Prosecution Delay Laches and Antitrust

Prof Merges

4/29/08

35 U.S.C. 315 Appeal

(a) PATENT OWNER.- The patent owner involved in an inter partes reexamination proceeding under this chapter-

(b) THIRD-PARTY REQUESTER.- A third-party requester- (1) may appeal under the provisions of section 134, and may

appeal under the provisions of sections 141 through 144, with respect to any final decision favorable to the patentability of any original or proposed amended or new claim of the patent

(c) CIVIL ACTION.- A third-party requester whose request for an inter partes reexamination results in an order under section 313 is estopped from asserting at a later time, in any civil action arising in whole or in part under section 1338 of title 28, the invalidity of any claim finally determined to be valid and patentable on any ground which the third-party requester raised or could have raised during the inter partes reexamination proceedings. This subsection does not prevent the assertion of invalidity based on newly discovered prior art unavailable to the third-party requester and the Patent and Trademark Office …

Jerome Lemelson, 1923-1997

http://www.masslawblog.com/?page_id=29

Mr. Lemelson, who died in 1997, was granted more than 500 U.S. patents, making him (from a patent-count standpoint, anyway), one of the most prolific inventors in U.S. history. Some have compared him with Edison (that patent count again), but unlike Edison, most people would have difficulty recognizing his name or what any of his inventions were. Ask the dozens of companies he sued over the years for alleged patent infringement, and observers of developments in patent law, and they may tell you that Lemelson’s most significant (and lucrative) invention was how to game the U.S. patent system.

United States Patent 5,351,078 Lemelson * September 27, 1994 Apparatus and methods for automated observation of objects

Apparatus and methods are disclosed for automatically inspecting two- or three-dimensional objects or subjects. A detector and the object are moved relative to each other. In one form, a detector, such as a camera or radiation receiver, moves around an object, which is supported to be rotatable such that the detector may receive electromagnetic energy signals from the object from a variety of angles. The energy may be directed as a beam at and reflected from the object, as for visible light, or passed through the object, as for x-ray radiation.

The detector generates analog image signals resulting from the detected radiation, and an electronic computer process and analyzes the analog signals and generates digital codes, which may be stored or employed to control a display.

Inventors: Lemelson; Jerome H. (Incline Village, NV) Assignee: Lemelson Medical, Education & Research Foundation Limited Partnership (Incline Village, NV) Filed: September 16, 1993

“Continuation Abuse”

MAJOR controversy over stringent PTO rules limiting number of continuations that patentee is allowed to file

Supreme Court of the United States.

WOODBRIDGE et al.v.

UNITED STATES.Decided Nov. 12, 1923.

Justice Taft

In this case we have a delay of 9 1/2 years in securing a patent that might have been had at any time in that period for the asking, and this for the admitted purpose of making the term of the monopoly square with the period when the commercial profit from it would be highest. Not until war or fear of war came was there likely to be a strong demand for rifled cannon and their improvement.

Hence the inventor, having put his order for the issue of a patent into the secret archives of the Patent Office in 1852, sat down and waited until after the Civil War came on in 1861 before seeking to avail himself of the patent, thus postponing the time when the public could freely enjoy it for nearly 10 years.

Meantime other inventors had been at work in the same field and had obtained patents without knowledge of the situation with respect to Woodbridge's invention.

This is not a case where evidence has to be weighed as to the purpose of the inventor. He avows his deliberate intention. This is not a case of abandonment. It is a case of forfeiting the right to a patent by designed delay.

Defenses: Antitrust/Misuse

• Patents confer market power

• Market power can be abused

• When it has been, this may provide a defense for an infringer

Antitrust/Misuse

• Centers on how the patentee deploys the technology

• Numerous potential ways to abuse the market power conferred by a patent

Examples

• Use of patents to mask or hide a cartel

– “Horizontal” abuse

• Use of patents to exert control over dealers or customers

– “Vertical” abuse

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Counterclaim

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Licensing Agreement

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Licensing Agreement

Defendant asserts patent is unenforceable due to anticompetitive licensing agreement

Typical Counterclaims

• Anticompetitive acquisition of patent– Walker Process Equipment , Inc . v . Food Machinery

Chemical Corp., 382 U . S . 172 (1965); Handgards, Inc . v . Ethicon, Inc . 743 F . 2d 1282 (9th Cir . 1984)

• Illegal tie-in

– Morton Salt

Illinois ToolTrident, a wholly-owned subsidiary of Illinois Tool Works,

is a manufacturer of printheads and owns U.S. Patent No. 5,343,226 covering the technology. The ‘226 patent discloses an ink jet device and a supply system with a hand actuated peristaltic pump. Trident also manufactures ink for use with the patented printheads. Although the ink is not protected by any of Trident’s patents, their standard license agreements grant the right to “manufacture, use and sell… ink jet printing devices…” to other printer manufacturers ONLY “when used in combination with ink and ink supply systems supplied by Trident.”

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Licensing Agreement

Defendant asserts patent is unenforceable due to anticompetitive licensing agreement

Independent Ink also manufactures ink useable in Trident’s patented printheads. Independent filed suit in the Central District of California against Trident and Illinois Tool Works alleging, among other things, an illegal tying arrangement in violation of section 1 of the Sherman Act. The district court, however, dismissed the case on summary judgment.

