There have been a number of important decisions issued by the U.S. Supreme Court and the Federal Circuit Court that will have significant impact on U.S. patent law and the litigation resulting from the patents. A brief description of each case is set forth below.
The Microsoft and Therasense decisions appear to strengthen patents by making it more difficult to invalidate them during litigation. The Stanford decision makes it clear the importance of having the appropriate employment agreement in place with employee inventors, especially if the work was funded at least partially by U.S. federal funds. While the impact of these cases is somewhat speculative at this point, it is undisputable that these cases will have a significant impact. Only years from now will we be able to determine the true impact of these cases.
Microsoft v. i4i: Clear and Convincing Evidence Required to Invalidate a Patent
The Supreme Court in Microsoft v. i4i affirmed that 35 U.S.C. § 282 of the Patent Act requires an invalidity defense in patent litigation to be proved by clear and convincing evidence. In so holding, the Supreme Court rejected Microsoft’s position that, when the U.S. Patent and Trademark Office has not considered the evidence of invalidity in prosecuting the patent, the appropriate standard should be a preponderance of evidence.
i4i sued Microsoft alleging that Microsoft Word infringed i4i’s U.S. Patent No. 5,787,449 (“’449 Patent”), which relates to custom XML. Microsoft counterclaimed and sought a declaration that the ‘449 Patent was invalid under §102(b)’s on-sale bar, which precludes a patent from issuing for any invention that was on sale in this country more than one year prior to the filing of a patent application.
The parties agreed that, more than one year before i4i filed its ‘449 Patent, i4i had sold a predecessor software program called S4. The parties, however, disagreed over whether the S4 software embodied the invention claimed in the ‘449 Patent. Microsoft objected to i4i’s proposed jury instructions that the invalidity defense must be proved by clear and convincing evidence. Microsoft argued that because the U.S. Patent and Trademark Office did not consider the S4 software in prosecuting the ‘449 Patent, the standard should instead be a preponderance of evidence.
The district court rejected Microsoft’s position and proffered the i4i jury instructions that included the clear and convincing evidentiary standard. Microsoft appealed the decision to the Federal Circuit. The Federal Circuit affirmed the district court's decision.
Microsoft appealed to the U.S. Supreme Court asking the Supreme Court to make an exception to the clear and convincing evidence standard for finding a patent invalid. Microsoft argued that the evidentiary standard should be reduced when evidence was not considered by the U.S. Patent and Trademark Office in determining the validity of the patent.
The Supreme Court rejected Microsoft’s contention. The Supreme Court reasoned that under §282 of the Patent Act, “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” This, therefore, requires that to prove invalidity of a patent requires proof by clear and convincing evidence regardless of whether the U.S. Patent and Trademark Office considered the potentially invalidating prior art at issue or not.
This decision may increase the importance of filing an inter partes reexamination proceeding as a strategy against a claim of patent infringement. In those situations in which an alleged infringer may posses prior art eligible to be considered in a reexamination proceeding, consideration should be given to filing an inter partes reexamination with the U.S. Patent and Trademark Office. An inter partes reexamination proceeding allows an accused infringer to ask the U.S. Patent and Trademark Office to reconsider the patentability of a patent in light of certain prior art provided by the potential infringer. Given the heightened standard of proving invalidity by clear and convincing evidence in litigation, it may actually be easier to prove invalidity in the U.S. Patent and Trademark Office through inter partes reexamination then through litigation.
Therasense v. Becton : Inequitable Conduct in Litigation More Difficult to Prove
The Federal Circuit’s en banc decision in Therasense v. Becton raises the threshold for proving inequitable conduct as a defense to patent infringement. “To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” The Federal Circuit explained that, to prove specific intent to deceive, requires an accused infringer must “prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.”
Therasense (now Abbott) filed a patent application for disposable blood glucose test strips for diabetes management. During the 13 years of prosecution, the application received multiple rejections for anticipation and obviousness. To overcome these rejections, Abbott submitted an affidavit from its Director of Research and Development and the application finally issued as U.S. Patent No. 5,820,551 (the “‘551 Patent”). However, while prosecuting the corresponding European patent application, Abbott made certain representations that were inconsistent with the affidavit submitted in the US application. Abbott did not provide the US Patent Office with the arguments it had submitted in the corresponding European patent application.
Abbott sued Becton, Dickinson & Co. for infringement of the ‘551 Patent. During this action, the district court held the ‘551 Patent unenforceable for inequitable conduct because Abbott did not disclose to the US Patent Office the arguments submitted to the European Patent Office during the prosecution of its corresponding European patent application. On appeal, the Federal Circuit Court vacated the district court’s inequitable conduct judgment and remanded the case back to the district court. But shortly thereafter, the entire Federal Circuit granted rehearing of the case by the entire court.
