Are shrinkwrap contracts pre-empted by copyright law?
In a continuing theme of contract v. copyright, the author of Bubble-Wrap: Why the Contractual Protection of Ideas is Preempted by Federal Copyright argues that shrink-wrap licenses are pre-empted by copyright law:
Another way in which courts attempt to avoid the preemption issue is through the extra element test: “Courts generally hold that because contract rights depend on extra elements that distinguish them from section 106's exclusive rights—essentially the presence of a bargained-for exchange--section 301 does not preempt breach of contract claims….
However, this extra element test fails under a shrink wrap theory, because the extra element, the bargained for exchange, is markedly absent in such a contract.40 Here, the breach of contract action serves as nothing other than a subterfuge to control the exclusive rights of works within the subject matter of copyright for a work which failed to meet the federal act's standards for protection.
Can this be right? The only “extra element” in a contract claim is the bargained for deal? I am not an expert in this area, however, it seems that to win on a contract case one would need to prove a valid, enforceable contract. Thus, offer, acceptance, and consideration seem to be “additional elements”.
Follow-up question: One more thing, I doubt that in fact one could in fact argue that a shrinkwrap license, in fact, was not bargained for. The fact that you have little ability, or desire, to negotiate a "better" deal is not dispositive of whether the deal was "bargained for". In fact, one could presumably seek a better deal, but what incentive do most content owners have to negotiate with you or grant to you "better" terms?
Licensee's rights: standing to sue
The Medimmune v. Genentech appeal asks the court to address whether a licensee may sue the licensor to challenge the validity of the licensed patent. While the ultimate outcome of the dispute is unknown, we do know a few things about other licensee’s rights. For example, when can a licensee sue infringers of the licensor’s patents?
An exclusive licensee with “all substantial rights”
Tthe Patent Act confers standing to sue for infringement. Intellectual Property Development, Inc. v. TCI Cablevision, 248 F.3d 1333, 1345 (Fed. Cir, 2001). A patent confers the “right to exclude others from making, using, offering for sale, or selling the invention.” 35 U.S.C. §154(a)(1) (2004). The Patent Act provides the patentee with the sole “remedy by civil action for infringement of his patent.” 35 USC §281 (2004). A “patentee” is “not only the patentee to whom the patent was issued but also the successors in title to the patentee.” 35 USC §281 (2004). Thus, courts have generally required “that a suit for infringement ordinarily be brought by a party holding legal title to the patent.” Abbott Laboratories v. Diamedix, 47 F.3d 1128, 1130 (Fed. Cir., 1995); Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578-9 (Fed. Cir. 1991).
Courts have interpreted the statute to preclude nonexclusive licensee from suing for infringement. Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923). Crown Die held that “the injury inflicted by an act of infringement falls upon the individual who owns the monopoly at the date of infringement. Id. Since a nonexclusive licensee receives only a covenant by the patent owner not to sue, a nonexclusive licensee suffers no legal injury from infringement. Intellectual Property Development, 248 F.3d at 1345. This reasoning, though, does not necessarily apply to exclusive licensees under standing doctrine.
An exclusive licensee with “all substantial rights” has standing to sue in their own name. Courts have held that a grant of “all substantial rights in a patent amounts to an assignment—that is, a transfer of title in the patent—which confers constitutional standing on the assignee to sue another for patent infringement.” Intellectual Property Development, 248 F.3d at 1345; Waterman v. Mackenzie, 138 U.S. 252, 256 (1891). In this analysis, an exclusive licensee with “all substantial rights” is simply recognized as the patentee. There is a substantial amount of case law which addressing whether a particular exclusive license is in fact an assignment. Such a determination is outside the scope of this memo. However, where an exclusive licensee does not claim to be the patentee or assignee, it has “the burden to provide evidence endowing it with all substantial rights in the patent.” Fieldturf v. Fieldturf International, 357 F.3d 1266, 1268 (Fed. Cir., 2004). Particularly dispositive are reservations on the right to enforce the patents. Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991).
A licensee with less than all substantial rights in a patent
Where an exclusive licensee has fewer than all substantial rights, courts must address the “threshold issue” of standing. The issue of standing is a question of law. The “doctrine of standing limits federal judicial power and has both constitutional and prudential components.” Evident Co. v. Church & Dwight C., 399 F.3d 1310, 1313 (Fed.Cir. Feb. 22, 2005)(quoting Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1369 (Fed. Cir. 2001)). Standing is judged under the Supreme Court’s Lujan test. Constitutional standing requires “only that a plaintiff must have suffered an injury in fact, that there be a causal connection between the injury and a defendant’s conduct, and that the injury be redressable by a favorable court decision.” Id. In addition, when an exclusive licensee has constitutional standing, it may still be barred by prudential concerns.
