Bowman v. Monsanto: Planting of Patented Seeds to Make a Second Generation of Seeds Infringes RoundUp Ready Patents

On Monday, the Supreme Court decided Bowman v. Monsanto and held that a farmer monsanto-logowho purchases patented seeds from a grain elevator and then plants those seeds and harvests the crop, infringes the patent. Previous cases had held farmers liable for holding over a portion of their crop for planting the next year, but those cases involved the violation of the license agreement the farmer must sign when purchasing the licensed seeds. In this case, the farmer purchased the seeds from a grain elevator with no contractual strings attached.

The result shouldn’t be a surprise, and some people even expected a unanimous opinion, which the Supreme Court issued. The issue in the case was “patent exhaustion” and it is the principle that once a patented article is the subject of an authorized sale, the owner of the article is free to use it as they see fit or resell it to another person. Patent exhaustion, however, doesn’t allow the purchaser to make copies of the patented article.

A patent doesn’t give the patent holder the right to do anything themselves (after all, there could be other patents that cover other aspects of the same product). What a patent does give is the right to exclude others from making, using, selling, offering for sale, or importing the patented article. This is much like the deed to real property that gives the owner the right to keep trespassers off, but doesn’t actually allow the owner to do any particular activity on the land (you have to look to zoning laws and permitting agencies for that).

Patent exhaustion applies to only some of that bundle of rights that the patent holder has, namely making, selling, and offering for sale the patented article that was previously bought. A person can’t make copies of the article they bought and claim that the copies don’t infringe because of patent exhaustion. In Monsanto, Bowman claimed that planting the soybeans was really just a normal use of them and their “self reproduction” was the natural result. The Court, however, saw this process of planting and harvesting as the natural way of “making” a second generation of seeds. The beans Bowman bought from the elevator could have been resold, used for animal or human food products, or even used as a feedstock for bio-fuel.

The question that then comes up is how does a farmer ever plant patented seeds without infringing the relevant patents? The answer is actually pretty simple and has been used by Monsanto and other seed companies for decades. When purchasing seeds (which of course comes with the right to resell or use them for feed) farmers must sign a license agreement granting them the right to “make” one descendent generation by planting. That descendent generation may then be sold or used but not planted.

This really is the same outcome that would be expected in other technology areas where a purchaser can freely use or resell the product, but not replicate it. The difference here is the self replicating nature of biological organisms.

Facebook Sued for Patent Infringement – Will Their Lawyers be Sued for Malpractice Next?

Facebook has been sued by Rembrandt Social Medial, LP for patent infringement. Rembrandt Social Media doesn’t run a social media site, but was created by Rembrandt facebook_logoIP Management, LLC, with the family of the deceased inventor of the patents and the inventor’s company Aduna. According to the complaint Rembrant works “to help inventors and patent owners, who often do not have the requisite capital or expertise, enforce their rights against companies that use their inventions without paying for them.” In other words, Rembrandt is a Non-Practicing Entity – what some people call a patent troll.

Rembrandt alleges infringement of two U.S. patents: the ‘362 Patent and the ‘316 Patent. Both patents have filing dates back to 1998.  The ‘316 Patent discloses a personalized web diary that can be shared with other users. The ‘362 Patent relates to the features such as the “Like” and “Share” buttons.

Beyond the patent infringement allegations, the complaint also alleges a potential conflict of interest for the patent attorneys who prosecuted the cases. According to Rembrandt, the law firm that represented the inventor in prosecuting the patents began prosecuting applications for Facebook in 2008. The law firm then continued to represent both Facebook and Aduna until July of 2012 when the law firm terminated its relationship with Aduna.

The case probably looks worse for the law firm than it really is. The Aduna patents issued in 2003 and the law firm’s involvement was likely limited to the docketing and and paying of maintenance fees. While it can’t be determined from the complaint, the law firm may have only discovered the relationship of the subject matter in June 2012, when Facebook acquired a patent in which the ‘362 Patent was cited as prior art.

There isn’t enough information in the complaint to gauge the severity of the conflict, or if there really is one. It does, however, show the potential for “subject matter conflicts” to develop into direct conflicts among clients.

SCOTUS will Review Reverse Payment Cases

The Supreme Court has granted Certiorari in FTC v. Watson Pharmaceuticals. In this case, a brand name drug manufacturer paid a generic to stay out of the market in order to settle a patent infringement litigation. The question presented is:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).

There has been a lot of buzz over the last few months related to reverse payments used to settle patent litigation. I wrote about the Third Circuit case earlier this year and provide some more detailed background here. These settlements are peculiar to the generic/brand name drug arena and arise from the Hatch/Waxman act.

Until this summer, virtually every appeals court had held that such settlements did not violate anti-trust laws. The courts had tested such agreements with a “scope of the patent” test that looked to see if the agreement impermissibly extended the exclusionary effect of the patent beyond those to which the patent owner is entitled. Under this test, the settlement agreement will only be thrown out if the litigation was a sham, or the patentee obtained the patent by fraud. This is a very high standard to invalidate a settlement agreement and every major case I’ve seen upheld the reverse payments.