In its en banc decision, the Federal Circuit rejected the previous rule of a “sliding scale” approach where a weak showing of intent may nonetheless be sufficient based on a strong showing of materiality, and vice versa. Instead, the Federal Circuit held that intent to deceive must be determined independent of materiality. In reaching its decision, the Federal Circuit expressed concern that the low standards for intent and materiality currently applied has inadvertently led to many unintended consequences, such as “increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality.”
In reaching it decision, the Federal Circuit refused to adopt the definition of materiality in Patent Rule 56 stating that reliance on the Rule has lead to the problems the Federal Circuit is attempting to address. In response to the decision, the US Patent and Trademark Office posted a notice on its website that it will review the case and publish any impact it may have on practice before the US Patent and Trademark Office. This decision will likely result in modifications to Patent Rule 56 making it consistent with this decision by raising the standard for what constitutes material prior art.
One likely result of this decision is that fewer accused infringers may claim inequitable conduct by a patentee during prosecution of its patent, which could ultimately reduce the issues before the courts speeding up patent litigation cases. On the other hand, the new higher standard results in one less defense available to accused infringers. Only time will tell, however, how this decision impacts not only prosecution of patents, but how those patents are enforced and litigated.
Bayh-Dole Act Does Not Confer Title [Or: Do Not Rely Upon Bayh-Dole Act to Confer Title – Get Proper Assignments]
The Supreme Court recently held in Stanford v. Roche that the Bayh-Dole Act (also known as the University and Small Business Patent Procedures Action of 1980, the “Act”) does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take tile to those inventions. Instead, the Act “simply assures contractors that they may keep title to whatever it is they already have.”
Upon joining Stanford University, Dr. Mark Holodniy agreed “to assign” to Stanford his “right, title and interest in” inventions resulting from his employment at Stanford. As part of this research, Dr. Holodiny conducted research at Cetus, a research company developing methods for quantifying blood-borne levels of HIV. As a condition for gaining access to Cetus, Dr. Holodiny signed a second agreement by which he actually assigned to Cetus his “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access.”
Dr. Holodiny conducted research at Cetus for the next nine months. Dr. Holodiny then returned to Stanford where he developed an HIV measurement technique. Stanford filed several patent applications related to the technique and obtained written assignments from Dr. Holodiny.
Roche later acquired all of the rights of Cetus, including the rights to the assignment between Dr. Holodiny and Cetus. In 2005, Stanford filed a patent infringement suit against Roche contending that Roche’s HIV test kits infringed Stanford’s patents. Roche responded by asserting that it was a co-owner of the HIV quantification procedure based upon Dr. Holodiny’s assignment to Cetus. Stanford countered that Dr. Holodiny had no rights to assign because his research was federally funded giving Stanford superior rights in the invention under the Act.
The Act allocates rights in federally funded “subject invention[s]” between the Federal Government and federal contractors. The Act defines “subject invention” as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement,” and provides that contractors may “elect to retain title to any subject invention.” As the National Institutes of Health (NIH) funded some of Stanford’s research on the HIV measurement technique, the Bayh-Dole Act applied. In accordance with the requirements of the Act, Stanford notified NIH that it was electing to retain title to the invention and conferred on the Government a license to use the patented procedure.
The District Court held that the Dr. Holodiny effectively assigned rights to Cetus, but because of the Act, Dr. Holodiny had no interest to assign when he signed that agreement. The Federal Circuit then reversed the district court, holding that Roche did have an ownership interest in the patents-in-suit, and the Supreme Court granted certiorari.
In affirming the Federal Circuit, the Supreme Court held that “the Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”
The Supreme Court rejected Stanford’s contention that the Act reorders the normal priority of rights in an invention when the invention is conceived or first reduced to practice with the support of federal funds. The Supreme Court stated that no where does the Act expressly vest in contractors or anyone else title and nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.
The Supreme Court went on to state that only when an invention belongs to the contractor does the Act come into play. The Act serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. By using the word “retention” the Act assumes that the inventor had rights in the subject invention at some point, undermining the notion that the Act automatically vests title to federally funded inventions in federal contractors.
This decision emphasizes the importance of obtaining proper assignments of inventions from employees and contractors. Institutions cannot and should not rely upon the Act to vest ownership in inventions created using federal funds. Therefore, anyone that receives federal funds and is subject to the Act should review their assignments to ensure that the agreements effectively assign rights in any inventions, including, without limitation those that are federally funded, to the institution. Moreover, it is imperative that institutions ensure that their employees have not otherwise assigned their rights in an invention to a third party, especially those involved in shared research.
As a side note, the Federal Circuit in reaching its decision held that the Stanford CPA constituted a mere promise to assign rights in the future, but that the Cetus VCA itself assigned Dr. Holodiny’s rights in the invention to Cetus. While the Supreme Court did not address this issue, the applicable agreements with employees and contractors should themselves assign rights in the invention and not be a mere promise to assign in the future.