An exclusive licensee with fewer than all substantial rights may have constitutional standing. “An exclusive licensee receives more substantial rights in a patent than a nonexclusive licensee, but receives fewer rights than an assignee of all substantial patent rights.” Id. To determine constitutional standing, the courts will apply Lujan test to an exclusive licensee. The first prong requires injury in fact. The second prong requires the causation be “fairly traceable” to the injury in fact. Id. Finally, Lujan requires that the injury be redressable.
The first prong is satisfied where an exclusive licensee has the right to exclude other from “making, using, and selling an invention.” In that case, the licensee is constitutionally “injured by any party that made, used, or sold” the invention. Intellectual Property Development, 248 F.3d at 1346; Evident, 399 F.3d at 1314.
Second, there must be a “fairly traceable” casual connection between the conduct and the injury. In the case of infringement, the conduct is directly related to the injury and is sufficient to overcome the “fairly traceable” test. Id.
Finally, patent infringement is redressable through the courts by an award of damages. Id. Intellectual Property Development notes that the “court has awarded damages to exclusive licensees.” Id. Therefore, the injury is redressable by the court. Id. Under these circumstances, an exclusive licensee meets the constitutional standing requirements.
Nevertheless, an exclusive licensee with less than all substantial rights cannot usually bring a suit in their own name. That is, although “an exclusive licensee may have standing to participate in a patent infringement suit, in some cases it must still be joined in suit by the patent owner.” Prima Tek II v. A-Roo Co., 222 F.3d 1372, 1377 (Fed.Cir., 2000). This rule is a “judicially self-imposed” prudential limit. Independent Wireless, 269 U.S. at 468. The prudential limit thus denies standing to an exclusive licensee with fewer than all substantial rights unless the patent owner is joined as a plaintiff. “This principle hold true except in extraordinary circumstances, such as where the infringer is the patentee and cannot sue itself.” Id.
In Independent Wireless v. Radio Corp., the Supreme Court held “The presence of the owner of the patent as a party is indispensable not only to give jurisdiction under the patent laws but also, in most cases, to enable the alleged infringer to respond in one action al all claims of infringement for his act, and thus either to defeat all claims in the one action, or by satisfying one adverse decree to bar all subsequent actions.” 269 U.S. 459, 468 (1926).
Subsequently, the Federal Circuit has, as a general rule, adhered “to the principle that a patent owner should be joined, either voluntarily or involuntarily, in any patent infringement suit brought by an exclusive licensee having fewer than all substantial patent rights.” Prima Tek II, 222 F.3d at 1377; Abbott Labs, 47 F.3d at 1131; Evident, 399 F.3d at 1314; Fieldturf, 357 F.3d at 1268; Intellectual Property Development, 248 F.3d at 1348; Mentor H/S, 240 F.3d 1016; Ortho Pharmaceutical, 52 F.3d at 1030; Textile Productions, 134 F.3d at 1484. As this rule is “prudential rather than constitutional,” it is subject to exceptions. Id. The court has recognized two exceptions. The first exception is where the exclusive license grants “all substantial rights,” as noted earlier. The second is where the patentee is the alleged infringer. Absent these two situations, the patentee is an “indispensable party.”
Importantly, an exclusive licensee is not barred from enforcement simply by an unwilling or unavailable patent owner. A patent owner is “duty bound to become a party.” Independent Wireless, 269 U.S. at 472. A licensee “may make [the patent owner] a party defendant by process and he will be lined up by the court in the party character which he should assume.” Abbott Labs, 47 F.3d at 1131 (quoting Independent Wireless, 269 U.S. at 468). The court explained the patentee “holds the title to the patent in trust for [the exclusive] licensee, to the extent that he must allow the use of his name as plaintiff in any action brought at the instance of the licensee in law or in equity to obtain damages for the injury to his exclusive right by an infringer or to enjoin infringement of it.” Id. Even in the absence of an expressed provision, courts will imply an “obligation” on the “licensor to allow the use of his name” so that the licensee may enjoy “the monopoly which by personal contract the licensor has given.” Independent Wireless, 269 U.S. at 469.
