Immersion Corp. v. HTC Corp. (D. Del. 2015)

District Court Overrules PTO Interpretation of 35 U.S.C. § 120

By Kevin E. Noonan --

Judge Richard Andrews, District Court Judge for the District of Delaware rendered a decision on a motion for summary judgment in Immersion Corp. v. HTC Corp. that, if affirmed, could put many more patents at risk than Myriad, Mayo, and Alice combined.  In his decision, Judge Andrews construed 35 U.S.C. § 120 to prohibit filing a continuation application on the day its immediate parent granted, contrary to established U.S. Patent and Trademark Office practice.  The Court refused to grant the Office any deference in the matter and also seemed to strip the patentee of the presumption of validity (not surprising, insofar as that presumption is based on the concept that an administrative agency is presumed to perform its tasks properly).  This case is another example that one of the consequences of the past decade of Supreme Court disdain for anything patent has unleashed the tyranny of the judiciary on the patent system, with the result that protecting innovation is more uncertain than at any time in the Federal Circuit era.

35 U.S.C. § 120 reads as follows:

An application for patent for an invention disclosed in the manner provided by section 112 (a) (other than the requirement to disclose the best mode) in an application previously filed in the United States, or as provided by section 363, which names an inventor or joint inventor in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application, if filed before the patenting or abandonment of or termination of proceedings on the first application or on an application similarly entitled to the benefit of the filing date of the first application and if it contains or is amended to contain a specific reference to the earlier filed application.  No application shall be entitled to the benefit of an earlier filed application under this section unless an amendment containing the specific reference to the earlier filed application is submitted at such time during the pendency of the application as required by the Director.  The Director may consider the failure to submit such an amendment within that time period as a waiver of any benefit under this section. The Director may establish procedures, including the payment of a surcharge, to accept an unintentionally delayed submission of an amendment under this section. [emphasis added]

The requirement that such an application (which would encompass divisional, continuation and continuation-in-part applications) be filed "before the patenting or abandonment of or termination of proceedings on the first application" has been interpreted by the Patent and Trademark Office as including a filing date that is the same as date the "first application" issues.  This interpretation is set forth in the Manual of Patent Examining Procedures (MPEP) (which is not binding on the Court) relating to how PTO Rules of Practice (37 C.F.R. § 1.78) are applied:

201.07   Continuation Application [R-11.2013]

A continuation is a second application for the same invention claimed in a prior nonprovisional application and filed before the original prior application becomes abandoned or patented.  The continuation application may be filed under 37 CFR 1.53(b) (or 1.53(d) if the application is a design application).  The applicant in the continuation application must include at least one inventor named in the prior nonprovisional application.  The disclosure presented in the continuation must be the same as that of the original application; i.e., the continuation should not include anything which would constitute new matter if inserted in the original application.  The continuation application must claim the benefit of the prior nonprovisional application under 35 U.S.C. 120 or 365(c).  For more information on claiming the benefit of a prior nonprovisional application, see MPEP § 201.11.  . . .

211.01(b)   Claiming the Benefit of a Nonprovisional Application

I.   COPENDENCY

When a later-filed application is claiming the benefit of a prior-filed nonprovisional application under 35 U.S.C. 120, 121, or 365(c), the later-filed application must be copending with the prior application or with an intermediate nonprovisional application similarly entitled to the benefit of the filing date of the prior application.  Copendency is defined in the clause which requires that the later-filed application must be filed before: (A) the patenting of the prior application; (B) the abandonment of the prior application; or (C) the termination of proceedings in the prior application.  If the prior application issues as a patent, it is sufficient for the later-filed application to be copending with it if the later-filed application is filed on the same date, or before the date that the patent issues on the prior application.  . . .

In the Immersion case, the patents challenged by Defendant HTC were U.S. Patent Nos. 8,059,105; 8,031,181; and 7,982,720, all of which claimed priority to an application (granting as U.S. Patent No. 7,148,875) that was filed on August 6, 2002, the same day that the parent, U.S. Patent No. 6,429,846 granted.  Defendant HTC argued that the '105, '181, and '720 patents were not entitled to priority to the '875 and hence the '846 patents and that the PTO's interpretation of § 120 was contrary to the plain language of the statute and that the later-filed continuations were not entitled to the priority date of the '846 patent.  Foreign counterparts of the '846 patent had published more than one year before the August 6, 2002 filing date of the '875 patent, and thus without the priority claim the '105, '181, and '720 patents were anticipated under 35 U.S.C. § 102.

