A recent article in the Globe and Mail shows that VC and government investment in Canadian cleantech remains strong, but the markets are not responding due to the relatively small size and short-term underperformance of the sector.  In Alberta, cleantech investment has been given a boost by the federal government’s Sustainable Development Technology Canada (SDTC) fund, which announced $53 million for 17 new funded projects in July, four of which are either based in Alberta or have a direct connection to Alberta technology.

SDTC is now accepting applications under the NextGen Biofuels Fund™, and information on the Fund and applications details are available at www.sdtc.ca.  On a related note, the Global Clean Energy Congress takes place in Calgary in November.

Calgary – 07:00 MDT

 

In our earlier posts [Amazon Business Method Case to be Appealed] we reveiwed the case of the (infamous) Amazon 1-click patent, a case which is currently on appeal. The appeal was heard in Toronto this summer and a decision may come down in late 2011. In light of the Federal Court decision in Amazon.com Inc. v. Commissioner of Patents 2010 FC 1011 , the Canadian Intellectual Property Office (CIPO) has revised its practices. New practice guidelines are now in effect, replacing the contrary guidance in the MOPOP…. until the Federal Court of Appeal hands down its own decision. Stay tuned.

Calgary – 07:00 MDT

 

If the health of an industry is measured by the litigation it spawns, then the app and gaming economy is going strong:

• Copyright: Fantasy Flight Publishing has sued a European app-developer, Puffin Software, for alleged infringement of copyright in a medieval-themed game (Fantasy Flight Publishing, Inc. v. Puffin Software et al. U.S. District Court, District of Minnesota Case No. 11-cv-01928, Filed July 15, 2011). Fantasy Flight claims that Puffin’s iPad title “Viking Lords” is an infringement of copyright in the board game BattleLore owned by Fantasy Flight. In the claim, Puffin allegedly approached Fantasy Flight to pitch an iPad version of BattleLore, and when there was no uptake, Puffin decided to go ahead and publish the game under its own title.  The case will involve an analysis of the elements of each game, and a breakdown of functional and original elements, as in the Sony case (below).
• Patent: App-developer Zynga has been sued in Segan LLC v. Zyna Inc. for alleged infringement of Segan’s U.S. Patent No. 7,054,928, which was issued for a system for accessing “enhancement content” on the internet. The claim alleges that Zynga titles such as FarmVille, PetVille, and FrontierVille infringe the patent.
• Copyright: In Dath v. Sony Computer Entertainment America Inc., the US Ninth Circuit Court of Appeals upheld the lower-court decision in a copyright infringement case involving the Sony PS2 and PSP title “God of War”. The plaintiffs alleged that Sony infringed copyright in their written works about war between Sparta and Athens. The plaintiffs could not show actual copying, so they had to rely on the US concept of access and substantial similarity. Remember, copyright does not protect ideas, but merely the form and expression of ideas. In this case, there was no substantial similarity of expression of ideas. In this analysis, the court reviewed elements of expression such as plot, themes, dialogue, mood, settings and characters, and concluded that the works were not similar and no infringement occurred. 

Calgary – 07:00 MDT

 

In our earlier post (Myriad Issues: Patentability of Isolated DNA), we reviewed the US decision which causes ripples through the life sciences world by deciding that isolated DNA sequences were not patentable subject matter since they were “products of nature”. Myriad’s invention covers two isolated human genes, BRCA1 and BRCA2, and mutations in these genes are associated with a predisposition to breast and ovarian cancers. The recent decision by the US Federal Circuit Court of Appeals in The Association For Molecular Pathology v. USPTO & Myriad has reversed the lower court’s finding. The appeals court held last week that isolated DNA can be proper subject matter for patentability, provided the invention meets other criteria such as novelty and non-obviousness. Here, the inventors had isolated the DNA sequences and in doing so had changed the DNA through inherently transformative steps, thus bringing the invention into patent-eligible subject matter. 

Calgary – 07:00 MDT

 

 

In a recent Federal Court of Appeal decision in Canada (Corlac Inc. and National Oil Well Canada Ltd. v. Weatherford Canada Ltd., 2011 FCA 228) the court clarified whether there is a general duty of good faith on the part of patent applicants in Canada. Paragraph 73(1)(a) of the Patent Act is clear that a patent application is considered abandoned if the applicant does not “reply in good faith” to the examiner. However, once the patent issues, any “good faith” duty is extinguished since the duty relates only to good faith in the prosecution of the patent application. The court has clarified that any alleged breach of this duty cannot be used to attack the validity of an issued patent. Post-issuance, other remedies must be used, such as section 53(1), for allegations of misrepresentation.