Courts are aware of the inconvenient and “possibly embarrassing” results of an adjudication brought by an exclusive licensee. Independent Wireless, 269 U.S. at 469. As would be the case where litigation posed potential geographic or economic hardships, or where the ultimate disposition of the case held a patent invalid or unenforceable. These concerns address the policy of making the patentee an indispensable party since the licensee’s and patentee’s interests do not necessarily align. To a licensee, paying royalties while competing with even a negligible infringer is the worst of two worlds. In such a case, the invalidity of a patent may be better than the status quo. On the other hand, the patentee is interested in maintaining royalty payment, avoiding expensive litigation and maintaining even weak patent rights.
As such, courts are willing to entertain provisions that vary the rights of the parties to bring a suit. “Express covenants may, of course, regulate the duties between the licensor and licensee to implement the rights of the parties.” Ortho Pharmaceutical, 52 F.3d at 1034. Among the permitted provisions are those which outline whom may initiate an action. Intellectual Property Development, 248 F.3d at 1345 (upholding a provision that required the licensee obtain consent from licensor); Mentor H/S, Inc. v. Medical Device Alliance, 240 F.3d 1016, 1018 (Fed. Cir. 2001) (upholding provision that allowed licensee to sue only when patentee failed to take action); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir.2000)(upholding an provision that allowed the patentee to sue, but finding it “illusory” in effect); Abbott Laboratories, 47 F.3d at 1132 (upholding a provision that granted the right to sue to exclusive licensee, but also maintained a right to bring suit in its own name); Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991)(upholding a licensee’s right to sue conditioned upon notice only). In addition, courts looked at the right to initiate a suit to discern whether a party had “all substantial rights.” For example, where such a right is made conditional, the agreements are understood to confer something less than all substantial rights, and thus not an assignment.
Google denuded
The soon to be much talked about Google Images opinion is available here. Under this decision, the court granted Perfect 10's request for a preliminary injunction. The court found Google's use and creation of thumbnails an infringement. However, I'm not sure that that's the most interesting part. Since I'm a former web developer, let me look at only the deep linking/framing issue.
The plaintiff, Perfect 10 is a proprieter of "high-quality, nude photographs of 'natural' models." (They seem to have a thriving business selling small images for cellphones in the UK--about 6000/mo, interesting...).
Google's Image search engine creates thumbnails of the images which it presents to users searching its database. When Google returns a result (like this for Julie Bowen) clicking on a link takes you to a Framed version of the website. The frame, on the top half shows the cached thumbnail, and below the page from which the picture originated.
The court analogizes "in-line linking" and "framing". First, the image on the right of this paragraph of William Patry is "inline linked". That is, in my HTML code I have told your browser to fetch that image. It's not stored on my server--well it's actually on blogger.com, but that's not really the point--and is not actually part of my website. This means nothing is stored here, and nothing is sent to your browser except the information disclosing the location of the image. Second, the box immediately below this paragraph is a "frame" of William Patry's discussion of this Google case. His page is wholly contained within my own:
In determining whether such activity was direct infringement, the court applied the "server test". The test merely asks, "on what web server is the content actually stored?" Under this test, neither of the above examples would constitute direct infringement. Similarly Google could directly infringe simply by linking to an image (including directly linking to full size image and showing it on its servers) or by framing Perfect 10's content.
Since Google merely frames full-size pictures located on Perfect 10's on site, Google is not directly infringing those copyrights. However, Google loses under the "server test" as applied to the display of thumbnails on its search result page.
The problem
As a former web developer, I think that that the decision is largely correct. ON the facts presented to the court, it clearly must be correct. However, nearer the margins I'm not so sure. Let's consider a few things first.
The test for direct infringement is really a question of "where the content 'originates'". Since neither the image of Professor Patry nor the content contained within the frame reside on my server, I'm not infringing. To the unknowing, the fact that the image isn't on my server would probably go unnoticed. Can it be that the test for infringement lies merely what's in the source code? Is it only HTML source code?
A number of web development languages allow developers to "get" content from another website. What if a developer "fetched" the infringing content and merely returned it to the browser. Nothing stored (at least for very long) on the server but everything returned directly with the page as it's sent to the browser. Many small sites have used a similar techniques to add weather/stock tickers to their pages. If one were to look, the only thing found on the server is the "request" to get the information from those pages.
That sounds like direct infringement to me. It may be that under the "server test" it would be as well. Since the content makes a momentary stop by the "infringers" servers, you've got infringement. However, how many other servers would that same content momentarily pass through on its way to the end user/browser? A trace route of any website from your computer reveals that there are probably dozens of computers between you and the content.
What's more, I think that Google gets a break because of the obviousness of the fact that it did create the content. The search results in fact reveal the actual source. That is not clearly the case of "inline-linking".
New treatment for Type I diabetes
Full disclosure: I am a type I diabetic.
