Business Strategies for Patent Protection of Computer-related Inventions

by Lee Carl Bromberg
Bromberg & Sunstein LLP
Boston, Massachusetts
May 21, 1996

Computer Law Update 1996

INTRODUCTION

In June 1995, the United States Patent and Trademark Office ("PTO") issued Guidelines for Examination of Computer- Implemented Inventions (Proposed). 60 Fed. Reg. 28, 778 (June 2, 1995). These guidelines directed patent examiners to rely on a presumption that computer-related inventions meeting certain criteria constitute statutory subject matter under 35 U.S.C. sec. 101. Hence the PTO, under guidance from the Court of Appeals for the Federal Circuit ("CAFC"), has now fully embraced the patentability of computer-related inventions, including software-related inventions, thereby underlining the importance to computer-related businesses of obtaining appropriate patent protection wherever possible. The decision by an equally divided United States Supreme Court to uphold the opinion of the United States Court of Appeals for the First Circuit in Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807, 34 U.S.P.Q.2d 1014 (1st Cir. 1995), aff'd without opinion, ___ U.S. ___, 64 U.S.L.W. 4059 (1996), makes the effort to obtain patent protection all the more important, since the Lotus v. Borland case severely restricts the protection afforded by copyright to computer programs.

In addition, international patent harmonization has brought changes to United States patent law which require new strategies for securing patent protection of computer-related inventions, while at the same time affording the possibility of international coverage without some of the difficulties and expense previously involved. The implementation by the United States of the General Agreement on Tariffs and Trade (hereafter "GATT") in 1995 and 1996 brought significant changes to United States patent law and promises further changes as harmonization efforts continue. Among the most important new developments is the creation of provisional applications, which provide a potent strategic tool in the battle to secure protection for novel computer technology. These changes and developments in the law make it possible to devise a strategy for the patent protection of computer-related inventions with ascertainable time lines and ranges of expense. At the same time, developments in patent infringement litigation make it clear that the stakes involved in securing appropriate patent protection for novel computer- related inventions are, and will remain, enormous.

PATENTABILITY OF COMPUTER SOFTWARE

A. Historical Background

Prior to 1981, the PTO supported by court rulings, rejected software patent applications as directed to nonstatutory subject matter in contravention of 35 U.S.C. sec. 101. Section 101 authorizes a patent to be granted to "any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof," but has been consistently interpreted to exclude laws of nature, natural phenomena, and abstract ideas, including mathematical algorithms. Thus in Gottschalk v. Benson, 409 U.S. 63, 175 U.S.P.Q. 673 (1972) (Douglas, J.) the Supreme Court denied a patent for a method for converting binary-coded decimal expression on the ground that it amounted to a patent on the mathematical algorithm itself.

The inhospitable climate changed with the Supreme Court's ruling in Diamond v. Diehr, 450 U.S. 175, 209 U.S.P.Q. 1 (1981), which held that a patent claim that contains a mathematical algorithm may still be directed to statutory subject matter. As the CAFC recently summarized:

It is first determined whether a mathematical algorithm is recited directly or indirectly in the claim. If so, it is next determined whether the claimed invention as a whole is no more than the algorithm itself; that is, whether the claim is directed to a mathematical algorithm that is not applied to or limited by physical elements or process steps. Such claims are nonstatutory. However, when the mathematical algorithm is applied in one or more steps of an otherwise statutory process claim, or one or more elements of an otherwise statutory apparatus claim, the requirements of section 101 are met.

Arrhythmia Research Technology Inc. v. Corazonix Corp., 958 F.2d 1053, 22 U.S.P.Q.2d 1033, 1037 (1992). In Arrhythmia the CAFC upheld patent claims directed to a method and apparatus for analyzing electrocardiograph signals to detect heart attack risks. The claims call for mathematical manipulation of electrocardiogram data to detect specific heart activity indicative of increased risk of heart failure. Hence while the claims rely upon mathematical formulae implemented through computer programs, they are nonetheless directed at statutory subject matter because they are directed to measurement of actual heart conditions by particular steps.