In Canada, this clarification of the law helps to allay fears that an “inequitable conduct” doctrine was creeping into Canadian law (for example, G.D. Searle & Co.  et al. v. Novopharm Limited et al. (in 2007) and Janssen-Ortho Inc. v. Apotex Inc. (in 2008) both explored these concepts).

This marks a distinction from US patent law, where the inequitable conduct doctrine can be used to attack an issued patent. Even in the US, the United States Court of Appeals for the Federal Circuit in Therasense, Inc. v. Becton, Dickinson and Company (Fed. Cir. 2011), has scaled back the impact of this approach, calling it the “atomic bomb” of patent law. In patent law, this is one bomb that has been defused in Canada.

Calgary – 07:00 MDT

 

 

In the US, a few updates on the patent front:

• The House version of the patent reform legislation passed (the Leahy-Smith America Invents Act ) in late June, with broad support. You may recall that the US Senate passed its own version of the patent reform bill in March. The House and Senate bills must now be reconciled, with another vote on compromise legislation before it becomes law.
• In a recent US decision, a court found that “induced infringement” can be established without showing actual knowledge of the infringed patent.  “Induced infringement” under US patent law traditionally requires that a party actually knows that the infringed patent exists.  In Global-Tech Appliances, Inc. v. SEB S.A. (PDF), the US Supreme Court decided that wilful blindness will be enough to establish induced infringement. Canadian inventors should be aware that actively ignoring information or taking deliberate actions to avoid learning of a competitors patent will not help in avoiding a finding of induced infringement, and thorough patent searching is required when developing patentable inventions.

Related Reading: Willful Blindness of a Patent Is Sufficient to Show Knowledge of That Patent for Purposes of Induced Infringement (Licensing Executives Society)

Calgary – 07:00 MT

 

A patent owner, VS Technologies LLC, claims that Twitter has infringed its patent, and the company sued Twitter in the State of Virginia.

When Twitter users sign-on, they agree to certain Terms of Service. These Terms of Service specify that any claims by a user must be litigated in California. The inventor of the patent signed-on as a Twitter user, so Twitter claimed that the patent infringement suit should be moved from Virginia to Twitter’s home jurisdiction of California, based on the forum selection clause in the Terms of Service.

A recent US decision VS Technologies LLC v. Twitter Inc. has blocked this transfer request, reasoning that these Terms of Service do not govern patent infringement claims, that VS Technologies never assented to the Terms of Service, and that the patent owner is not seeking to enforce the Terms of Service. The court also made it clear that it did not want to establish a precedent that would apply to all social networking patent infringement claims.  

Business lessons? Online service-providers, social-networking sites and cloud-computing services should take note that forum-selection clauses do not necessarily provide blanket coverage. Forum-selection clauses have been upheld for other purposes – for example, if the claim arises in connection with a complaint over some part of the service itself – but this type of clause should not be relied upon as a defence against patent claims.

Calgary – 07:00 MT

 

Here’s something that we’re likely to see more of: the app patent dispute. Mobile apps are regularly mixed up in copyright or trade-mark complaints, trade secret disputes (occasionally), and privacy issues (often). In Lodsys LLC. V. Combay Inc. et al., an allegation of patent infringement has been levelled at a group of iPhone, iPad and Android app developers, including the publishers of the popular titles “Twitterific”, “Quickoffice” and “Mega Poker Online Texas Holdem”. According to the complaint, the targeted apps infringe a method patent owned by Lodsys, entitled “Methods and systems for gathering information from units of a commodity across a network” (US Patent #772,078). One defence to such an allegation is that the patent is licensed by the alleged infringer, and that’s where Apple comes in. Apple has reportedly intervened to raise the defence that the use by the app developers is covered by a license that Apple previously negotiated with the patent owner.  Another defence is that the patent in question is invalid and another company in an unrelated lawsuit is challenging the validity of Lodsys’s patent portfolio.

