IP Legal Watch : Intellectual Property Lawyer & Attorney : Fox Rothschild Law Firm : Patents, Trademarks & Copyrights

The United States Court of Appeals for the Federal Circuit (“Federal Circuit”) recently published two opinions, a first enunciating a heightened standard for pleading inequitable conduct in a patent case under Rule 9(b) of the Federal Rules of Civil Procedure (“Rule 9(b)”); and a second clarifying the test for determining whether an applicant of a trademark application or registration renewal has committed fraud on the U.S. Patent & Trademark Office (“PTO”). In Exergen v. Wal-Mart Stores, Inc., et. al., despite the Federal Circuit’s reversal concerning both the validity of one Exergen patent and alleged infringement of two other patents by defendants, the court nonetheless proceeded to address the remaining inequitable conduct issue. The court took the opportunity to clarify and heighten at least the initial burden on an accused infringer attempting to allege patentee inequitable conduct. First noting that determination of an adequate pleading under Rule 9(b) alleging inequitable conduct in a patent case poses a question for Federal Circuit law, the court took the lead from the Seventh Circuit Court of Appeals, holding that there are two distinct requirements for pleading inequitable conduct under Rule 9(b); a factual requirement and a scienter requirement:

(i) factual requirement - the pleading party must first identify, with specificity, the who, what, when, where, and how the material misrepresentation or omission was committed; and,

(ii) scienter requirement - the pleading party must show sufficient facts from which a court can reasonably infer knowledge of the withheld material and a specific intent to deceive the PTO.

Specific intent, the court went on to say, must include a plausible suggestion of a “‘deliberate decision to withhold a known material reference’ or to make a knowingly false misrepresentation.” While acknowledging that scienter may be averred to generally using knowledge and belief type pleadings, the Court stressed that the pleading must nevertheless set forth specific facts upon which a belief is reasonably based. Thus, the Exergen court states that mere knowledge of the existence of a material prior art reference and the patentee’s failure to disclose that reference during prosecution falls below the threshold level for pleading inequitable conduct under Rule 9(b).

The court clearly noted that even when a party successfully pleads inequitable conduct by the patentee under Rule 9(b), that “to prevail on the merits, the accused infringer must prove both materiality and intent by clear and convincing evidence.” (citing Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008)). Thus, the Exergen court does not distinguish Star, but instead inserts a early, clear, and substantial hurdle to an accused infringer alleging inequitable conduct by requiring a substantial depth of factual knowledge regarding patentee conduct in order to reach through to the scienter requirement to provide an adequate pleading under Rule 9(b); a depth of ‘knowledge’ which in most cases will not be available to the accused infringer during the initial stages of litigation. While scienter has always been an element to inequitable conduct, the logical effect of the Exergen holding may be to curb accused infringers from generically including an inequitable conduct defense at the pleading stage. As suggested by Judge Pauline Newman in her dissent in McKesson Information Solutions v. Bridge Medical, litigation tends to distort the complex procedures of patent prosecution. Judge Newman argued that this distortion should be reduced by requiring a clear showing of deceptive intent on the part of the patentee. While McKesson directly addressed the merits of an inequitable conduct allegation during the trial phase, this concept, through Exergen, now seems to be in play at the early pleading stage through application of a strict factual requirement supporting an inference of the patentee’s specific intent to commit fraud on the PTO. Thus, for all intent and purpose, the Exergen holding may stem early accusations of inequitable conduct, at least leaving any such action to flow from information obtained during discovery in the form of a later amended pleading under Rule 15(a)(2).