Illinois Tool – p. 1

“This presumption of market power, applicable in the antitrust context when a seller conditions its sale of a patented product (the “tying” product) on the purchase of a second product (the .tied. product), has its foundation in the judicially created patent misuse doctrine.”

How Did the Issue Arise?

“Independent filed suit against Trident [Illinois Tool] seeking a judgment of noninfringement and invalidity of Trident.s patents.1 In an amended complaint, it alleged that petitioners are engaged in illegal tying and monopolization in violation of §§1 and 2 of the Sherman Act. 15 U. S. C. §§1, 2.”

Sherman Act: Section One 15 U.S.C. § 1

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Sherman Act: Section One 15 U.S.C. § 2

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Theoretical basis

• “Leverage theory”

– Patents being improperly leveraged by various licensing practices

• For example, a tie-in

Tie-in example

• If you want my patented machine, you must buy (unpatented) materials used in the machine

Morton Salt case

“[R]espondent is making use of its patent monopoly to restrain competition in the marketing of unpatented articles, the salt tablets, for use with the patented machines . . .”

-- P. 1351

Morton Salt

• Equity

• Relevant that illicit license is with 3rd parties, not defendant/petitioner?

– No

Leverage theory

• “Leveraging” monopoly in machine into (separate) market for salt

Chicago Critique

• No such thing as “leverage”

• Cannot charge more for [Tying + Tied] product bundle than buyers are willing to pay

More Chicago critique

• Look for more “positive” explanation of licensing practices

– Patentees deserve a monopoly

• How might it be good for the patentee and consumers?

“Metering” Concept

• Relates back to price discrimination idea

Why is it good to allow tie-ins?

• Allow seller to capture value of bacon for consumers of bacon and eggs

• Prevent consumers from “substituting away” from bacon when price of bacon is raised

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

Price Discrimination

Total Revenue

High Price Low Price

$500

(100 x $5)

$510

(170 x $3)

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

Price Discrimination

“Consumer Surplus” – lost to seller

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Large canners

Small canners

Total Revenue

Without Price Discrimination

With Price Discrimination

$510 $710

(100 x $5) + (70 x $3)

Solution: Metering by Tie-in

• Use salt sales to count how much buyer uses canning equipment

• Achieve price discrimination: high volume users will pay more for canning equipment

Precedent

Loew’s, International Salt.

These cases predate the Court’s articulation These cases predate the Court’s articulation of the market power requirement (ITS v. Kodak, Jefferson Parish v. Hyde).

Morton Salt

Salt and Canning Equipment

Nonprice Vertical Restraints: GTE Sylvania

After reexamining the Schwinn rule, the U.S. Supreme Court in the present case rejected that rule and held that all nonprice vertical restraints of trade would be examined using the rule of reason. Only vertical price fixing (or resale price maintenance) would be examined using the per se rule. The Supreme Court held that Sylvania’s alleged restraint of trade in terminating Continental TV was a nonprice vertical restraint of trade that was to be examined using the rule of reason. The Supreme Court affirmed the Court of Appeals decision in favor of GTE Sylvania. Continental TV, Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).

Limitations on Licensing

35 USC § 271(d)(5)

No patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following: . . . .

refused to license or use any rights to the patent; or

conditioned the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.

Illinois Tool: District Court

• SJ for Accused Infringer

On appeal, the Federal Circuit reversed and remanded the district court’s grant of summary judgment in favor of Trident on the tying claim.

According to the Appellate Court, Trident’s licenses are “explicit tying agreement[s]” because the sale of a patented product is conditioned on the sale of an unpatented one. Although the district court required affirmative proof of market power from the plaintiff, the Federal Circuit reiterated that the Supreme Court has clearly established a presumption of market power unique to patent and copyright tying cases, it holds that this presumption is rebuttable.

“Once the plaintiff establishes a patent tying agreement, it is the defendant’s burden to rebut the presumption of market power and consequent illegality that arises from patent tying.”

Rebuttal evidence requires expert testimony or “credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power.”

Furthermore, the Court admonishes the district court for not following clearly established Supreme Court precedent and for dismissing the High Court's holdings as “vintage.” Commenting that it may be time to abandon the doctrine, a significant portion of the opinion emphasizes that it is up to the Supreme Court or Congress to expressly overrule its own precedent -- this prerogative does not lie with the district courts.

Broad consensus that patents are property and are not monopolies.

– USDOJ/FTC Antitrust Guidelines for Licensing of IP (noting difference between patentee’s power IP to exclude and market power)

– Patent Misuse Reform Act (35 U.S.C. § 271(d)(5))(tying arrangement does not constitute patent misuse

in the absence of market power)

Evolution of Areeda/Hovenkamp treatiseSuggests that presumption of market power is not

warranted.

Illinois Tool• "Any conclusion that an arrangement is unlawful

must be supported by proof of power in the relevant market rather than by a mere presumption thereof," the Court said

• "Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee . . . Today, we reach the same conclusion, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product."

Illinois Tool

The Supreme Court eliminated the presumption that a patent provides market power in a licensing agreement involving a tie-in

The Court has signaled a willingness to revisit old precedent originating in the anti-patent era of the 1930s and 1940s when Congress and scholarly opinion had turned decisively against it

William O. Douglas