Calgary – 07:00 MT

 

In our earlier post – Intellectual Property & Agriculture – we reviewed the issues around patented herbicide-resistant seeds. A recent Federal Court of Appeal decision deals with patented machinery in the agriculture industry. To be patentable, an invention cannot be obvious to someone who is skilled in that industry. In other words, the invention must be “non-obvious”. In Bridgeview Manufacturing Inc. v. Central Alberta Hay Centre 2010 FCA 188, the court reviewed the question of whether a particular bale processor infringed the patent owned by Bridgeview. The alleged infringer fought back by saying the patent was invalid due to obviousness.  In Canada, the court uses a four-part test to determine whether a patent is invalid for obviousness:

1. Identify the hypothetical “person skilled in the art” and the relevant common general knowledge of that person. 
2. Identify the “inventive concept” of the patented claim .
3. Are there any differences between the “state of the art” and the “inventive concept” of the claim in the patent?
4. Viewed without any knowledge of the alleged invention as claimed, would those differences be obvious to the “person skilled in the art” or do they require any degree of invention?

By this analysis, the court found that the patent was not invalid for obviousness and the appeal was allowed on that point.

Calgary – 07:00 MT 

 

 

Last week the US Supreme Court (SCOTUS) released its decision in the long-running patent infringement case between i4i, a Canadian software company, and Microsoft. (We’ve been following the case here). Microsoft has now run out of legal options. At trial, the jury found that Microsoft willfully infringed i4i’s software patent and that Microsoft failed to prove invalidity of the patent.  Microsoft appealed the original trial decision. That appeal was dismissed. Microsoft filed another appeal for a en banc re-hearing. That appeal was dismissed. Microsoft challenged the validity of the i4i patent. The patent was upheld, and the USPTO denied Microsoft’s second application for a re-examination. Microsoft appealed up to the SCOTUS and that appeal has now been dismissed (see the full decision here). In the US, the Patent Act is clear that a patent is presumed to be valid and in order to establish invalidity, the party who is challenging the patent must present “clear and convincing evidence”. Microsoft failed to provide such evidence and the original infringement decision stands.

One of the interesting elements of the case was Microsoft’s allegation that i4i had previously sold software (known as S4) which embodied the patented invention. If true, this would have impacted the validity of the patent that Microsoft had infringed. The S4 source code had been destroyed years before the patent infringement litigation, so evidence came from S4’s two inventors, both of whom testified that the S4 software did not embody the invention claimed in the infringed patent.  Microsoft now has to face the $290 million damage award and permanent injunction that bars the sales of certain versions of Microsoft Word.

Calgary – 07:00 MT 

Patent owners have to tread carefully when they send cease-and-desist letters for patent infringement.  In a 2003 case, Imaging, Inc. v. Coyle, 340 F.3d 1344 (Fed. Cir. 2003), the court found that the patent owner was subject to the jurisdiction of the state of the recipient of the cease-and-desist letter. In other words, even though the patent owner had no ties or contacts to the state where the infringer was located, the “nasty lawyer’s letter” was enough to establish those contacts to that particular state. Jurisdiction is critical in patent enforcement strategy, since the patent owner typically makes a careful choice about the court in which it will pursue an infringement claim – for example, to obtain a home-field advantage in its own state. 

However, in a recent US decision (Radio Systems Corp. v. Accession, Inc., No. 10-1390 (Fed. Cir. Apr. 25, 2011), the Federal Circuit decided that the cease-and-desist letter was not sufficient to establish jurisdiction over the patent owner, even in a situation where the patent owner had engaged in marketing the patented article in that state.  This is good news for Canadian patent owners who can take strategic enforcement steps against infringers in another state – if these steps are taken carefully – without fearing that they will become subject to the jurisdiction of the courts in that state.

