Patent history

Flows to patent progeny,

Says Federal Court

In a slip opinion, the Federal Court for the Northern District of Illinois has ruled that the prosecution history and estoppel from an earlier patent flowed to all the “children” of that patent.

The case of Trading Techs. Int’l., Inc. v. BCG Partners, Inc. began in early 2010.  Plaintiff Trading Technologies International, Inc. ("TT") filed a dozen cases in the District alleging infringement of patents relating to futures trading software.  The software is used by traders to place orders on electronic exchanges.  Specifically, the patents concern how the software displays market information to traders and allows them to submit orders.

One of the patents at issue is 7,676,411 for:

A method and system for reducing the time it takes for a trader to place a trade when electronically trading on an exchange, thus increasing the likelihood that the trader will have orders filled at desirable prices and quantities. The “Mercury” display and trading method of the present invention ensure fast and accurate execution of trades by displaying market depth on a vertical or horizontal plane, which fluctuates logically up or down, left or right across the plane as the market prices fluctuates. This allows the trader to trade quickly and efficiently.

The parties disputed whether the Federal Circuit’s earlier comments on the related ‘132 patent’s  specification (the same specification used by the ’411 patent) meant that the specification disclosed only static price axes and thus that the claims in the ’411 patent (covering price axes in general) were too broad.

After the court consolidated the 12 cases, both sides moved for summary judgment.
Two of the defendants asserted

that TT should be barred from asserting that products with price axes that move automatically infringe under the doctrine of equivalents, because the Federal Circuit found that TT disclaimed all price axes that move automatically when it prosecuted the claims of the ’132 patent and another parent patent.

Noting that "the doctrine of prosecution history estoppel prevents a patent owner from recapturing through the doctrine of equivalents subject matter surrendered to acquire the patent," the court granted the defendants’ motion with respect to some of the patents and denied it as moot with respect to others.

A key takeaway from this case is that if it is possible to separate separate inventions at the time of filing the patent application, it may be beneficial to take the time to do so. Otherwise, limiting definitions in one case may be applied to other cases in the same family.

Rush to file patents;

America Invents Act

Makes startups hurry

As reported by the Washington Post, startups are among the companies likely to be the most dramatically affected when the Leahy-Smith America Invents Act (AIA) takes effect in March, 2013.  Some predict a gold-rush style “stampede” to the patent office before the Act takes effect.

(A similar “gold rush” happened around 1995, when the patent term changed from 17 years from the date of issue to the current 20 years from the earliest filing date.)

The AIA, which represents the most significant change to the US patent system in 60 years,  will convert the US from a “first to invent” system to a modified “first to file” system. 

A pure “first to file” system is used by the European Patent Office, and although the AIA will not completely harmonize the two systems it will bring them closer together.

Some critics have argued that the AIA will harm startup companies by pushing them to bear the expense of filing a patent while they’re still struggling to get off the ground.  A well-prepared patent application can cost from $5,000 to $15,000.

Critics also argue that the AIA gives large companies, which have patent lawyers already on staff, an even greater competitive advantage.

As reported in this blog, technology titans are battling over patent rights on at least four continents:  Oracle and Google are fighting over Android, Yahoo and Facebook are suing each other, etc.  Companies are also buying up patent portfolios belonging to companies like AOL, Motorola, Kodak, and Nortel for both offensive and defensive purposes.

More and more, startups are recognizing the value of investing in patents.  Patents can be used as bargaining chips in negotiations with venture capitalists and can attract potential buyers.  Studies have shown that startups with patents or filed applications attract more venture capital and get it faster. 

The existence of a valuable patent portfolio also reduces risk for potential buyers and investors, as patent rights can live on even after a company fails and provide valuable licensing revenue to their owners.

File under cool inventions: HRL Laboratories : HRL Researchers Develop World’s Lightest Material.

Federal Circuit

Resolves intervening rights

In polymer case

The Federal Circuit Court of Appeals has reversed an earlier decision that had created uncertainly about the rights of an infringer resulting from patent reexamination proceedings.