The Federal Circuit again addressed the issue of fraud on the PTO in In re Bose, Appeal No. 2008-1448 (Fed. Cir., Aug. 31, 2009) (“Bose”). Bose initiated an opposition against the HEXWAVE trademark application, with Hexwave, Inc. filing a counterclaim for cancellation of Bose’s WAVE trademark, asserting that the Bose committed fraud on the PTO by submitting their Section 8/9 renewal application, a renewal application where Bose stated that the WAVE mark was still being ‘used in commerce’ on various products, including audio tape recorders and players. The Trademark Trial and Appeal Board (“Board”) determined that the tape recorder and players were no longer being manufactured and sold by Bose, but instead were presently subjected only to warranty-based repairs. The Bose General Counsel who signed the Section 8/9 affidavit testified to his believe that such activity constituted use in commerce, as required for renewal of a trademark registration. The Board disagreed, ruling that Bose committed fraud on the PTO, cancelling the WAVE registration in its entirety. Bose appealed. The Federal Circuit reversed, and methodically reviewed their own precedent on trademark fraud cases as well as their predecessor court, the Court of Customs and Patent Appeals, noting “[f]raud in procuring a trademark registration or renewal occurs when an applicant knowingly makes false, material representations of fact in connection with his application.” (quoting from Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986)). And subsequently honing in on the intent of the applicant, based on the knowledge of the applicant; noting the prohibition of applicants “making knowingly inaccurate or knowingly misleading statements.” (quoting from Bart Schwartz Int’l Textiles, Ltd. V. Fed. Trade Comm’n, 289 F.2d 665, 669 (CCPA 1961), with emphasis provided in Bose). And so again, similar to Exergen, a showing of fraud under the Lanham Act requires a showing of a misrepresentation of a material fact, and that such misrepresentation was made knowingly by the applicant.

With this review in hand, the Bose court quickly zeroed in on an earlier Board decision in Medinol v. Neuro Vasx, Inc., 67 USPQ2d 1205 (T.T.A.B. 2003), where the Board held that a trademark applicant commits fraud when a representation of fact has been made to support an application, and that the applicant knows or should know that such a representation was false or misleading. The court took express exception with the Board, stating that the linking of subjective intent to the concept of “should have known” effectively, and erroneously, equates the fraud standard in trademark law to a simple negligence standard.

The Bose court, in similar fashion to Exergen (with Chief Judge Michel sitting on both panels) expressly stated that “[s]ubjective intent to deceive, however, difficult it may be to prove, is an indispensable element in the analysis” of fraud in procuring or retaining a trademark registration. While the court acknowledged that intent to deceive the PTO in these situations can be “inferred from indirect and circumstantial evidence,” nonetheless “such evidence must still be clear and convincing, and inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement.” (citing Star at 1366).

The Exergen and Star decisions show the Federal Circuit’s desire to briefly and succinctly define and/or clarify the parameters required to support a showing inequitable conduct or fraud on the PTO. These decisions effectively signal that any such allegation must be supported by a stable of facts showing that the accused party understood that questionable actions amounted to deceitful activity in their dealings with the PTO.

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The current case of Bilski v. Doll, U.S., No. 08-964, cert. granted 6/1/09, pending before the Supreme Court, may have broad implications for software patents. While not directly dealing with software, the Bilski patent application deals with a process that some are calling too “abstract” to be patentable. The Bilski invention involves a method of managing risk in a commodities market. The steps of the process do not necessarily require software, a computer, or any other physical implementation, but are merely a series of steps leading to the desired result.

How might this impact software? When the Bilski case was heard by the Court of Appeals for the Federal Circuit, a test that is now commonly referred to as the “machine or transformation” test for patentability was resurrected from a previous U.S. Supreme Court patent case, Diamond v. Diehr, 450 U.S. 175 (1981),  See In re Bilski, 545 F.3d 943, 961-62 (Fed. Cir. 2008) (en banc). This test says that, to be patentable, a process must either be tied to a particular machine or must transform an article to a different state or thing. The Bilski process was deemed to be patent ineligible because it was not tied to a particular machine, nor did it transform matter in any way.

Now, the Patent Office and the courts are using Bilski to invalidate software patents that appear to be “tied to a particular machine,” namely, a computer. It has been a common practice to tie software process steps to a computer to render them patentable, especially since the Federal Circuit’s decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), which involved utilizing software to perform a calculation on a computer. The patentability of Bilski was argued to the Patent Office based on State Street, but the argument was rejected because the State Street process was performed using a machine (the computer), but the Bilski process required no computer.