Calgary – 07:00 MDT

The Canadian Intellectual Property Office announced last week that the new clean-tech patent rules are now in force. The new rules officially came into force on March 3, 2011. This will permit applicants to obtain expedited prosecution of applications when the invention is related to green technology. This requires a declaration by the applicant that the technology, when commercialized, would help to “resolve or mitigate environmental impacts or conserve the natural environment and resources”.  For further information, see CIPO’s page on Expedited Examination of Patent Applications Related to Green Technology

Related Reading:
CleanTech & Clean Energy: Innovation vs Patents

CleanTech in Calgary

The National Post interviewed Richard Stobbe for an article on the plan to fast-track cleantech patent applications: “Canada plays catch-up on cleantech patents“

Calgary – 07:00 MDT

The US Senate has been grappling with a proposed reform of patent law for many years – hence the various proposed bills such as the Patent Reform Act of 2007, the The Patent Reform Act of 2009 and The Patent Reform Act of 2011. Last week the US Senate passed S.23, the America Invents Act [PDF] with broad bipartisan support. The bill now goes to the U.S. House of Representatives. This Senate bill has not yet become law, and the ultimate outcome depends on the text of the corresponding House bill (which has not yet been unveiled) and the process of reconciling the two bills if there are differences.  However, if it does become law, it would represent the biggest shift in US patent law in half a century.  Among the changes are the switch to patent priority from the present first-to-invent system to a first-to-file system, as we have in Canada.

Calgary – 07:00 MT

 

In March 2010, a U.S. district court’s ruling that isolated DNA and inventions that use isolated DNA are not eligible for patent protection sent shockwaves through the biotech and life sciences sector in Canada and the US. Association for Molecular Pathology v USPTO, 09 Civ. 4515 (Link courtesy of Genomics Law Report) resulted from a lawsuit against Myriad Genetics, a company that patented the BRAC1 and BRAC2 genes, genes associated with increased risk of breast cancer and ovarian cancer.  The court overturned the patents on the basis that inventions that use isolated DNA are not markedly different from “products of nature”.  The decision is currently under appeal to the US Federal Circuit and a decision is expected in 2011. 

BioBusiness Magazine has interviewed Richard Stobbe on this topic in its current issue: The Myriad Decision: What does the patent dispute mean to Canadian biotech? 

Calgary – 07:00 MST

In our earlier posts, we reviewed the recent Uniloc decision in the US that effectively disposed of the 25% Rule of calculating patent damages. Has this rule been used in Canada?

To a certain extent, yes. Here are 2 leading cases: In Alliedsignal Inc. v. du Pont Canada Inc., 1998 CanLII 7464 (F.C.), the Court stated that a reasonable royalty for patented technology was between 25% and 33% of the plaintiff’s profits and applied a series of 13 factors that could tend to increase or decrease the royalty within the range. For example, if the parties to the litigation were direct competitors, that would tend to increase the royalty rate.

In Jay-Lor International Inc. v. Penta Farm Systems Ltd., 2007 FC 358 (CanLII), the anticipated profits approach was used, and the court assessed the 13 factors that were used in Alliedsignal.  This analysis was used to determine where the royalty should fall within the range of 25% to 33% of profits. These are part of the “hypothetical negotiation” that courts construct to determine the appropriate royalty. The factors include things such as:

• Exclusivity - whether the license would have been exclusive or not
• Territorial restrictions – whether the license would have been restricted geographically
• Risk of market success of the patented invention, whether it was a proven technology
• R&D – whether the inventor incurred high research and development costs to bring the product to market

Courts in the US have looked at similar factors.  The Uniloc decision in the US is likely to impact Canadian assessments of patent damages, but will not cause a significant change in the court’s approach.  The factors used by Canadian courts allow a measured, flexible approach, which won’t be up-ended by the demise of the 25% Rule in the US. 

Related Event: March 17, 2011 -  Field Law is hosting the Licensing Executives Society on the topic of “IP Valuation in 2011” presented by Robert Doran, KPMG. Link to Register

Calgary – 07:00 MST

While the Canadian “business method patent” debate continues by means of the Amazon appeal, the debate is also continuing in the US. South of the border, courts are applying the US Supreme Court’s reasoning in the infamous Bilski case.  A recent court decision out of Texas (a popular jurisdiction for patent infringement lawsuits, including cases against Canadian companies) has interpreted another business method patent claim.

H&R Block Tax Services, Inc. v. Jackson Hewitt Tax Service, Inc.[PDF], 6-08-cv-00037 (E.D. Tex., February 2, 2011) involved a dispute over a patent for an abstract intellectual concept – the processing of collateralized loans. You may recall Bilski also involved a method patent for financial services – in that case it was a risk management tool and the invention was ultimately found to be unpatentable. In this case, the court upheld the patent, even though it failed the machine-or-transformation test. In the US, the Supreme Court was clear that the machine-or-transformation test is not the exclusive or determinative test for patentability. Here, the business method claims were subject to meaningful and reasonable limitations which convinced the court that the invention was patentable. 