Judge Andrews' decision that HTC was correct in challenging the priority of the '105, '181, and '720 patents was based in his determination that the PTO was not entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) ("Chevron deference") because the statute is not silent or ambiguous on the question of when a continuation application must be filed to preserve the priority chain: simply put, "before" means "before" and not "before or on the same day as."  At least part of the Court's reasoning was based on putting the burden to show entitlement to the priority claim on the patentee, citing Tech. Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1329 (Fed. Cir. 2008); PowerOasis, Inc. v. T-Mobile USA, Inc., 522 F.3d 1299, 1305-06 (Fed. Cir. 2008).  However, this apportionment of the burden of proof seems to be contrary to the statutory presumption of validity (35 U.S.C. § 283).  And the District Court here may have committed the same error discussed in the Tech. Licensing case regarding the holding of the PowerOasis decision:

In affirming the trial court's judgment, this court's opinion noted that the trial court "held that PowerOasis had the burden of proving that it is entitled to claim priority to the filing date of the Original application."  522 F.3d at 1303.  In our affirmance, however, we stated that once T-Mobile satisfied its initial burden of production by coming forward with evidence that the MobileStar Network was anticipatory prior art, "the burden was on PowerOasis to come forward with evidence to the contrary."  Id. at 1305 (emphasis added).  We then concluded that the "district court therefore correctly placed the burden on PowerOasis to come forward with evidence to prove entitlement to claim priority to an earlier filing date."  Id. at 1305-06 (emphasis added).

Nevertheless, Gennum is not alone in reading PowerOasis to have modified the traditional burdens rule so that the patentee has the burden of persuasion to prove it was entitled to the earlier filing date.  Carefully read, however, PowerOasis says nothing more than, and should be understood to say, that once a challenger (the alleged infringer) has introduced sufficient evidence to put at issue whether there is prior art alleged to anticipate the claims being asserted, prior art that is dated earlier than the apparent effective date of the asserted patent claim, the patentee has the burden of going forward with evidence and argument to the contrary.  As we noted earlier, it is a longstanding rule of patent law that, because an issued patent is by statute presumed valid, a challenger has the burden of persuasion to show by clear and convincing evidence that the contrary is true.  That ultimate burden never shifts, however much the burden of going forward may jump from one party to another as the issues in the case are raised and developed.  Correctly understood, PowerOasis is fully consistent with this understanding; until such time as these rules are abrogated by statute, by this court sitting en banc, or by the Supreme Court, the opinion in PowerOasis could not be otherwise.

Immersion could not show evidence (such as by an Express Mail receipt) of when the continuation applications were filed, and this failure also contributed to the District Court's decision against it.  But this too is of questionable provenance as a basis for making the priority determination, because the Court's discussion of this issue involved whether the continuation(s) were filed before the patent issued on the issue date, i.e., apparently looking for evidence regarding the time of day and implicating the Defendant's argument that a patent should be deemed to grant at 12:01 A.M.

For many reasons it can be expected that the Federal Circuit will need to decide whether the District Court's decision in Immersion was correct, particularly because the only other district court decision on the issue came to the opposite conclusion and deferred to the Office's interpretation of the statute, in MOAEC, Inc. v. MusicIP Corp., 568 F. Supp. 2d 978, 982 (W.D. Wis. 2008).  And previously, the Federal Circuit avoided the issue by deciding that appeal on other grounds, in Encyclopaedia Britannica, Inc. v. Alpine Electronics of Am., Inc., 609 F.3d 1345, 1352 (Fed. Cir. 2010) ("[The court will] leave for another day whether filing a continuation on the day the parent issues results in applications that are co-pending as required by the statute.").

In some measure the questions the Court will need to address are not questions of patent law but rather of administrative law, as the District Court recognized, and those questions will involve the extent to which the judiciary should (or must) defer to the actions of administrative agencies in interpreting and executing their enabling statutes.  The Supreme Court has already determined, in Dickinson v. Zurko (1999), that the relationship between the Federal Circuit and the PTO is governed by the Administrative Procedures Act (holding that the Act did not exempt the Court from deferring to the Office's factual determinations), but even the Court did not prohibit the Federal Circuit from modulating its application of the Act as needed.  Indeed, while the level of deference (substantial evidence for the Office's factual findings) is much higher than the complete lack of deference the Court used before the Zurko decision, it is also much less deferential than the "arbitrary and capricious" standard set out in the Act, 5 U.S.C. § 706(2)(A).