Via Daily Dose, Transition Therapeutics has announced a new treatment for Type I diabetes: Islet Neogenesis Therapy (I.N.T.™):
The I.N.T.™ technology platform, covered by a broad patent portfolio, is
based on the discovery that a short course of injections of naturally
occurring peptides can regenerate insulin-producing cells in the body.
Transition Therapeutics was issued a patent covering the new treatment in late January. I wonder how I can be on the clinical trials.
More CD copying...
... from the Silicon Valley Media Law blog.
It seems unlikely that suing consumers over ripping CDS to their iPODs will help win the messaging war, and it seems a court would quickly jump to pronounce this fair use as in the Rio space-shifting case and create some case law they don't want on the books.
So this may be more about the transition to copy protection and DMCA issues, which was the context of the filing that has raised this issue -- the Copyright Office's anticircumvention rulemaking proceedings.
The impossible patent
Over at Patently-O, there is a somewhat lively discussion of a patent examiner's request for a working model of a Warp Drive Engine.
Below that, there is a list of some other highly questionable patents, including "2005-102494 GRAVITY CONTROL TIME MACHINE UTILIZING ACCELERATED MOTION TO WHICH GENERAL THEORY OF RELATIVITY IS APPLIED".
Just out of curiosity, do we care that people have wasted their money on these applications? Should we care? Isn't it slightly more efficient to simply ignore these patents, allow them to obtain protection, and never get to a stage that they were enforceable? I mean, sure, they're "dumb" patents, and most people recognize them as such, so what's the big deal?
Are we really concerned that there is a chance that someone, within the next 20 years, will actually make a "gravity control time machine"? That's a mighty suspicious concern.
On the other hand, we don't want to flood the USPTO with frivilous patents. There may also be a number of border line cases, but, in that case, those patents would obtain standard examination. Seems like examiners should just move on and not waste time fighting these.
Bayh-Dole and tangible property
Anyone that has done work for a Tech transfer office of a major university has probably encountered the Bayh-Dole Act. Bayh-Dole is the government's answer to its own technology transfer questions. The law is somewhat obscure, but relatively simple to interpret. One question, though, that is not addressed is, "what happens to tangible property?"
Quick Bayh-Dole introduction
The Bayh-Dole Act permits colleges and universities--and other organizations--conducting research with federal funds to elect to retain title to “subject inventions.” In exchange, the inventor must grant the Federal government certain rights in those “subject inventions.” Among other obligations, where an institution elects to retain title, the institution must grant to the government a “nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world any subject invention.” 35 U.S.C. §202(c)(4). Bayh-Dole defines the term “subject invention.” In relevant part, subject invention means, “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement…” 35 U.S.C. §201(e). In addition, an “invention means any invention or discovery which is or may be patentable or otherwise protectable under this title…” 35 U.S.C. §201(d).
What about resulting tangible property?
Here the law is not very clear. Bayh-Dole grants certain rights to the federal government in “subject inventions.” The definition of invention includes “any invention or discovery which is or may be patentable or otherwise protectable under this title.” Bayh-Dole thus addresses the interest in the patent rights of any subject invention, but does not address the government’s interest in the tangible property of government-funded research.
Neither the courts nor other statutes offer guidance as to rights in the tangible results of government-funded research. First, this author could not find a single court opinion addressing the issue of rights in tangible property under Bayh-Dole. Second, outside ordinary procurement regulations, federal statutes and regulations do not address the issue of resulting property from research. Moreover, the title to equipment and supplies acquired with federal funds, in general, lies in the inventor subject to other regulations. e.g., 45 CFR §74.34.
Arguably, the effect of Bayh-Dole on tangible property can be understood by what it grants to the government. Bayh-Dole gives the government a nonexclusive license to practice a subject invention. In general, a license is a waiver of a right to sue. As such, Bayh-Dole merely provides the federal government protection from infringement suits. The license, in and of itself, granted under Bayh-Dole does not confer right to any tangible property. Instead, the government could use its nonexclusive license to make, or have made on its behalf, the tangible property, limited only be the need to acquire other third-party licenses.
It's also clear that Bayh-Dole does not constrain funding agencies contractual abilities concerning tangible property. Largely, Bayh-Dole applies to grantees’ patent rights. Bayh-Dole merely permits a grantee to retain title in a subject invention. Bayh-Dole does not preclude an agency from creating other contractual rights under its funding agreements. In that case, a funding agency’s rights in tangible property are subject only to other statutes or regulations.
