A case from the Ninth Circuit, Hyundai Motor v. Nat’l Union Fire Ins. Co., is the latest reminder that it pays to re-evaluate coverage every time. Hyundai was sued for patent infringement based on its “build your own car” feature on its Website. Patent infringement is not covered under the typical CGL policy. On that basis, the insurer declined coverage and declined to defend the lawsuit.

Hyundai reasoned that its build your own car feature was a form of advertising, and should have been covered under "advertising injury" clause in the policy. It sued the insurer and won. The court reasoned that the patents-in-suit involved advertising methods, therefore the patent infringement claims involved misappropriation of advertising ideas, and the claims were covered under the advertising injury clause.

Just goes to show you don’t ever know, so it pays to check both the policy and the case law every single time.
 

Generally, to prove patent infringement, one must prove that the accused device meets every limitation of the claim, either literally or under the doctrine of equivalents. That analysis has very little to do with copyright jurisprudence. With respect to design patents, however, the question is whether an ordinary observer, familiar with the prior art, would believe that the accused product was the same as the patented design. That test is very similar to the “more discerning ordinary observer” test employed in copyright infringement cases, which asks: whether the ordinary observer, putting aside the copyrighted work’s unprotected elements, would think that the plaintiff’s work was taken by the defendant.

Copyright lawyers should be more comfortable with the more amorphous ordinary observer test and its more "touchy feely" application than patent practitioners, who are more accustomed to precise evaluation of claim limitations. For that reason, businesses involved in design patent lawsuits may be well-served to include a copyright litigator on the litigation team.
 

In Cosmetic ideas v. IAC/InteractiveCorp, the Ninth Circuit weighed in on whether the pre-litigation registration requirement in Section 411 of the Copyright Law requires that the Copyright Office actually register a work before one can sue for infringement, or it is sufficient for the completed application to have been received by the Copyright Office.  Courts have been split on this issue.  The Ninth Circuit opinion lists the courts in each camp.  Notably the Fifth and Seventh Circuits have held that submission of the application is sufficient, and the Tenth and Eleventh Circuits require issuance of the registration certificate. The Ninth Circuit held that submission of a completed application is all that is required.

Where this is likely to matter is in cases involving what one might call non-monetized copyrighted works, works that generally earn the author no direct revenue and therefore generally go unregistered, like this blog or maybe a sales brochure, flyer, catalog or Web page. It may not be worthwhile to register those as a matter of course, but if a competitor copies any of them, one might want to sue. 

Privacy and fourth amendment issues aside, employers should consider taking steps to avoid copyright issues when performing such searches.  In many instances, the employee author might own the copyright in such writings.  If the employer copies or displays the message without employee authorization, wouldn't that be an infringement?  Couple that thought with last week's Ninth Circuit decision that delivery of a completed copyright application to the Copyright Office satisfies the pre-suit registration requirement (the subject of my next post), and this begins to look a little more real world.

A court might imply a permission to display or copy an electronic message by virtue of the fact that the employee created and stored the work on the employer's systems, but employers might be on safer footing if at a minimum they addressed copyright issues in their electronic communication policies.

1. Marking a product with an expired patent number is false marking.  Solo Cup argued that because the public could look up the patent, marking with an expired number was not misleading.  The Court explained that it is not so simple to determine when a patent expires and so it could be misleading.

2. Marking a product with a legend that says something like "this product may be protected by one or more patents" is not false marking, but neither is it adequate marking under 35 U.S.C. 287, so that does not seem like a very effective strategy.

3. To be actionable, false marking must be intentional. The marking must be for the purpose of deceiving the public.

4. Proof that a marking is false and that the marker knew of its falsity, creates a rebuttable presumption of intent to deceive.

5. The accused can rebut the presumption by proving, by a preponderance of the evidence, that he did not consciously desire that the public be deceived.  One way to do that would be to prove that the accused relied on reasonable advice of counsel. Merely asserting that one had no such intent will not be sufficient. 