In Marine Polymer Technologies, Inc. v. HemCon, Inc., 2012 U.S. App. LEXIS 5567 (Fed. Cir., March 15, 2012), the Federal Circuit held that intervening rights arise in a patent reexamination only when the claims have been amended or are new. 

Marine Polymer sued HemCon for infringement of its U.S. Patent No. 6,864,245, related to p-GlcNAc, a polymer that accelerates hemostasis (i.e., slows bleeding).  The polymer has biomedical and pharmaceutical applications and is useful for treating serious wounds.

Marine Polymer alleged that HemCon infringed claims 6, 7, 10, 11, 12, 17, and 20 of the patent.

Claim 6 of the patent recites:

A biocompatible [p-GlcNAc] comprising up to about 150,000 N-acetylglucosamine monosaccharides covalently attached in a ß-1?4 conformation and having a molecular weight of up to about 30 million daltons in which at least one N-acetylglucosamine monosaccharide has been deacetylated.

The only disputed claim term on appeal was “biocompatible.”  (The terms means that the  polymer was not highly reactive with living cells.)  Marine Polymer argued for a narrow construction of the term and the defendant argued for a broad construction.  The district court adopted a construction narrower than the one proposed by Marine Polymer, Marine Polymer moved for summary judgment of infringement, and the district court granted the motion. 

The issues of patent validity and infringement were then tried to a jury, which found the patent valid and awarded $29.4 million to Marine Polymer.

While the infringement case was pending, HemCon had filed a request with the USPTO for an ex-parte reexamination of the patent at issue.  During this reexamination, the patent examiner construed “biocompatible” more broadly than the district court had.  The USPTO also found claims to be obvious based on the prior art. 

Marine Polymer then cancelled the claims that were rendered obvious and argued that the examiner should adopt the district court’s narrower construction of “biocompatible.”  The patent examiner accepted this argument, and found all claims patentable based on that construction.

On appeal, HemCon argued that it had acquired intervening rights during the reexamination and thus was not an infringer.  A panel of the Federal Circuit agreed.

Marine Polymer argued that intervening rights can’t be acquired unless the claims have been amended or are new.  In this case, the key claims had not been amended and were not new.

Upon reconsideration en banc, the Federal Circuit affirmed the original judgment of the district court and reinstated the jury verdict.

IP law survey

Finds patent litigation

Costly for both sides

A survey conducted by the American Intellectual Property Law Association has revealed the median litigation costs of patents infringement suits:

· For claims worth less than $1 million, costs are $650,000.

· For claims worth $1 million to $25 million, costs are $2.5 million.

· For claims worth over $25 million, costs are $5 million.

These costs are for 2011. Costs for the smallest suits have stayed flat since 2005, costs for the medium-sized suits have increased 25%, and costs for the largest suits have increased 11%.

These figures are for attorneys’ fees and associated costs, and don’t include the damages a defendant would pay if found guilty of infringing a plaintiff’s patent rights.

For example, in the suit between Oracle and Google now being tried in the Northern District of California, estimates of potential damages against Google were originally as high as $6.1 billion. However, Google has narrowed Oracle’s claims to only two out of the original seven patents, reducing the possible award. Oracle is also seeking about $1 billion in copyright damages in that case.

About 54-60% of patent litigation expenses are incurred during the discovery phase, when both sides request and analyze documents and other information from opposing parties, and conduct depositions. The remainder of the budget is spent on trial.

Patent trials are often expensive because they require the testimony of experts in technical fields, and because elaborate exhibits (including animations) are often required to explain scientific and technical concepts to lay jurors.

Most patent cases (and most lawsuits of all kinds) settle before they go to trial. The high costs of patent suits – roughly double the costs of copyright and trademark cases – encourage early settlements, creating business opportunities for patent trolls.