Calgary – 07:00 MST

How do we value IP?

In a patent infringement case, a plaintiff (the patent holder, whose patent is infringed) can get 2 types of remedies: either damages or an accounting of profits.  If the plaintiff proves infringement, then it can elect only one of these 2 remedies. While the goal of each remedy is the same, the underlying principles are very different:

Damages seek to compensate the plaintiff for losses suffered by the plaintiff as a result of the infringement. Whether the infringing party actually earned any profits is irrelevant.

On the other hand, an accounting of profits aims to calculate the profits that the infringer made through the improper use of the patented technology. The infringer disgorges those profits on the basis that the money rightly belongs to the plaintiff. The infringer is only required to disgorge those profits earned from the infringement of the plaintiff’s patent.

It’s up to the plaintiff to prove damages. Where the patent owner actually sells its patented product (as opposed to licensing the patent), it is entitled to the profits on the sales it would have made if the infringing product had not been on the market. Otherwise, the plaintiff is entitled to a “reasonable royalty”.  Which brings us to the critical question: what is a “reasonable royalty”? Many courts in Canada have calculated a reasonable royalty according to what the infringer would have paid if it had entered into a legitimate licensing agreement with the patent holder. Put another way: what rate would result from negotiations between a willing licensor and a willing licensee. This is where the difficult task of IP valuation really gets tricky.  In the US, the “25% Rule” was often used as a guide for determining the royalty that two parties would have hypothetically negotiated. That rule has been tossed by the US Federal Court of Appeal. Is that rule used in Canada?

In Part 3, we’ll examine that question and look at one of the leading cases in Canada.

Calgary – 07:00 MST

 

A reminder: The Annual TEC VenturePrize Business Plan Competition is still open. The submission deadline for registration for the VenturePrize Fast Growth Competition is February 24, 2011, 4:00 p.m.

Field Law is a proud sponsor. See this link for details.

Calgary – 07:00 MST

What is intellectual property worth?

It is notoriously difficult to ascertain damages for patent infringement.  In the US, the “25% Rule” has been used as a rule of thumb in countless cases and negotiations, as a way of determining fair compensation for infringement of a patent. The 25% Rule suggests that a licensee should pay a royalty rate equal to 25% of its expected profits for use of the licensed IP.  As recently as September, an article was published proclaiming “The 25% Rule Lives On“, IP Law 360, Sept. 8, 2010. In a decision that sent waves through the patent litigation world on January 4, 2011, the US Court of Appeals for the Federal Circuit in Uniloc USA, Inc. et al v Microsoft Corporation [PDF], has thrown out this rule as a method of measuring patent damages:

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

In Canada, a patent owner whose patent has been infringed may elect, as a remedy, either an accounting of profits or an award in damages. In next week’s post, we review this in more detail.

Related Event: March 17, 2011 -  The Licensing Executives Society – Meeting of the Calgary Chapter on the topic of “IP Valuation in 2011” presented by Robert Doran, KPMG. Link to Register

Calgary – 07:00 MST

Since 2009, developing countries (including Canada) have moved in the exact opposite direction – by fast-tracking cleantech patent applications to remain competitive in the international marketplace (See: Update: Green Technology Patents in Canada).

Prof. Guaragna argues that patent reform is unlikely to strip away patent rights in the near future, but “open-source” licensing can provide a solution that functions within the existing patent regime. Open source licensing is well known in the software industry, but is in its infancy in other fields such as climate change and life sciences.  Patent pooling can be used as an open source licensing tool:

• Patent pooling has been successful in commercial applications – for example the DVD licensing pool licenses the dozens of patents for DVD technology – DVD-ROM drives, players, decoders, and discs; a similar pool was established for RFID technology.  
• Patent pooling is typically voluntary but has also been put to effective use by the US government when it mandated pooling of aircraft patents in 1917 as the US entered the First World War.
• The Medicines Patent Pool has been established by the international community to deal with HIV treatment in the developing world.
• Can a CleanTech Patent Pool be next? The Eco-Patent Commons is the closest thing so far… but Canada is not a contributor.

Related Reading:

1. Open Source Resources
2. WIPO review of CleanTech patent pools [PDF]