On a related note, on remand the district court in the Forest Group case awarded damages in the amount of the highest price for which the 38 falsely marked stilts at issue in that case sold ($180, prices ranged from $103-$180).  The total award was only $6,840, but if courts are going to award what amounts to gross revenues on products sold for $500 or less, penalties for false marking could be severe.

As Mark suggests, it would be easy to go overboard reacting to this news. It seems as unlikely that the purchaser of your business’ used equipment is going to interested in searching through its hard drive as it is that someone will be searching through your company’s trash. But the stakes can be high, and just as one should require employees to take the time to shred sensitive paper documents before throwing them away, one should be certain that before copiers, computers, or any data storage devices are sold or discarded, they are wiped clean of any stored data.

From a litigator's perspective, this news is both inspiring and depressing.  It inspires me to consider seeking forensic examination of copier hard drives in cases involving trade secret theft, copyright infringement of printed materials, or suspected spoliation of evidence. It depresses me to think that we may soon be adding copier hard drives to the reams of largely useless electronic data the rules require us search when responding to discovery requests.

A recent study by Forrester Research estimates that resources available for trade secret protection are being misallocated. Other interesting Forrester conclusions are: although spending to mitigate risks of employee accidents (such as losing laptops or smartphones) is significant, losses from such mistakes tend to be relatively insignificant, the greater risk is from deliberate theft companies with more valuable secrets are targeted more often (that’s not surprising); and companies really don’t know how well their security measures actually work.

Forrester offers a number of good recommendations for businesses interested in protecting their secrets. If one considers those recommendations along with the Justice Department checklist, one will have gone a long way toward creating a plan.
 

If you said yes to any of those, know that the word green when used to mean “good for the environment” has a many shades as the color green. That uncertainty, of course, makes litigation concerning the proper use of the word green and related terms increasingly likely.

The USPTO is struggling with what it means to be “green.” Reports are that trademark applications including words associated with the environment are up, and the USPTO is giving such applications increased scrutiny. As green and other terms relating to the environment are included in more trademarks, infringement litigation is more likely, as are office actions and litigation involving allegations of misuse of such terms.

On the patent side, the USPTO has sought to encourage development of environmentally-friendly technology by fast-tracking “green” patent applications. At least one report, however, suggests that restrictive interpretations concerning what types of inventions qualify have rendered the program less effective than many hoped. USPTO representatives have been speaking about the program at a number of conferences, but I have been unable to attend. I’d love to hear from anyone who has heard the USPTO’s view on this concern. I wonder what might happen when a business tries to advertise the green benefits of an invention that is rejected for the USPTO program. Should that rejection in any way inform the decision as to whether such green advertising is false?

False advertising litigation should be the largest byproduct of the green ambiguity. By many accounts, assertions of environmental benefits, both legitimate and illegitimate, are up. “Greenwashing”, the practice of falsely advertising products as having environmental benefits is bound to be an area of increased litigation for business, consumers and the FTC. The Seven Sins of Greenwashing offers a method of analyzing so-called “green” advertising that could lead to some interesting litigation strategies.

The current issue of the John Marshall Law School Intellectual Property Law Review offers a number of interesting articles concerning these issues. In particular, Maureen Gorman’s article What Does it Mean to Be Green: A Short Analysis of Emerging IP Issues in "Green" Marketing and Eric Lane’s Consumer Protection in the Eco-Mark Era: A Preliminary Survey and Assessment of Anti-Greenwashing Activity and Eco-Mark Enforcement, offer much food for thought.
 

The case involved alleged infringement of an architectural design. The Second Circuit affirmed the district court’s decision dismissing the case based on the court’s comparison of the two works at issue, holding that such dismissal was proper because the absence of similarities in copyright protected elements made it impossible for the plaintiff to allege “substantial similarity” between the two.

Notwithstanding prior case law endorsing this approach, comparison of the works at issue on a motion to dismiss previously seemed to be of questionable legitimacy. The Second Circuit itself acknowledged that the question of substantial similarity is inescapably a question of fact. As a result, even where the case for infringement seemed weak, it seemed the more prudent course for defendants to answer the complaint and then seek summary judgment rather than moving to dismiss under Rule 12(b)(6).