This seems to be the position of the NIH. The NIH has developed specific policies regarding interest in unpatented, biological materials. NIH Procedure for Handling Non-Election of Title to Patentable Biological Materials. In a situation where neither the grantee nor the NIH takes title to an otherwise patentable technology, the NIH imposes guidelines for the material’s distribution. Id. at §D. the NIH does not seem to believe it has title to the property as a whole—even where the grantee does not follow the prescribed procedure. Id. at §D(6). Instead, the policy merely imposes the obligation to make the biological material available to non-profit organizations and grants a Bayh-Dole like license to the material to the government to “make, use or distribute.” Id. at §D(5). It does request, though, that the grantee provide some of the material to the government. Id. This policy is somewhat consistent with Bayh-Dole. The policy recognizes that had the government elected title, it would have an interest in a subject invention. That interest would include the ability to make and use a subject invention. This right might justify the requirement that a grantee provide the agency with some of the biological material. Nevertheless, even with a patent, the government would still not have rights in the tangible property itself and the grantee would retain the minimal rights prescribed in 37 C.F.R. §401.14(e)(1). Therefore, the grantee’s retention and use of the material would not be infringement. In any case, it is not clear that such a policy applies where the grantee does take actual title.
How many copies of a CD should you be able to make?
I used to be of the opinion that purchasing a CD was enough and that making copies for my MP3 player, for my digital home theatre, or for whatever purpose I saw fit was a good policy. Heck, I thought copies for my friends was okay too. Man how three years have changed me.
Slashdot has posted an article that the RIAA is arguing ripping CDs to an iPod is not fair use (by way of Deep links). Among other things, the RIAA's comment to the Copyright Office on "Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies" says,
Nor does the fact that permission to make a copy in particular circumstances is often or even routinely granted, necessarily establish that the copying is a fair use when the copyright owner withholds that authorization. In this regard, the statement attributed to counsel for copyright owners in the MGM v. Grokster case is simply a statement about authorization, not about fair use.
The EFF poster suggests that that statement conflicts with statements by the RIAA's counsel at trial where they said, The record companies, my clients, have said, for some time now, and it's been on their website for some time now, that it's perfectly lawful to take a CD that you've purchased, upload it onto your computer, put it onto your iPod.
(emphasis added). Of course, I don't see that there's necessarily a direct conflict.
It obviously turns on how one interprets the rights granted to the "purchaser" of a CD. No one is going to argue, not even the EFF poster, that purchasing the CD is a purchase of all the rights in the copyrights on the CD. Rather, the CD is the embodiment of a license to use those copyrights for your purposes. There is a very strong argument that personal use includes copying the music to your iPod. It's lawful because there's nothing limiting personal use.
However, what prevents the music industry from RESTRICTING that use?
People ought to be able to contract away rights they would otherwise have. Is fair use somehow not included within that? I somehow doubt it.
Thus, being lawful before because it's within the scope of personal use does not mean that a content owner cannot further limit what constitutes personal use. That is, the definition of personal use could be, all personal uses not including the right to duplicate this CD for purposes of use on a personal digital music using another digital format, including mp3 devices--if we're assuming they wanted a narrow exclusion.
Erroneous claims to priority
Before the change in the patent law in 1995, a patentee could effectively extend the life of a patent through continuation practice. Continuation practice allows certain types of patent applications to claim priority back to a previous application.
The effect of the continuation practice, especially when done in repetition, is that prosecution time may be extended over a long period of time. The patent law permits “chains” of continuation applications. Indeed, there is no limit to the number of applications in the chain. In Re Henriksen, 399 F.2d 253 (CCPA 1968). In a long chain, each application is given the priority of the parent application. This results in, in extreme cases, prosecution times ranging over decades. See Mark Lemley & Kimberly Moore, Ending Abuse of Patent Continuations, 84 B.U. L.Rev. 63 (2004) (noting the “egregious” example of Jerome Lemelson who filed “eight of the ten continuation patents with the longest delays” with several applications taking more than 40 years). This is no longer an issue under modern practice.
In general, new applications are given a twenty year patent term from the priority date. 35 U.S.C. §154(a)(2). Therefore, delays caused by continuation practice prolong prosecution and reduce the period of patent protection. Where the chain of priority reaches too far back, the patent term is shorten. Continuation practice is premised on the idea that each subsequent application essentially claims the whole or part of the invention, which is disclosed in the parent. Over the course of a long prosecution, this may no longer be the case and amending this chain would be appropriate. The issue then is whether an applicant may break the chain of priority for an issued patent or for a patent application.
There are two situations that need to be examined: the effect on an issued patent and the effect on a pending application.
