patents, the district court construed a “mechanism for moving said finger” limitation in the claims as a means-plus-function limitation subject to 35 U.S.C. § 112 ¶ 6. 

“Means-plus-function claiming applies only to purely functional limitations that do not provide the structure that performs the recited function.” Phillips v. AWH Corp., 415 F.3d at 1311 (Fed. Cir. 2005).  Further, a patentee’s use of the word “means” in a claim limitation creates a presumption that 35 U.S.C. § 112 paragraph 6 applies. TriMed, Inc. v. Stryker Corp., 514 F.3d 1256, 1259 (Fed. Cir. 2008).   The use of means-plus-function language requires an identification of “the corresponding structure, material, or acts described in the specification and equivalents thereof.” 35 U.S.C. § 112 ¶ 6. 

The CAFC noted that the term “mechanism” standing alone connotes no more structure than the term ‘means.’”  No adjective endowed the claimed “mechanism” with a physical or structural component.  Further, the claims at issue provided no structural context for determining the characteristics of the “mechanism” other than to describe its function.  The court also held that the unadorned term “mechanism” is “simply a nonce word or a verbal construct that is not recognized as the name of structure and is simply a substitute for the term ‘means for.’” Accordingly, the CAFC agreed that the district court properly applied means-plus-function treatment to the term “mechanism”.

AFFIRMED.

In Re Bilski.

The applicable test to determine whether a claim is drawn to a patent-eligible process under § 101 is the machine-or-transformation test.

(Fed. Cir. 2008, 07-11130, en banc)

Bernard L. Bilski and Rand A. Warsaw (collectively, “Applicants”) appealed from the final decision of the BPAI sustaining the rejection of all eleven claims of their U.S. Patent Application Serial No. 08/833,892 ( the “′892 application”).  Specifically, Applicants argued that the examiner erroneously rejected the claims as not directed to patent-eligible subject matter under 35 U.S.C. § 101, and that the Board erred in upholding that rejection. The appeal was originally argued before a panel of the court on October 1, 2007. Prior to disposition by the panel, however, the CAFC sua sponte ordered en banc review. Oral argument before the en banc court was held on May 8, 2008. The CAFC affirmed the decision of the BPAI, concluding that Applicants’ claims are not directed to patent-eligible subject matter, and in doing so, clarified the standards applicable in determining whether a claimed method constitutes a statutory “process” under § 101.

CONCLUSION

Because the applicable test to determine whether a claim is drawn to a patent-eligible process under § 101 is the machine-or-transformation test set forth by the Supreme Court and clarified herein, and Applicants’ claim here plainly fails that test, the decision of the Board is

AFFIRMED.

JW Note:  Further analysis to follow.  See background from AT! here.

JW Update 11/12/08:  Analysis with varying opinions on the impact of the decision is available from other patent law blogs here, here, and here.  Enjoy.

Egyptian Goddess v. Swisa Inc.

Point of novelty test is rejected;  Infringement of a design patent requires that an ordinary observer, taking into account the prior art, would believe the accused design to be the same as the patented design.

(Fed. Cir. 2008, en banc, 06-1562)

 

The CAFC granted a rehearing en banc  to address the appropriate legal standard to be used in assessing claims of design patent infringement. 

Egyptian Goddess (“EGI”) originally brought suit in US District Court (N.D Tex.), alleging that Swisa had infringed EGI’s U.S. Design Patent No. 467,389 (“the ’389 patent”).  The ‘389 patent claimed a design for a nail buffer, consisting of a rectangular, hollow tube having a generally square cross-section and featuring buffer surfaces on three of its four sides.  Swisa’s product consists of a rectangular, hollow tube having a square cross-section, but featuring buffer surfaces on all four of its sides.  The district court granted the motion for summary judgment of noninfringement for Swisa, stating that the plaintiff in a design patent case must prove both: (1) that the accused device is “substantially similar” to the claimed design under what is referred to as the “ordinary observer” test; and (2) that the accused device contains “substantially the same points of novelty that distinguished the patented design from the prior art.”

EGI appealed and a panel of the CAFC affirmed.  The panel agreed with the district court that there was no issue of material fact as to whether the accused Swisa buffer “appropriates the point of novelty of the claimed design.”  The AT! analysis of the original CAFC panel opinion may be found here.

In an unanimous decision, the en banc CAFC held that the “point of novelty” test, previously used as a second and free-standing requirement for proof of design patent infringement, is inconsistent with precedent and is not needed to protect against unduly broad assertions of design patent rights.  The en banc CAFC instead applied the “ordinary observer” test first set forth in Gorham Co. v. White.  The ordinary observer test states:

[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.