Following the decision in Diamond v. Diehr, the PTO issued guidelines for the examination of patents directed to computer programs. See Manual of Patent Examining Procedure, Chapter 2100 Patentability, Section 2106, Patentable Subject Matter - Mathematical Algorithms or Computer Programs. In 1995, the PTO launched a substantial overhaul of the guidelines. See, Part I.C., below. Since the early 1980's and corresponding to the explosive growth of the personal computer industry, the PTO has seen a rising tide of software applications. In recent years, the PTO has issued thousands of software-related patents annually. This rising tide shows no sign of having reached its zenith. Indeed, case law has pointed in the direction of allowance of claims directed to increasingly abstract devices and methods.

B. Recent Cases.

In In Re Alappat, 33 F.3d 1526, 31 U.S.P.Q.2d 1545 (Fed. Cir. 1994) (en banc), the Federal Circuit reversed a decision of the Board of Patent Appeals and Interferences of the PTO which had upheld rejection of claims as being unpatentable under 35 U.S.C. sec. 101. The case was close; only six of eleven judges supported the majority conclusion that patentable subject matter was present. Three judges took no position and two dissented from the finding of statutory subject matter. The claimed invention related generally to a means for creating a smooth waveform display in a digital oscilloscope by preventing jagged edges ("aliasing") from appearing in the digitalized waveform data displayed on the oscilloscope. The rejected claim 15 read as follows:
A rasterizer for converting vector list data representing sample magnitudes of an input waveform into anti- aliased pixel illumination intensity data to be displayed on a display comprising:
1. means for determining the vertical distance between the endpoints of each of the vectors in the data list;
2. means for determining the elevation of a row of pixels that is spanned by the vector;
3. means for normalizing the vertical distance and elevation; and
4. means for outputting illumination intensity data as a predetermined function of the normalized vertical distance and elevation.
31 U.S.P.Q.2d at 1553. In reviewing this claim the Court stated that

the proper inquiry . . . is to see whether the claimed subject matter as a whole is a disembodied mathematical concept, whether categorized as a mathematical formula, mathematical equation, mathematical algorithm, or the like, which in essence represents nothing more than a "law of nature," "natural phenomenon," or "abstract idea."

Id. at 1557. In concluding that claim 15 did satisfy the requirements of patentable subject matter under Section 101, the Court ruled as follows:

Although many, or arguably even all, of the means elements recited in claim 15 represent circuitry elements that perform mathematical calculations, which is essentially, true of all digital electrical circuits, the claimed invention as a whole is directed to a combination of interrelated elements which combine to form a machine for converting discreet waveform data samples into anti-aliased pixel illumination intensity data to be displayed on a display means. This is not a disembodied mathematical concept which may be characterized as an "abstract idea," but rather a specific machine to produce a useful, concrete, and tangible result.

Id. (footnotes omitted). Later, in In Re Trovato, 42 F.3d 1376, 33 U.S.P.Q.2d 1194 (Fed. Cir. 1994), the Federal Circuit upheld rejection of patent claims for lack of statutory subject matter under sec. 101. The invention related to the problem of finding the shortest distance between two points, a topic in the computer science field known as graph theory. The patent application attempted to solve the shortest path problem by finding the optimal path between two locations, whether in terms of distance, cost, capacity, time or other criteria. In rejecting the claims for lack of statutory subject matter the Court held that the

methodical application of arithmetic operations to data placed within a numerical configuration in order to determine the least cost path through a mathematically structured graph amounts only to a generality or disembodied concept, outside the subject matter listed in Section 101.

Id. at 1198. Distinguishing its ruling in Alappat, the Court noted that the Alappat

application disclosed a specific hardware embodiment. There we extensively relied upon the hardware listed in the specification, including arithmetic logic circuits, barrel shifters and the read only memory in reaching the result that the claimed invention constituted patent eligible subject matter. . . . Specific note was also made of the combination of claimed elements from which the inventor formed a machine.