Now, defense counsel should consider very seriously moving to dismiss immediately. The potential litigation cost savings for defendants could be significant. Inevitably, on the other hand, the process will be abused and defendants in cases that really do pose issues of fact will make frivolous motions to dismiss.

An odd aspect of the decision is the district court’s finding, repeated by the Court of Appeals, that certain of the similarities identified by the plaintiff concerned “generalized concepts and ideas that are common to countless other high-rise residential developments.” It is unquestionably proper to exclude ideas from the comparison because they are not protected by copyright, but then it should not matter whether such ideas are common. So why the reference to commonality? And how would one know at the pleading stage, and without expert testimony whether certain elements are “common to countless other high-rise residential developments?” A judge living in New York City may have significant exposure to urban architecture, but the determination of commonality would seem to require evidentiary support.
 

But what about when the patent expires? We all know we should not be marking our product in a way that is deceptive, but it typically doesn’t seem so urgent to adjust molds, presses or packaging to delete the patent information. So what if we make a few runs marked with the expired patent?

Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) cautions that we should be more diligent. In that case, the Federal Circuit held that the penalty for intentional false marking, up to $500, applies on a per product basis, as opposed to a per run basis. So if you are making widgets and run a single post-patent production of 100,000, your potential exposure is $50,000,000.

Bear in mind that imposition of false marking penalties requires actual intent to deceive, so demonstrably honest mistakes should not result in punishment.  Also, courts have discretion to determine the amount of the per product penalty, so an award could be significantly less than $500 per. The Federal Circuit itself suggested in the Forest Group case that in cases involving large runs of inexpensive products, the penalty could be limited to fractions of a penny per article. And, in the Pequignot v. Solo Cup case, although the court held that marking with an expired patent constituted false marking subject to penalty, the court ultimately exonerated the defendant, holding that a patent owner that used production machinery that was expensive to re-tool and, for that reason and in consultation with patent counsel, did not change its markings until it changed its machinery, was not liable for intentional false marking on runs it made post-patent term but pre-purchase of new machinery.

On the other hand, there are reports of emergence of a new type of patent troll, who seeks out products marked with expired patents and then sues to collect half the penalty (the other half goes to the government). That raises the level of risk for owners of expired patents. It is possible the Federal Circuit could disagree with the Virginia court’s analysis and apply a less lenient standard to patent owners that mark with expired patents. Moreover, subsequent case law could condemn the advice Solo received from its patent counsel, removing reliance on counsel’s advice as a justification for less than prompt re-marking.

Rather than putting your company at the mercy of an opportunistic plaintiff and ultimately a court, if your patent expires, the safest course may be to change your markings immediately. If that is impossible or highly impractical, one would be wise to document the reasons and weigh carefully the potential litigation costs against the re-tooling costs.
 

The test for determining infringement in design patent cases is the “ordinary observer” test, from the decision of the Supreme Court in Gorham Co. v. White 81 U.S. 511 (1871), more recently vindicated by the Federal Circuit in Egyptian Goddess v. Swisa, 543 F.3d 665 (Fed. Cir. 2008). The test as written by the Supreme Court is “if in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantial 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.”

The Ohio court accepted the expert’s opinion that the ordinary observer would be deceived. That raises the obvious question “how could the expert know what an ordinary observer would think? He couldn't. That’s why the courts in HR U.S. LLC v. Mizco Int’l and Chef’n Corp. v. Trudeua Corp. excluded such testimony.

Excluding testimony concerning the ordinary observer test is consistent with the way similar issues are treated in copyright and trademark law. In copyright cases, expert testimony is not permitted on the issue of whether an ordinary observer would find the works in question “substantially similar.” Nor do we permit expert opinions concerning the “likelihood of confusion” of the typical consumer in trademark cases; we permit only surveys of actual consumers.

Damages caused by the copying of marketing materials are difficult to prove. Businesses typically generate their profits from sales of the products and services promoted, not from the marketing materials themselves. Tying any particular product sales, or lost sales, to such materials is often difficult. Whether one may recover attorneys' fees is a matter of the court's discretion, and by no means a certainty. That often leaves statutory damages as the only means of recovery. Statutory damages are limited to $150,000 even in the case of willful infringement ($30,000 in cases where deliberate copying cannot be proved). That may seem like a significant sum, but when one factors in the cost of legal services, and the cost of company employee time and effort, the result may be only a Pyrrhic victory.