Using the ordinary observer test, the CAFC concluded that no reasonable fact-finder could find that EGI met its burden of showing, by a preponderance of the evidence, that an ordinary observer, taking into account the prior art, would believe the accused design to be the same as the patented design. In concluding that a reasonable fact-finder could not find infringement in this case, the court affirmed the conclusion of the district court.

AFFIRMED.

Quanta v. LG Electronics.

The authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use of the article.

(553 U. S. ____ (2008))

Per JUSTICE THOMAS, who delivered the opinion of the Supreme Court:

For over 150 years this Court has applied the doctrine of patent exhaustion to limit the patent rights that survive the initial authorized sale of a patented item. In this case, we decide whether patent exhaustion applies to the sale of components of a patented system that must be combinedwith additional components in order to practice the patented methods. The Court of Appeals for the Federal Circuit held that the doctrine does not apply to method patents at all and, in the alternative, that it does not apply here because the sales were not authorized by thelicense agreement.  We disagree on both scores. Because the exhaustion doctrine applies to method patents, and because the license authorizes the sale of components that substantially embody the patents in suit, the sale exhausted the patents.  (Emphasis ours)

The facts of the case were nicely boiled down to the following paragraph.

Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel’s microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intel’s ability to sell itsproducts practicing the LGE Patents. Intel’s authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta.  Accordingly, the judgment of the Court of Appeals is REVERSED.  (Emphasis ours).

See background posts from AT! here, here, and here.

Tafas v. Dudas; SmithKline Beecham Corp. v. Dudas – Permanent Injunction Granted.

Defendants Jon W. Dudas and the United States Patent and Trademark Office are permanently enjoined from implementing the Final Claims and Continuations Rules.

The opinion of Judge James C. Cacheris in the Eastern District of Virginia may be found here.  The order permanently enjoining the USPTO may be found here. 

GSK and Tafas brought suit against the USPTO to permanently enjoin the USPTO from enacting the USPTO’s final claims and continuations rules.  GSK and Tafas claimed that the rules were unlawful agency action under Section 706(2) of the APA and should be declared null and void.  The USPTO argued that the Final Rules were entirely lawful and that it should be permitted to go forward and implement the rules. More details on the background and specific rules changes may be found at our previous posts here, here, here, and here.  The Patent Docs have some exceptional background on the litigation, including copies of briefs filed, here.

In a well-written opinion, Judge James C. Cacheris rested his determination on the single dispositive issue of whether the USPTO is empowered to  establish the final claims and continuations rules under 35 U.S.C. § 2(b)(2), which allows the USPTO to “establish regulations, not inconsistent with law,” to “govern the conduct of proceedings in the Office.”

Judge Cacheris first noted that, even though the APA does not define a “substantive rule,” any rule that “affect[s] individual rights and obligations” has been deemed substantive by the courts.  With this understanding, Judge Cacheris found:

Though [the new contination rule) does not completely prohibit applicants from filing more than two continuation or continuation-in-part applications, because the USPTO intends to deny additional applications in almost all circumstances, . . . the “could not have been submitted” standard of the petition and showing requirement effectively imposes a hard limit on additional applications.  (Emphasis ours).

and 

[T]he ESD requirement changes existing law and alters the rights of applicants under the current statutory scheme by shifting the examination burden away from the USPTO and onto applicants. . . .  [T]he Federal Circuit has stated that applicants have “no duty to conduct a prior art search” and “no duty to disclose art of which an applicant could have been aware. . .” .  In addition, Sections 102 and 103 provide that “[a] person shall be entitled to a patent unless” the claimed invention lacks novelty or is obvious in view of the prior art, 35 U.S.C. §§ 102 and 103, and Section 131 states that the USPTO “shall cause an examination to be made of the application”. . . . The Federal Circuit has read these provisions as placing the burden of examination and the burden of proof to make a prima facie case of unpatentability on the USPTO.

thus 

The 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden onto applicants, constitute a drastic departure from the terms of the Patent Act as they are presently understood. By so departing, the Final Rules effect changes in GSK’s and Tafas’s existing rights and obligations.

Accordingly, the Judge Cacheris held: 

Because the USPTO’s rulemaking authority under 35 U.S.C. § 2(b)(2) does not extend to substantive rules, and because the Final Rules are substantive in nature, the Court finds that the Final Rules are void as “otherwise not in accordance with law” and “in excess of statutory jurisdiction [and] authority.” 5 U.S.C. § 706(2).

Hat tip to the Patent Prospector.

In Re Bilski – En Banc Hearing Relating to Business Method Patents.