To reduce the risks of patent litigation, some companies engage experts to conduct “freedom to operate” searches to learn whether a technology under development might be infringing known patents. Such surveys typically cost in the range of $100,000 for a comprehensive review and analysis – a fraction of the cost of litigation. Even lower cost options may be available my leveraging off-shored analytics groups.

Samsung sues Apple

On eve of settlement talks;

Seeks ban on Mac sales

One day after both companies’ executives were ordered by a federal court to discuss settling their year-long intellectual property dispute, Samsung has again sued Apple.  The world’s two biggest smartphone makers have been battling over IP on four continents since April of 2011.

Samsung, the maker of Galaxy tablets and smartphones, filed suit in the Northern District of California, alleging that Apple violated eight of its patents.  Its counterclaim is in response to a complaint filed by Apple in February.

The patents listed in Samsung’s counterclaim cover:

• performing non-scheduled transmission in a mobile communication system for supporting an enhanced uplink data channel
• signaling control information of uplink packet data service in mobile communication system
• volume control for external audio reproduction, multimedia syncing, data display, virtual keyboards, recording and reproducing digital images and speech and remote video transmission.

These technologies aren’t just limited to smartphones like the iPhone, but are used across Apple’s entire product line, including in iPads, iPods, Macs, Apple TV, iCloud, and iTunes.

Two of the Samsung patents are considered FRAND (standards-essential, and thus required to be offered to competitors at Fair, Reasonable And Non-Discriminatory licensing terms).   The EU has recently launched an investigation to determine whether Samsung has been abusing its FRAND patents by overcharging competitors – i.e., licensing at un-“reasonable” rates.  Samsung previously accused Apple of rejecting its proffered FRAND licenses.

In its February suit, Apple sought to ban US sales of the Galaxy Nexus smartphone.  Samsung’s new suit seeks to ban US sales of  Apple products including the Mac laptop and Apple TV.

MS flips patents;
AOL portfolio
Now goes to FB

As previously reported in this blog, Microsoft recently acquired a portfolio of 925 AOL patents (earlier reports said 800) for just over $1 billion.  Microsoft also acquired a license to several hundred additional patents that AOL kept, along with the ability to further sub-license those patent rights.

Now the plot thickens:  less than two weeks later, MS has turned around and sold 70 percent of the AOL patents (about 650) — to Facebook for $550 million in cash, and granted Facebook license rights to 275 AOL patents Microsoft is retaining.

Although Facebook and Microsoft have not yet announced how they’re going to divide up the patents in the AOL portfolio, it’s expected that Facebook will get patents involving mobile and instant messaging while MS will keep AOL search-related patents.

Commentators have suggested that this means Microsoft and Facebook are ganging up on mutual rival Google.

Google’s free online apps compete with Microsoft Office, and Google’s Android operating system competes with Microsoft’s Windows Phone software.  Google Plus is an attempt to compete with Facebook.

The AOL patent deal also provides Facebook with more ammo in its ongoing war with Yahoo.  As we reported here, Yahoo sued Facebook earlier this year for allegedly infringing 285 claims in 10 Yahoo patents. 

Facebook subsequently countersued Yahoo for patent infringement.

Yahoo claimed to be undaunted by the AOL-MS-Facebook deal:

Nothing about today’s action changes the fact that Facebook continues to infringe our patents. Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today’s announcement as a validation of our case against Facebook.

Facebook, which had only 56 issued patents at the beginning of 2012, has been on a buying spree in advance of its highly-anticipated IPO.  With its share of  the AOL portfolio, it now has a stockpile of over 1400 patents and patent applications.

In counter-attack,
Facebook strikes back at Yahoo
And buys more patents

As previously reported in this blog, Yahoo sued Facebook last month for patent infringement.

Now Facebook has sued Yahoo in return, claiming that Yahoo has violated Facebook patents that cover 80% of Yahoo’s 2011 revenue, amounting to more than $4 billion.  The businesses involved include display advertising, content personalization, and photo sharing, according to Facebook.