However, the Patent Office’s Board of Patent Appeals and Interferences has upheld rejections of applications that specifically recite a processor for computer-implemented processes that may not necessarily be considered “business methods.”  For instance, the case of Ex parte Cornea-Hasegan, 89 USPQ2d 1557 (B.P.A.I. Jan. 13, 2009), decided earlier this year, recites steps performed by a processor. Nevertheless, the Board upheld the rejection based on Bilski, stating that “the recitation of a processor in itself . . . does not tie the process steps to a particular machine. In other words, the recitation of a processor does not limit the process steps to any specific machine or apparatus [and] fails to impose any meaningful limits on the claim’s scope. The recitation of a processor performing various functions is nothing more than a general purpose computer that has been programmed in an unspecified manner to implement the functional steps recited in the claims.” Id. at 1560.

This is scary stuff for software developers who have applied for patents and spent thousands on patent preparation and processing fees, not to mention those already having issued software patents who are afraid to litigate them for fear of invalidation. However, there have also been cases where the Patent Office has reversed rejections of similar claims, so there is a definite lack of consistency, at least at the Patent Office.

Where is the Supreme Court likely to lead us? Bilski is a big wake-up call to practitioners who should have realized that State Street never opened the floodgates to patenting processes that apply abstract principles even if a tangible result is obtained through the implementation of the principle. We can expect the Supreme Court to delineate how tangible that result must be for a process to adequately limit a claim that embodies an abstract principle to qualify as patent-eligible subject matter by not pre-empting the principle per se. The key to drafting a claim to a machine-based process that will survive future challenges is keeping in mind that the claim must not pre-empt a basic principle. In the interim there are still plenty of opportunities left on the table by the Federal Circuit to obtain business method patents, provided the applications and claims are carefully crafted to carve out a specific application of a basic principle without pre-empting the entire principle.

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With Democrats now controlling the legislative agenda in Washington, the debate over a federal regulatory approval pathway for biosimilars or follow-on-biologics (“FOBs”) seems inevitable, leading to major amendments to both the Public Health Service Act, Food, Drug and Cosmetic Act and the Patent Act. A central issue in this debate turns on the extent of market exclusivity. Advocates for the generic industry will argue for limited exclusivity, while the innovator companies will push for legislation effectively extending the life cycle of their branded biologics. Any new legislation should contemplate both the eligibility requirement and the scope of the right extended to any branded biologic and offer viable life cycle strategies to the patent holders.

The statutory authority for patent term extension in the U.S. finds its origin in the Drug Price Competition and Patent Term Restoration Act of 1984 (“the Hatch-Waxman Act”), as codified under 35 U.S.C. § 156 (“§ 156”). The Hatch-Waxman Act was intended to strike a balance of incentives for the first entrants of pioneer small molecule drugs and the first entrants of generic drug makers on the market; allowing the owner of an approved pharmaceutical drug product to recover a portion of the time lost from the patent term which is spent during the regulatory review period regarding the patented drug product. During the regulatory review, the process of manufacturing a candidate biologic is subject to intense scrutiny by the Food Drug Administration (“FDA”). The process of perfecting these processes are important assets for innovator companies in maintaining their competitive edge. And given that the manufacturing process of a biological product might play a determinative role in immunogenicity, safety and efficacy of biologic, it is prudent for the innovative company to establish a strategy to maximize the term of their manufacturing patents covering the approved biologic. In fact, perhaps the most important negotiation for any patent authority in a FOB legislation should focus on authorization of patent term extension for manufacturing process claims, the scope of exclusivity granted to such process and the listing of such patents in the Approved Drug Products and Therapeutic Equivalence (“Orange Book”) or the like publications. Currently, under 35 U.S.C. § 156 (“§ 156”), a U.S. patent covering the method of manufacture (i.e., process for producing the biologic) is eligible for term extension, so long as the patented process covers the product, and the regulatory review represents the first permitted commercial marketing under the statute. However, unlike product and methods of use patents related to the approved product, patents covering relevant methods of manufacture are not currently subject to listing in the Orange Book.