CAFC Orders Hearing En Banc of a BPAI Decision That Non-Machine-Implemented Business Methods Are Non-Patentable Subject Matter.

(Fed. Cir. 2008, 07-1130 order)

The following are the issues as stated in the CAFC’s sua sponte order relating to the Board of Patent Appeals and Interferences decision in Ex Parte Bilski (BPAI 2006):

The court by its own action grants a hearing en banc. The parties are requested to file supplemental briefs that should address the following questions:

(1)  Whether claim 1 of the 08/833,892 patent application claims patent-eligible subject matter under 35 U.S.C. § 101?
(2)  What standard should govern in determining whether a process is patent-eligible subject matter under section 101?
(3)  Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?
(4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?
(5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

Background on the case via InsideCounsel.com:

Bilski’s fight began more than 10 years ago when he submitted a patent application seeking exclusive rights to a method of using hedge contracts to reduce the risk that a commodity’s wholesale price might change. His process is pretty simple: When a commodity seller makes a sale to a consumer at one fixed price, he or she then makes a second set of hedging transactions at a second price.

There are no calculations for determining appropriate hedge prices, no use of computers to help implement the hedging.

The U.S. Patent and Trademark Office ruled in September 2006 that this “method” is merely an abstract idea, not patentable subject matter. A patentable “process,” the agency declared, must either transform matter or energy or use a machine to carry out specified steps. Bilski’s invention does neither.

Bilski appealed this ruling to the Federal Circuit in early 2007, and the legal battle began. According to many experts, the PTO is using this as a test case to narrow the type of business methods eligible for patents.

Claim 1 at issue from the Bilksi 08/833,892 patent application is reproduced below:

1. 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.

In Re Petrus A.C.M. Nuijten – CAFC Rehearing Denied.

Dissent stating that the distinctions drawn between signals and storage media containing those signals are artificial at best. 

(Fed Cir. 2008, 06-1371o)

As stated in our original post on In Re Petrus A.C.M. Nuijten., the CAFC has previously held that a transitory, propagating signal cannot be patentable subject matter.  Petitions for a panel rehearing or a rehearing en banc at the CAFC were denied yesterday in a 9-3 decision, with strong a dissent by J. Linn (joined by J. Newman and J. Rader).  The dissenting justices opined as follows:

As I explained in my dissent from the panel opinion in this case, our decision conflicts with our own precedents as well as those of the Supreme Court. See In re Nuijten, 500 F.3d 1346, 1358 (Fed. Cir. 2007) (Linn, J., concurring-in-part and dissenting-in-part).  It conflicts with our own precedent because our predecessor court’s decision in In re Breslow, 616 F.2d 516 (C.C.P.A. 1980), forecloses the majority’s conclusion, see Nuijten, 500 F.3d at 1356, that something “transient” or “fleeting” cannot constitute a “manufacture” under 35 U.S.C. § 101.  And it conflicts with Supreme Court precedent because it ignores the Supreme Court’s analysis of how, in general terms, § 101 is to be construed.  As the Court discussed in Diamond v. Chakrabarty, patentable subject matter includes “anything under the sun that is made by man” except for certain enumerated exceptions: “The laws of nature, physical phenomena, and abstract ideas have been held not patentable.” 447 U.S. 303, 309 (1980). The majority’s narrow construction of “manufacture” ignores this framework.

In addition, this case raises important questions about the relationship between § 101 and § 103. In this case, we affirm the PTO’s rejection of claims to a signal simpliciter, but the PTO has allowed a claim to a storage medium containing the very same signal, on the grounds that the storage medium is a manufacture that can be rejected, if at all, only under some provision other than § 101. In particular, the PTO considers the patentability of such claims under the “printed matter” doctrine of § 103. See In re Lowry, 32 F.3d 1579 (Fed. Cir. 1994). These distinctions make no practical sense and are poorly supported by precedent, which, to the contrary, requires a more holistic approach to the question of whether a claim is directed only to an unpatentable abstraction or whether it is directed to a patentable application of such an abstraction to an otherwise statutory invention. Cf. Parker v. Flook, 437 U.S. 584, 591 (1978) (“The process itself, not merely the mathematical algorithm, must be new and useful.”); cf. also In re Abele, 684 F.2d 902, 909 (C.C.P.A. 1982) (“As was the case in [Diamond v. ]Diehr[, 450 U.S. 174 (1981),] . . . the algorithm is but a part of the overall claimed process.”). The distinctions that are drawn between signals and storage media containing those signals would appear to apply equally to the distinctions between software and hardware and are artificial at best.

Further analysis by Prof. Crouch, Patent Prospector, and Zura’s 271 Blog.