And in practice the Federal Circuit has been surprisingly deferential to the Office, routinely in obviousness cases but also in cases where the Office asserted it prerogatives with regard to its own rules.  The most significant example was during the "claims and continuation proposed rules" debacle, which most will recall involved the District Court for the Eastern District of Virginia enjoining the Office from implementing the rules (see "GSK Secures Injunction").  What may be forgotten was that the Federal Circuit reversed the District Court on the grounds that the Office was entitled to Chevron deference regarding whether it was empowered under 35 U.S.C. § 2 to implement most of the proposed rules, and even suggested ways in which those rules falling outside the Office's rulemaking scope could be amended to pass muster (see "Tafas v. Doll (Fed. Cir. 2009)").  It was only because David Kappos, the new Director, decided not to implement the rules that the patent community avoided their pernicious effects.

More recently, the Court affirmed the Office's decision not to permit a patentee from withdrawing an improvidently filed (statutory) terminal disclaimer in Japanese Foundation for Cancer Research v. Lee (Fed. Cir. 2014).  In that case, the Court stated that it could not "substitute its judgment for that of the agency," citing Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), in applying "arbitrary and capricious" and "abuse of discretion" standards of review (although its review of the Office's interpretation of the patent statute was "without deference," citing Liesegang v. Sec'y of Veterans Affairs, 312 F.3d 1368 (Fed. Cir. 2003)).  "[W]e must sustain an agency action evincing rational reasoning and consideration of relevant factors" according to the decision, based on the Supreme Court's dictates in Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), and Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971).

Perhaps more importantly, this case gives the Federal Circuit, and ultimately the Supreme Court, the opportunity in an instant to destroy countless continuing applications properly filed under the rules promulgated by the administrative agency charged with execution of the patent laws.  And recent history tells us that courts, particularly the Supreme Court, has no difficulty "upsetting the settled expectations" of those who place their intellectual property at risk by disclosing it with the understanding that the patent laws will give them exclusivity in return.  Such action, unlike retroactive application of changes to the statute, does not implicate a "taking" nor entitle a former patentee to any recompense.  But it would reduce the value of many patent portfolios in an instant, which cannot be considered to be the right outcome by any except the most rabid of the anti-patent constituency.  While the courts have the responsibility to interpret the laws, they also have the responsibility to interpret those laws in context, with a view towards stare decisis, and also with deference to the capacity of Congress to address such issues if indeed they need to be addressed.  Of all the threats to innovation caused by the recent judicial attacks on the patent system this is one that may have the most widespread potential for mischief and causing real harm to real innovation.  With luck, the Federal Circuit will recognize that and return to its former posture of championing the patent system in America.

Immersion Corp. v. HTC Corp. (D. Del. Feb. 11, 2015)
Motion for Summary Judgment granted

Comments

[Dan Feigelson]

Kevin, as usual, spot-on analysis. A few random thoughts that came to mind as I read this:

First, as you said at the end, if the PTO misinterpreted statute and said the continuation filed on the day the parent patent issued was entitled to the benefit of the earlier application, that doesn't entitle filers to continuation status - the statute says what it says. Having said that, recall the Aristocrat case, where the PTO allowed a one-day-late national phase entry of a PCT, under the rubric of a petition for revival of an unintentionally abandoned application (viz. the PCT). The statute explicitly did NOT provide for such revival at the time, but when the case came before the CAFC, the CAFC basically said, absent a clear showing of fraud, if we get into the business of second-guessing the PTO on whether or not a revival is proper, we'll be swamped, so improper revival is not a defense to a charge of infringement. The unfortunate outcome of Aristocrat has been a view within the PTO that many of its decisions are beyond review. While I don't advocate affirmance of the DC's decision here as a way to invalidate thousands of patents at one go, such affirmance would certainly put the PTO in its place, and outcome with its own merit. Reversal, on the other hand, would reinforce the "you can't touch this" mentality within certain parts of the PTO.