An issued patent
The patent law permits corrections to issued patents. The law states “Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid, by reason of a defective specification… the Director shall… reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent.” 35 U.S.C. §251.
Erroneous claim to priority is a legitimate ground for reissue. A reissue application must contain “at least one error in the patent.” Id. For a patent to reissue, the error must be one which makes the patent “wholly or partly inoperative or invalid.” 35 U.S.C. §251. The PTO recognizes that an applicant’s failure to make reference to or incorrect reference to “prior copending applications” is one of the “most common bases for filing a reissue application.” MPEP §1402. The courts have also noted that claims to priority have been held as valid grounds for reissue. MPEP §1402 cites Brenner v. State of Israel, 400 F.2d 789 (D.C. Cir., 1968) and Sampson v. Comm’r Pat., 195 USPQ 136, 137 (D.D.C. 1976).
However, a reissued patent cannot alter the patent term. The “maximum term of the original patent is fixed at the time the patent is granted.” MPEP §1405. 35 U.S.C. §251 only permits a reissue “… for the unexpired part of the term of the original patent.” Therefore, a change in the chain of priority will not effect the patent term. Indeed, in the MPEP, the patent office states that if the sole error is a change in priority and the sole reason for the reissue is to increase the term of the patent, the reissue will be rejected for failure to identify an error. Id. Where either other issues or other reasons for the change in priority are claimed, the reissue application will be examined and potentially reissued with the amended priority. Id.
A pending patent application
Slightly more complicated, but effective, is an amendment to a pending application.
For divisional or continuation-in-part applications, a reference to the parent application needs to be in the “first sentence of the specification or in an application data sheet.” 37 CFR §§ 1.78(a)(2) and (a)(5). A CPA’s specific reference is implicitly met by the legal requirements of 37 CFR §§ 1.53(d)(2)(iv) and (d)(7). The ordinary result of such a reference is that the application is able to claim the “benefit” of the priority date. As noted earlier, long chains of priority shorten the patent term. The PTO notes that as “a result of the 20-year patent term, it is expected, in certain circumstances, that applicants may cancel their claim to priority by amending the specification or submitting a new application data sheet.” MPEP §201.11(III)(g). As such, CIP and divisional applications is done under the ordinary rules outlined in 37 CFR §1.121(b) to amend the specification.
Amend a continuing prosecution application creates a new patent. A CPA’s reference to the parent application is a legal requirement which is implicit to the application. As such an applicant cannot easily delete the specific reference to a prior application for a CPA. To amend a CPA’s specific reference, the application is, among other things, returned to the Office of Initial Patent Examination. This in effects creates a new patent application.
The “happy” result of the amendment is that the chain of priority is shortened and the patent term is extended. The current patent law calculates the patent term, generally, as twenty years from the priority date. Where the chain of priority is successfully amended, the priority date will be nearer. Therefore, the patent term is extended by an equal amount.
Beware of new prior art
There are repercussions where an applicant can seek and does seek an amendment. The PTO recognizes two significant effects of such an amendment. The first is that cancellation may create “new prior art” which the examiner needs to consider. MPEP §201.11(III)(g). The sine qua non of continuation practice is that each continuation be fully disclosed in the parent application that application may create prior art. Therefore, such an amendment should be reserved where the inclusion was actually erroneous. The second is that “cancellation… may be considered as a showing that the applicant is intentionally waiving the benefit claim to the prior application.” Id. This may later affect the applicant’s later ability to file a “petition to accept an unintentionally delayed claim to add the benefit claim to the prior application.” Id.
Using contract to protect more than copyright...
Over at William Patry's copyright blog, he has posted a piece about whether newspaper-article headlines are copyrightable
. He correctly concludes that [h]eadlines are short phrases or titles, and not protectible not only under the regulation, but under hundreds of opinions.
In the comments, I suggest that an adverse ruling may simply lead to more contracts by content creators.
It occurs to me that Google's encroachment in areas that content creators typically considered their own. Of course those areas are also impliedly licensed away to search engines and web end users by virtue of the nature of the internet. However, what if a content creator does not want to impliedly license such rights away? Clearly here one could make the argument that imposing a clickwrap-type license could protect that content for individuals assenting to those terms. The same is not easily said for Google's robots--the things that google uses to search out content and add it to their databases. How could a robot be an agent of Google with authority to assent to the terms and conditions imposed upon content?
Almost since the beginning of the web, content creators could add a robots.txt file to exclude content from search engines. As far as I'm aware, google's robots obey such commands.