In most cases, the defendant challenges the plaintiff’s copyright, alleging that the material lacks sufficient originality to be copyrightable, or was itself copied from other materials. Such a challenge can immediately put the copyright owner on the defensive, and require efforts from those involved in creating the materials to prove originality, disruptions the plaintiff may not have considered at the outset.

Some of the questions one should ask before bringing a claim for copyright infringement of marketing materials, in addition to the likelihood of success and the likely cost are: How much of the motivation for bringing the suit is real damage, as opposed to insult? Who can better withstand the cost and disruption of litigation? And, is it worth it if the recovery is less than the cost of litigation?
 

An example of the type of litigation we may continue to see in the eligibility category is Marvel Worldwide v. Kirby . That case looks like it could be a battle royale concerning whether Jack Kirby’s heirs can terminate Marvel’s rights in certain comics, with mega law firms on both sides.

The Kirby heirs contend that Jack Kirby is the author of certain comics published by Marvel. Kirby is known as the creator of the fantastic Four, X-Men and the Incredible Hulk. The Kirby heirs served termination notices purporting to end Marvel’s rights to publish the comics. The Marvel companies contend that the comics at issue are works made for hire, which would make Marvel the “author” and prevent Kirby heirs from terminating their rights.

Work made for hire issues are often fertile ground for litigation. Disputes concerning termination rights are just another context in which such disputes may arise. 

Recent cases remind us, however, that the preemption provisions of the Copyright Law and judicial interpretation of Article 4 of the Constitution with respect to the Patent Law restrict CUTPA claims in the intellectual property arena. The garden-variety patent or copyright infringement case (to the extent there is such a thing) cannot be asserted as a CUTPA claim. In a case decided this past October, RCE Nice Bearings v. Peer Bearing Company, Judge Vanessa Bryant of the District of Connecticut dismissed the plaintiff’s CUTPA claim insofar as it relied on accusations of wrongdoing pertaining to copyright infringement. Also this fall, Judge Stefan Underhill of the District of Connecticut dismissed, without prejudice, a CUTPA claim that he found did not include sufficient allegations beyond those necessary to prove patent infringement.

Unlike the copyright and patent laws, the federal trademark and unfair competition laws do not preempt state law claims based on similar facts.  Connecticut plaintiffs in trademark infringement cases can continue to include CUTPA counts in their complaints.  Diageo (maker of Johnny Walker Black Label) did that in a complaint it filed recently against the makers of the Johnny Barker Black Label product for dogs.

Courts have discretion in copyright and patent cases to award attorneys’ fees and increase damages. Before one asserts a CUTPA or other state unfair trade practices claim in a copyright or patent infringement case, one should expect that a motion to dismiss is possible.  One should weigh the likelihood and potential benefits of additional recovery of punitive damages and attorneys’ fees under CUTPA, against the potential costs and delays of such a motion.

Despite being presented, some 14 years later, with a similar fact pattern as Deuel, why was the Board inclined to reject the Kubin claims as obvious? No doubt the Board was emboldened on several fronts by the 2007 decision Supreme Court ruling in KSR Int'l Co. v. Teleflex, Inc..

• In KSR, after reiterating their long standing Graham v. John Deere factors required for engaging in a § 103(a) obviousness analysis, the Supreme Court admonished the Federal Circuit's penchant for imparting rigid (and arguably 'patentee friendly') analysis to determine patentability under § 103(a), making clear that "if a person of ordinary skill can implement a predictable variation, § 103(a) likely bars its patentability" and more so if such variation or improvement represents no more than "the predictable use of prior art elements according to their established functions," enunciating that an analysis of obviousness should not be confined to a rigid test, but instead a flexible one.
• And the Court specifically cited Deuel to exemplify this unacceptable reliance on a 'rigid' adherence that a claimed invention is not obvious just because it may have been 'obvious to try.'