The second thing is that, IIRC, the lacuna that came under the microscope in Aristocrat was fixed legislatively in the AIA. Which leads me to think of two recent patent-related legislative fixes that took effect retroactively. Recall that there was a problem with the validity of the appointment of some BPAI judges, which seemed to call into question the validity of decisions in which those judges participated. Congress fixed that retroactively. Ditto the case of bivalirudin, whose CEO basically admitted that they didn't deserve a patent term extension because the PTE request was filed a few days late, the attorneys having docketed the deadline as two months instead of 60 days. But thanks to some creative lawyering (and an unwitting helping hand from the PTO), TMC got a stay from a judge keeping the patent alive, long enough to buy retroactive legislation as part of the AIA that saved its skin. If Congress could so act in those cases, it could act similarly her to clarify the statute, with retroactive effect, so that continuations filed on the day the parent issues are entitled to continuation status.

Finally, the fact that the PTO says something doesn't absolve us patent practitioners from doing our job. I don't know how many of us can say for sure that we've *never* filed a continuation on the day the parent patent issued, and given the PTO's long-standing view and the lack of controlling caselaw, I'm not sure it would rise to the level of malpractice if any of us did so. On the other hand, like many of us, I've been aware for some time of the tension between the statutory language and PTO policy and the lack of controlling case law on this point, and as a matter of practice I advise clients to file continuations before the issue date of the parent, regardless of what the PTO says. You want to file on Tuesday instead of Monday? Caveat emptor.

[Paul F. Morgan]

The obviously risky step [what if some filing defect needs fixing?] in filing a continuation on the last possible day only made even financial sense for old patents under the old patent term which did not run from the original filing date, rather, from the issue date. Why has anyone still been doing so since then?

[Kevin E. Noonan]

Paul:

I think one reason in the past (which has gotten better with EFS/PAIR) was that the Office was not always reliable in notifying inventors or their counsel of the grant date prior to the date. So sometimes the first notice that the patent would grant was on that day.

Thanks for the comment.

[Prakarsh Buch]

First of all wonderful analysis. But, I think by mistake the copy of judgment that you have attached is related to claim construction only.

The judgment related to the aforesaid 35 U.S.C. §120 issue can be read from:
https://cases.justia.com/federal/district-courts/delaware/dedce/1:2012cv00259/48234/333/0.pdf?ts=1423707461

[Vertigo]

Thanks for the post, Kevin. I think this ruling if upheld might also jeopardize many additional patents in which a continuation or divisional was filed on the day on which the preceding/parent application was abandoned. And also any patents issuing from subsequently filed applications in the same priority chain. I bet there are at least thousands of such patents.

[Jeremy Doerre]

The patent office says that it is sufficient to file a continuation patent application on the same day that a patent issues. The court says that the patent office isn't entitled to Chevron deference on this because it's inconsistent with the plain reading of the statute.

This argument is just plain wrong because it assumes facts not in evidence. The court has no idea when patents issue. The patent office, being the entity that issues patents, decides WHEN a patent issues. It isn't just that it is entitled to deference on this issue, it literally is the entity that decides this.

Thus, if the patent office says that it is sufficient to file a continuation patent application on the same day that a patent issues, this might be because it knows that it issues patents at 11:59:59 PM on the day of issuance, thus making any continuation application filed that day filed before the issuance.

This is a perfectly rational way to reconcile the PTO's position with the statute. It isn't a question of whether the PTO should be given deference in interpreting the statute, it's simply a reflection of the fact that the PTO is the entity that sets when a patent issues and so is in the best position to determine whether a continuation was filed before issuance of the parent. The PTO determined that it was and granted the priority claim. The court has to assume facts not in evidence (the time the PTO issued the patent) to reach its conclusion.

[Simon Elliott]

I'd add to the list the deference given to the PTO in construing PTA rules, which are dense, sometimes contradictory, and do not appear to further the goal of expediting prosecution.

The courts now seem less willing to consider equity or reasonableness in deference to agency action. This gives enormous power to the agencies.

[Paul F. Morgan]

Keven, I appreciate your comment that "the Office was not always reliable in notifying inventors or their counsel of the grant date prior to th[at] date" But applicants certainly had Notices of Allowance and final fee payment dates, providing more than enough advance notice of the need to soon file any continuations or divisionals. So I wonder if this filing on the last possible date is just a habit of some folks that should have changed when the patent term change changed it into a bad habit? [I also do not think it was that common a practice outside of pharmaceuticals, etc. anyway?]

[Jim McKeown]

Kevin-
For what it is worth, I believe that patents issue at noon on Tuesday, not at 12:01 AM. See page 10 in the attached link:
http://www.uspto.gov/ip/boards/foia_rr/resources/patents/5196404mar192010.pdf