This does not entirely address the content owner's dilemma. The problem for content owners is two fold. On the one hand, few would say that want Google to never index--that is add their site's pages to google's search results. On the other hand, those same content creators probably do not want Google to be unjustly enriched by using their content in a way they hadn't expected. As such, adding a robots.txt file would exclude too much, but having nothing permits too much.
I do not believe there is any good solution.
When small entities aren't small according to the law
While reading the potential effects of first-to-invent reforms on small entities, I thought that I’d start my blog with what a small entity is according to the patent law. Small entity status gives the entity a fifty percent reduction in many patent fees. 35 U.S.C. §41(h)(1).
A small entity under the patent law is any small business concern, independent inventor or non-profit organization as defined by the regulations. 35 U.S.C. 41(h)(1). With one important exception regarding licensing, the small entities mean exactly what they mean.
An individual inventor is an individual person who invents or his or her assignee. 37 C.F.R. §1.27(a)(1).
The patent regulations rely upon the Small Business Administration for the definition of a small business. The SBA states that a small business, for these purposes, is a business with no more than 500 employees. 13 C.F.R. § 121.802. Of course then the question is how to count employees. The SBA counts employees by a fairly straight-forward calculation: average number of employees for each pay period over the last twelve months. 13 C.F.R. § 151.802. Employees include both full-time and part-time employees and they are counted equally. Also note that the employees of any affiliate or parent company are counted as well.
Finally, a tax-exempt 501(c)(3) non-profit, a university, a non-profit scientific or educational organization, and any foreign non-profit organization are small entities. Noticeably absent from this definition is a government agency.
Indeed, the government is not treated as a small entity under the patent law. This is of particular interest for the “big” exception.
The "big" license exception
The “big” exception to claiming small entity status under the patent happens when a small entity licenses its patent to a not small entity, including the government. Almost every definition includes a statement similar to:
[So long as the entity] has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention to any person, concern, or organization which would not qualify as a person, small business concern, or a nonprofit organization.
Under this provision, a small entity may lose its status where it has transferred “any rights in the invention” to an entity, which is not, itself, a small entity. Applying this provision requires an examination of “rights”, the transfer of those rights, and to whom those rights were transferred.
Rights in the invention mean any United States patent rights. The Manual of Patent Examination and Procedure (M.P.E.P.) defines “rights in the invention” as “the rights in the United States” including “the rights to exclude others from making, using, offering for sale, or selling the invention.” M.P.E.P. §509.02 Note V. Since the regulation states “any rights”, a transfer of a single right is sufficient to preclude small entity status.
This regulation covers transfer of rights by any number of mechanisms. The regulation explicitly covers rights transferred by “assignment, grant or license” or by contract to “assign, grant, convey or license.” In particular, the term “license” includes non-exclusive, exclusive, royalty-free and royalty-bearing licenses. Id. The Federal Circuit has held a licensor is not a small entity where it non-exclusively licensed its patent to non-small entity. Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003). The only general exception noted in the regulation is for an implied license. A license, for example, to manufacture or sell a patented product, on behalf of the patentee, is not a license for purposes of determining small entity status.
In addition, a large entity retaining any interest in a patent by a small entity will preclude small entity status. As an example, the M.P.E.P. notes, “status as a small entity is lost by an inventor who has… an obligation to transfer a shop right to an employer who could not qualify as a small entity.” Id. A shop-right grants an employer a right to practice an employee’s invention royalty free. Since a shop-right effectively grants the large entity employer a license, the employee cannot claim small entity status.
Significantly, the regulations do not sum the total employees of all licensees. That is, having 500 non-exclusive license agreements would probably involve licensees whose total employees when summed together would be more than 500. Rather, the regulations look at individual licensees separately.
As noted above, the government is not ordinarily a small entity. However, a license to the government under Bayh-Dole is not a license for purposes of small entity status. Where an inventor elects title, Bayh-Dole requires a “non-exclusive, non-transferable, paid-up license to practice or have practiced of behalf of the United States any subject invention.” 35 U.S.C. §202(c)(4). The regulations point out specifically that such a license “resulting from a funding agreement with that agency pursuant to 35 USC 202(c)(4) does not constitute a license for” the purposes of claiming small entity status. 37 C.F.R § 1.27(a)(4)(ii). The M.P.E.P. reasons, “when taken together”, both the Bayh-Dole provision and the prohibition on transfer would “frustrate the intent” of Bayh-Dole.