However, last summer, the Third Circuit came to a different conclusion. In In Re: K-Dur Antitrust Litigation, the court held that reverse payments are presumptively anti-competitive and the parties must show that either the payment was not for the purpose of delaying market entry by the generic manufacturer or that the agreement offers some pro-competitive benefit. This puts the burden on the drug manufactures and would likely result in more of these agreements being challenged and invalidated.

This decision by the Third Circuit produced the first circuit split on the issue. Oral arguments will likely be held this spring or summer.

SCOTUS Grants Cert in Myriad Gene Patenting Case

Last week, the Supreme Court granted a writ of certiorari in the Myriad case. I previously wrote about the status of this case and, to be honest, the case has gone back to the Supreme Court a bit faster than I had expected.

All we know is that four Justices voted to grant Certiorari, but there are some tea leaves that we can try to read. For example, the decision about which questions to grant Certiorari on is telling. Three questions had been posed to the Court:

  • Are human genes patentable?
  • Did the court of appeals err in upholding a method claim by Myriad that is irreconcilable with this Court’s ruling in Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)?
  • Did the court of appeals err in adopting a new and inflexible rule, contrary to normal standing rules and this Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), that petitioners who have been indisputably deterred by Myriad’s “active enforcement” of its patent rights nonetheless lack standing to challenge those patents absent evidence that they have been personally and directly threatened with an infringement action?

Often, the Court rephrases the question when the writ is granted. However, question one was granted verbatim. The wording of the question may be troublesome for Myriad as the Court isn’t even asking if isolated and purified DNA is patentable, but only if human gene generally are.

Another interesting fact is that the Court did not grant cert on the second question. The Mayo decision had invalidated a DNA diagnostic test as not being statutory subject matter. However, in this case, the Federal Circuit has upheld Myriad’s own diagnostic claims, and now, the Supreme Court will leave that decision in place and not address it head on in the Myriad case. The Court could still invalidate the diagnostic claims with a broad holding related to question one, but I think that is unlikely.

This means the Court may be willing to let diagnostic tests to stand despite a potentially hostile position on patenting gene sequences and isolated genes. This would allow for exploitation of gene based diagnostics and other inventions, even if claims to the genes themselves are not patentable.

The Patent Fix: Wired’s Series on Reforming the Patent System

Wired has taken on the task of publishing opinion pieces from a variety of stakeholders in the patent system about how best to “fix” the patent system. I use the term “stakeholders” because that is what each of us is. We all are affected by the patent system, whether for good or bad. All these disparate views are valuable and show the range of opinions on the topic.

However, the case that is repeatedly made that the patent system is broken is predicated on the idea that patent litigation is running rampant and inhibiting innovation. In an earlier

piece, however, I pointed out that the number of patents issued has stayed flat relative to the size of the economy for the last half century. Also, patent litigation rates have been remarkably steady.

Competing views have been published from IBM and Google. While both have their points, the latter piece makes some poor editorial choices. For example, the image

chosen to go with the piece is figure 1, “From a patent for ‘Spam Score Propagation for

Not a patent

Web Spam Detection‘.” The only patent document I found that had that title is not an issued patent, but rather a published application that has not yet been examined by the USPTO. It’s hard to use it as an example of a poor quality patent, when it isn’t even a patent at all.

The piece also endorses the SHIELD Act which I think will have a greater deterrent effect on smaller entities who want to protect their intellectual property than it will on non-practicing entities (aka Trolls). (Here’s my earlier piece on the SHIELD Act).

There are some good thoughts presented on both sides, but the case to “fix” the patent system would be much stronger if its proponents would first show the system is actually broken.

Apple v. Samsung: Claim Construction at the Federal Circuit

Last month, the Court of Appeals for the Federal Circuit dealt a blow to Apple in its battle with Samsung. Procedurally, Judge Koh in the District Court for the Northern District of California had issued a preliminary injunction that blocked sales of Samsung’s Galaxy Nexus smartphone based on likely infringement of an Apple patent. Samsung was appealing that injunction.

U.S. Pat. No. 8,086,604, “Universal Interface for Retrieval of Information in a Computer System”

Preliminary injunctions are issued before the case is ultimately decided, and one requirement of a preliminary injunction is a finding that the patent owner has a likelihood to succeed on the merits of their suit. Part of the analysis required is a construction of the claims that are being asserted. In this case, Judge Koh read the claims in a way that would likely have lead to a finding of infringement by Samsung. The Federal Circuit, however, disagreed and held that a more restrictive claim construction was appropriate. With the narrower construction, Apple was not likely to win so the injunction was vacated.

This happened a month ago so I’m not trying to report a news story. Rather, I want to lay out the claim language at issue and help people understand how the process works. Personally, I agree with the Federal Circuit’s interpretation and I think the case is informative for attorneys who draft claims and clients who review them before filing. I’ve written before on the power of narrow claims, and this case emphasizes the problems associated with ambiguity in claim language.

The claim at issue was to searching on a device, such as a mobile device. The claim requires that the device comprise “a plurality of heuristic modules” that are used in searching. “Comprising” is an open ended transitional phrase in patent claims. That means that additional limitations and features may be present in an infringing device, but if that device includes all the limitations of the claim, it will still infringe.