At the time Yahoo originally sued Facebook, some commentators suggested that it might be able to force a speedy settlement, to prevent the suit from interfering with Facebook’s imminent $5 billion IPO.  The new suit by Facebook suggests that Facebook is willing to fight.  Alternatively, Facebook might attempt to settle by giving Yahoo shares of Facebook – a tactic Google used to settle a patent dispute in 2004.

Facebook, which reportedly owned only 56 patents and 503 US patent applications at the time Yahoo filed suit, subsequently acquired 750 patents from IBM.  According to its IPO filing, Facebook also had 33 corresponding patents and 149 filed applications in foreign countries.  Acquired patents accounted for $51 million of Facebook’s goodwill and intangible assets in 2011, up from $33 million in 2010.

Facebook employees only invented two of the technologies covered by the patents cited in its suit against Yahoo.  The rest were purchased, and some were granted before Facebook was founded in 2004.

Some have questioned whether Yahoo might be shooting itself in the foot by suing Facebook, which is one of its most important partners.  Yahoo, which has suffered declining sales for the past three years, boosted traffic from Facebook 300% from September to December of last year by integrating Facebook’s news activity feature into its own sites.

Yahoo’s new CEO, Scott Thompson, recently laid off 2,000 Yahoo employees – 14% of the company’s workforce.  It was the largest layoff in the company’s 17-year history.

AOL patents
Sell at a premium price
In Microsoft deal

As previously reported by this blog, in recent weeks estimates of the value of AOL’s patents have ranged from a high of $1 billion  to a low of $290 million.

Ending speculation, 800 patents in the AOL portfolio have been sold to Microsoft for $1.3 million each – a total of just over one billion dollars.

The premium price reflects the increasingly important role of patent rights as both offensive and defensive competitive weapons. One of the largest recent deals was Google’s purchase of Motorola Mobility and its 17,000 patents for $12.5 billion. Assuming that those patents account for half the value of the acquisition, the price for each would average $400,000 – less than a third of what Microsoft paid for the AOL patents, on a per-patent basis.

Last year, Microsoft and Apple joined forces with four other companies to pay $4.5 billion for the 6,000 patents held by the bankrupt Canadian telecom company Nortel – a rate of $750,000 per patent. This was nearly four times the average for computer, software, and telecom patents only a few years earlier.

AOL, an online pioneer now switching its focus from technology to media with its acquisition of The Huffington Post and other publications, sold to Microsoft its early patents that relate to search, email, messaging, and custom ads. The company is retaining ownership of an additional 300 patents.

Microsoft has about 20,000 patents of its own (not counting pending applications) — about four times the stockpile of its rival Apple.

AOL patents
Worth only one third as much
As estimated?

Despite earlier predictions, that we discussed previously, that AOL’s patent portfolio could be worth as much as $1 billion, the latest estimates put the value at about $290 million.

AOL has been under fire from Starboard Value LP, one if its largest shareholders with 5.2% of the company’s stock, to monetize the 800 patents in its portfolio.  Starboard has also attempted to place a so-called “patent troll” on the AOL board to expedite the process.

AOL has hired its own expert, Evercore Partners, Inc., to find a buyer for its patents, which are in fields including internet advertising, shopping, navigation, and communications.

According to David Pratt, president of M-Cam (a company that assesses markets for intangible property), $290 million is the “absolute ceiling price.” 

Pratt said,  “It’s worth much less than what investors have estimated, based largely on the fact that most of AOL’s patents are not commercially viable, or junk grade.”

However, several commentators noted the difference between the pure financial value of the patents and their long-term strategic value as a source of licensing revenue.  An investor focused on the latter might bid the portfolio back up to the billion dollar estimate.

AOL is also exploring other options, such as taking the company private or merging with Yahoo.

When AOL acquired Time Warner in 2000, the combined companies had revenues of $30 billion per year.  When the companies de-merged in 2009, annual revenues had fallen to $3.2 billion.  For the first quarter of 2012, AOL revenues are projected to be $526.1 million, according to Bloomberg.