The Federal Circuit's response in a post-KSR environment was to step away from the rigidity of an obviousness analysis in Deuel in regard to biotechnology-related subject matter, and instead revisit and adapt the analytical style from their 1988 pre-Deuel decision in In re O'Farrell, which also presented an obviousness issue involving biotechnology-related subject matter. The Kubin court embraced O'Farrell as meshing with the Supreme Court edict to move away from an inflexible, formulistic analysis of § 103(a) issues. Kubin now "resurrects this court's own wisdom in O'Farrell, which predates the Deuel decision by some seven years." Stating that an obvious invention would by nature be 'obvious to try,' but the more important question to the O'Farrell court being "when is an invention that was obvious to try nonetheless nonobvious?" Two such scenarios were forwarded:

• when a multitude of choices are available to the inventor and the prior art gives no indication as to which parameters are critical for success (referred to in Kubin as a "metaphorical darts at a board" scenario); and,
• an area of "new technology" or a "general approach" in a promising field, with only general guidance from the prior art as how to proceed

While the latter seems tailor-made for biotechnology patent issues, it is the former approach (or rather the inverse) which the Kubin court found amenable to the issue at hand. The Federal Circuit, in affirming the Board's rejection of the Kubin claims as obvious, confirmed (i) the existence of an enabling technology within the prior at to generate the claimed subject matter, (ii) a suggestion to modify the prior art (i.e., an impetus to work from the prior art protein to the claimed isolated nucleic acid molecule), and (iii) evidence that such a modification would be successful. And such success not requiring "absolute predictability of success," but only a "reasonable expectation of success" in obtaining the claimed subject matter.

Was invoking O'Farrell in response to the Supreme Court's admonishment of a rigid §103(a) analysis limited to the facts of Kubin? Or possibly relegated, albeit not purposefully, to analysis of obviousness issues relating solely to biotechnology? Only time will tell. But early returns suggest that an O'Farrell revival of sorts is catching on, both within the Federal Circuit and the district courts.

• Bayer Schering Pharma AG v. Barr Labs, Inc. - The Federal Circuit affirming a district court holding that claims of U.S. Patent No. 6,787,531 are invalid under § 103(a), as "the invention would be obvious to try." A KSR/O'Farrell/Kubin triumvirate is invoked to hold that a claim to an oral contraceptive composition which comprises a micronized drospirenone-based combination product was obvious. As in Kubin, the Federal Circuit agreed with the district courts analysis that a finite number of possibilities were available to the inventor, with a reasonable expectation of succeeding in the generating the claimed invention.
• P&G v. Teva Pharms. USA, Inc. - The Federal Circuit affirming a district court holding that claims to U.S. Patent No. 5,583,122, which recite the bisphosphonate compound risedronate, the active ingredient of an osteoporosis drug, nonobvious over a prior art patent disclosing an earlier bisphosphonate compound useful in treating osteoporosis. The Federal Circuit, with the KSR directive in hand, addressed the logic of the district court by applying their own precedent to determine whether a structural similarity existed between the prior art compound and the patented compound. In doing so, the Federal Circuit rounded out this analysis by again invoking the KSR/O'Farrell/Kubin logic, finally holding that "there is not credible evidence that the structural modification was routine." In other words, as per O'Farrell, numerous choices for structural modification were available, and the prior art gave no indication as to which modifications were critical for success (i.e., the "metaphorical darts at a board" scenario).

And several district court cases are incorporating this line of reasoning into their § 103(a) analysis as well, such as Johnson & Johnson Vision Care, Inc. v. CIBA Vision Care Corp. and Seiko Epson Corp. v. Coretronic Corp. Like it or not, the 'obvious to try' standard, ala O'Farrell, looks to be back in vogue. Patent practitioners should carefully consider these post-KSR ramifications when drafting or prosecuting patent applications in the USPTO, whether based in the biotechnology arts or not. Strategies should be considered early on in the process to best head off or rebut exposure to a possible claim rejection under §103(a) as tailored from the Kubin holding.

(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.

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.