Small entity status and inequitable conduct
Finally, improperly claiming small entity status may constitute misconduct before the PTO. In DH Technology, Inc. v. Synergystex International, Inc., the patentee paid small entity fees during a time it was undisputed that its total number of employees exceeded 500. 145 F.3d 1333 (Fed. Cir. 1998). The Federal Circuit explained that the “regulations permit correction of honest mistakes, but prevent attempts to fraudulently pay the small entity issue fee while maintaining an enforceable patent.” Id. at 1343. The court emphasized the reasoning of the district court that “where there is the slightest doubt about an applicant’s entitlement to claim small entity status, the applicant would be foolish not to pay the full issue fee.” Id. This alone seemed to raise doubt regarding the defendant’s intent; an issue the lower court did not address. Id. The court remanded the case back to the district court to “assess whether [the patentee] acted in “good faith,” i.e. whether [the patentee] fraudulently established status as a small entity or fraudulently paid the small entity issue fee.” Id.
In Turbocare Corp. v. General Electric Company, the court distinguished the facts from DH Technologies. 45 F.Supp. 110 (1999). The court held that even if there was, as alleged, “some implied license”, the facts of DH Technologies were “far more egregious.” Id. at 112. The court, holding for the defendant, stated the “plain truth is that an informed applicant in [defendant]’s shoes, operating in good faith, would have paid the $525.00 fee.” Id.
In a recent case, Ulead Systems, Inc. v. Lex Computer & Management Corp., the Federal Circuit held an erroneous payment of small entity fees might be excused as long as the patentee is not guilty of inequitable conduct. 351 F.3d 1139 (Fed. Cir. 2003). The court explained, “inequitable conduct” would render a patent unenforceable “when there is ‘evidence of affirmative misrepresentations of a material fact, failure to disclose material information, or submission of false material information, coupled with an intent to deceive.’” Id. (quoting Dayco Prods., Inc. v. Total Containment, Inc., 329 F.3d 1358, 1362 (Fed. Cir. 2003)).
Showing inequitable conduct requires a “determination of both materiality and intent and a balancing of the two.” Id. Materiality is probably not a difficult hurdle. In the case of payment of small entity fees, the false declaration of small entity status “was material to the PTO’s acceptance of reduced maintenance fees, and thus, survival of the patent.” Id. Showing intent to deceive is more difficult.
Intent to deceive requires a showing “the involved conduct, viewed in light of all the evidence” indicates “sufficient culpability.” Id. First, the court held “gross negligence” alone is not enough to show an intent to deceive. Id. Second, the court recognized “direct evidence of deceptive intent is not required; rather it is usually inferred from the patentee’s overall conduct.” Id. (quoting Kingsdown Medical Consultants, Ltd. V. Hollister, Inc., 863 F.2d 867, 876 (Fed. Cir. 1988)).
A licensee's representation of status
Small entity licensing its patents to another company obviously creates potential hazards. Imagine a small entity, claiming small entity status, who licenses its technologies to a company that represents itself as another small entity. To what extent may the patent owner rely on that representation?
Absent something more, an entity may be able to rely on the statements of its licensee regarding their status as a small entity. As stated above, the courts are reluctant to hold a patent unenforceable for unintentional and “good faith”, but improper, claims to small entity status. So long as the entity's reliance is in good faith, it may rely on the representations of its licensees.
In the context of fraud on the PTO, a showing of bad faith carries a heavy burden. In characterizing the issue in Ulead, the court rephrased the question as “whether Lex committed inequitable conduct by knowingly misrepresenting that it was entitled to have the error excused.” Id. (emphasis added). Under the court’s analysis, “negligence” and even “ignorance” are not sufficient for inequitable conduct. Even where the institution, as a whole, presumably “knew” enough, the court did not grant the motion for summary judgment, and, instead, remanded the case on the issue of intent. Furthermore, any finding of inequitable conduct requires “clear and convincing evidence.” Under this analysis, absent something more, reliance on a licensee’s declaration of small entity status is probably sufficient.
However, the existence of “something more” might support a finding of inequitable conduct. For example, claiming small entity status despite knowledge that a licensee was, in fact, not a small entity regardless of its representation. In that case, there may be evidence of “knowingly misrepresenting” status. All of the cases above arose on motions for summary judgment. In each case, the courts did not reach a conclusion on “intent”. As such, there is no clear authority on intent to deceive in the case of improper claims to small entity status. Furthermore, the costs associated with litigation and an unenforceability finding weigh heavily against claiming small entity status where there is any dispute.
It is important to note, as the courts have in the past, that it is foolish to claim small entity status when there's any possibility that licensing may be aimed at a large entity. An informed patentee would simply pay the full rate.