Currently, there is a palpable level of uncertainty in defining the scope of the patent term extension available for claims covering an approved product, such as a small molecule. This confusion is in part rooted in the divergent and sometimes ambiguous interpretation of the terms ‘active ingredient’ and ‘active moiety’ by the United States Patent and Trademark Office (“USPTO”), the Food and Drug Administration (“FDA”) and the Federal Circuit when defining the eligibility of an approved product for patent term extension under § 156. In light of such ambiguities, innovator companies might work to maximize the life cycle of their branded biologics by lobbying for clear amendments to Section 156 calling for extending process of manufacture patent claims to mirror the importance of this intellectual property in the specific area of FOBs. Apart from the for availability of a patent term extension for the approved biologic product, any legislation covering federal regulatory approval for FOBs might also allow for a parallel patent term extension covering the method of manufacturing the approved product, or in the alternative consider legislation promoting reasonable patent term extension covering the method of manufacture for the branded company. Thus, Congress should consider a proactive role in the scope of any patent term extension(s) under any FOB legislation, but also emphasize clear eligibility criteria covering methods of manufacture.

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It is not prudent to wait until an NSF or NIH grant is awarded to start thinking about patent protection. The NSF has launched an Awards Abstract database. The searchable fields include a descriptive abstract, institution, principal investigator and grant number. The NIH equivalent is CRISP, Computer Retrieval of Information on Scientific Projects. With the information retrieved, grant proposals can be obtained through Freedom Of Information Act requests.

This is analogous to the graduate thesis cases such as In re Hall, 781 F.2d 897, 228 USPQ 453 (Fed. Cir. 1986) where a doctoral thesis indexed and available to the public in a university library was deemed a printed publication. Public accessibility was considered the touchstone in determining when a reference constitutes a printed publication bar under 35 U.S.C.102(b). In re Hall, 781 F.2d at 898-99, citing In re Bayer, 568 F.2d 1357, 1359, 196 USPQ 670, 673 (CCPA 1978) and In re Wyer, 655 F.2d 221, 224, 210 USPQ 790, 792 (CCPA 1981). Accessibility is required, at least to the public interested in the art, to disclosure sufficient for one examining the reference to make the claimed invention without further research or experimentation. In re Hall, 781 F.2d at 899, citing In re Donohue, 766 F.2d 531, 533, 226 USPQ 619, 621 (Fed.Cir.1985); In re Bayer, 568 F.2d at 1361, 196 USPQ at 674; and In re Wyer, 655 F.2d at 226-27, 210 USPQ at 794-95.

NSF and NIH grant proposals become available the day information sufficient to support a FOIA request that is posted to the NSF Awards Abstract database or to CRISP. Interested members of the public are able to obtain copies of grant proposals, which may lay out how to make and use what ultimately becomes a claimed invention. As a rule, the information is not posted until after the award is granted. The objective is not to lay open pending proposals to criticism from the academic community at large, but to permit the general public to learn how their tax dollars are being spent on basic research.

When does this happen? In the NSF Awards Abstract database, one of the searchable fields is "Initial Amendment Date," which falls between the award date and the start date for a grant. In a telephone call to an employee responsible for Policy at the NSF Division of Institutional and Award Support, we learned that awarded grants are posted to the database on the day of or the day after the "Initial Amendment Date." When in doubt, call an NSF Policy employee at the Division of Institutional and Award Support. The posting date for NIH grants may be similarly investigated.

As for accessibility, whether a grant proposal contains a sufficient disclosure is debatable. But ask yourself whether you want to defend a patent's validity by arguing to a lay jury that an inventor took hundreds of thousands if not millions of taxpayer dollars with only a vague explanation of what he or she intended to do with it.

What is the practical impact? For a patent application based on NSF- or NIH-supported research, a prudent practitioner should check the NSF Awards Abstract or CRISP database before making domestic or international patent filing decisions. And before launching a costly search and assessment of the validity or enforceability of a patent covering NSF- or NIH-supported research, whether as part of a due diligence investigation or in advance of litigation, the second step (after first confirming that maintenance fees were paid) should be a search of the NSF Awards Abstract database or CRISP, the results of which may obviate or significantly curtail the need for further investigation.

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