The claim then goes on to say, “each heuristic module corresponds to a respective area of search and employs a different, predetermined heuristic algorithm.” Apple and Samsung had different ideas about what this language should mean. Apple argued that “each heuristic module” refers to the individual modules encompassed by the “plurality of heuristic modules” recited earlier in the claim while Samsung argued that “each heuristic module” refers to each module used by the device.

While that may sound like a small variation, it is the difference between infringing the Apple patent, or not. Under Samsung’s interpretation, each and every heuristic module used by the device must have its own predetermined algorithm that is different from all the others and each one must correspond to a different area of search. Samsung’s search used multiple heuristics, but some used an identical algorithm for different areas of search. Accordingly, the addition of those heuristics would avoid infringement despite the “comprising” transitional phrase used in the claim.

The Federal Circuit agreed with Samsung and went so far as to provide guidance to patent drafters on how to avoid such a construction. The Federal Circuit suggests that changing the language to “each of the plurality of heuristic module corresponds to a respective area of search and employs a different, predetermined heuristic algorithm” would have avoided the problem for Apple. In conjunction with the “comprising” transitional phrase, this would have been interpreted as requiring a set of multiple heuristic modules, each of which corresponded to an area of search and each with a predetermined and different algorithm. The addition of heuristic modules that did not meet that requirement would not have mattered.

This whole issue sounds esoteric, but the language used by the Federal Circuit is how I draft claims and it’s because of the ambiguity that would otherwise exist. When you draft a claim, you must look at it from a variety of angles and decided if there are any reasonable interpretations that could be reached that would not be consistent with what the client wants to protect. I learned this practice drafting chemical cases where we wanted to keep a competitor from avoiding infringement by adding another compound to a formulation. It translates to other areas, even simple mechanical devices where I’ve used similar language.

Patent Litigation Rates: What They Tell Us and What They Don’t

Over the course of the last week, I’ve come across two blog posts, via my twitter feed, that show opposite views on patent litigation. The first takes the position that patent troll litigation is rampant and stifling innovation, especially for startups. The title, “Numbers Don’t Lie: Patent Trolls are a Plague” sums up the author’s position nicely. However, the piece doesn’t paint a very comprehensive picture.

The numbers referred to are those based on a survey by Colleen Chien of Santa Clara University – School of Law. Prof. Chien notes that 40% of respondents stated that troll activities had had a significant impact on the startup’s operations. However, the fact that patents are asserted against emerging businesses more often than others shouldn’t come as a surprise. After all, if a company is arguably infringing a patent as part of its core business, it would be expected that the issue would come up earlier in the company life cycle. These numbers could be skewed relative to the economy as a whole.

The second article takes another tack as you can see from the equally suggestive title, “The ‘Patent Litigation Explosion’ Canard.” As you can guess, the author, Prof. Adam Mossoff, disagrees with the idea that there is a “Patent Litigation Explosion” going on. This piece discusses patent litigation rates (measured as a percentage of issued patents litigated). From 1790 to 1860 the rate averages 1.65%. From 2000-2009, it was 1.5%.

I’m inclined to think the litigation rates over time to be a better indicator of the growth of patent litigation than a survey of startups. To be honest, I was skeptical of the litigation rates, not that they are inaccurate, but they may not be very meaningful if the number of patents issued relative to GDP has gone up. My assumption was that the number of patents issued per billion dollars of GDP would have grown and that the a constant litigation rate would actually mean an overall increase in patent litigation relative to GDP. That assumption was wrong.

First I looked to the USPTO data regarding patents issued. Here is a chart for patents issued each year from 1963 to 2011.

The “ups” and “downs” unsurprisingly correlate to the general state of the economy as fewer patents issue during and after economic downturns. However, I was interested in the number of patents issued per billion dollars in GDP. I used real GDP data (GDP adjusted for inflation) and the number of utility patents issued for each year from 1963 to 2011. So, I simply divided the number of patents issued in a given year by the inflation adjusted GDP that year. The following chart shows what I found:

While there is a lot of variation, the overall trend appears relatively flat. The average number of patents issued per billion dollars of GDP from 1963 to 2011 was 13.00, and a significant portion of the last decade was below that. Accordingly, the litigation rates referenced by Prof. Mossoff are informative and it appears that there has not been a significant increase in patent litigation, relative to GDP.

Of course, this is only part of the story. Calculating litigation rates as a function of the number of patents issued in a particular year doesn’t necessarily correlate to the number of patents in force (i.e. issued and with all relevant maintenance fees paid that have not yet expired) for that year, but it is, perhaps, a leading indicator of the number of patents that will be in-force in years to come. Such a calculation, however, is easier to make and is likely a reasonable starting point.

Another issue is that these numbers doesn’t tell us the economic impact of patent litigation. While the number of cases relative to GDP is steady, the average price tag (damages, attorney’s fees, etc) associated with a patent litigation may have grown relative to GDP, or there may have been a significant increase in licenses entered before a complaint is filed. However, I haven’t seen any data to show that either of those things has happened.