Id. at 1200. The Court concluded that Trovato's claims provide only "a systemic way in which to compute a number representing the shortest path. A new way to calculate a number cannot be recognized as statutory subject matter." Id. It is interesting to note that the three-judge panel in the Trovato case had one judge from each group - majority, dissent, no position - in the Alappat en banc ruling.

Surprisingly, on en banc reconsideration, the Court vacated the Trovato ruling. In Re Trovato, 60 F.3d 807, 35 U.S.P.Q.2d 1570 (CAFC 1995). Citing the fact that the Board had rejected Trovato's claims prior to the decision in Alappat, and noting the proposed new guidelines issued by the PTO for computer-implemented inventions, the per curiam order vacated the Panel ruling and the Board decision as well, and "remanded for reconsideration in light of Alappat and any guidelines adopted by the Patent and Trademark Office for examination of computer-implemented inventions." Judge Nies, joined by Judge Michel in dissent, indignantly noted that the PTO guidelines had not even been issued yet and that they would in any event have to "yield to precedent from this Court and the Supreme Court, i.e., the law, on Section 101" (emphasis in original). The dissenters are no doubt correct that the majority ruling is both highly unconventional and lacking in judicial propriety. However, the ruling also reflects the readiness of the CAFC to embrace a new and welcoming approach to the patentability of computer- related inventions as set forth in the PTO's proposed guidelines.

The Federal Circuit had earlier found nonstatutory subject matter in In Re Schrader, 22 F.3d 290, 30 U.S.P.Q.2d 1455 (Fed. Cir. 1994). The claims in Schrader were directed to a method for determining the optimal combination of competitive bids on related items, such as tracts of land, usually, but not necessary, performed with the aid of a computer. The majority opinion found a mathematical algorithm implicit in the claim language and the absence of any "physical change, effect or result" in the grouping or regrouping of bids. 30 U.S.P.Q.2d at 1458. Judge Newman filed a dissent in which she contended that "Schrader's method [for determining optimal bids] involves more than method steps or theories or plans," and in which she scolded the majority for imposing "fresh uncertainty" on the determination of statutory subject matter. Id. at 1460-61. In In Re Warmerdam, 33 F.3d 1354, 31 U.S.P.Q.2d 1754 (Fed. Cir. 1994), claims directed to a method for locating the medial axis of an object and creating a bubble hierarchy in order to control the motion of a machine (e.g., a robotic machine) in such manner as to avoid collision with the identified object were rejected on the ground that "[t]hese steps describe nothing more than the manipulation of basic mathematical constructs, the paradigmatic 'abstract idea.'" 31 U.S.P.Q.2d at 1759.

A related case of interest is In Re Lowry, 32 F.3d 1579, 32 U.S.P.Q.2d 1031 (Fed. Cir. 1994). There patent claims directed to a data structure for a data processing system had been rejected by the Board of Patent Appeals and Interferences under the "printed matter" doctrine. In reversing, the Federal Circuit stated:

The printed matter cases have no factual relevance where "the invention as defined by the claims requires that the information be processed not by the mind but by a machine, the computer" Id. (emphasis in original). Lowry's data structures, which according to Lowry greatly facilitate data management by data processing systems, are processed by a machine. Indeed, they are not accessible other than through sophisticated software systems. The printed matter cases have no factual relevance here.

Nor are the data structures analogous to printed matter. Lowry's ADOs do not represent merely underlying data in a database. ADOs contain both information used by the application programs and information regarding their physical interrelationships within a memory. Lowry's claims dictate how application programs manage information. Thus, Lowry's claims define functional characteristics of the memory.

Contrary to the PTO's assertion, Lowry does not claim merely the information content of a memory. Lowry's data structures, while including data resident in a database, depend only functionally on information content. While the information content affects the actual sequence of bits stored in accordance with Lowry's data structures, the claims require specific electronic structural elements which impart a physical organization on the information stored in memory. Lowry's invention manages information. As Lowry notes, the data structures provide increased computing efficiency.

A later Board rejection of applicant's computer program product claims on the basis of the printed matter doctrine was vacated on appeal when the Commissioner of Patents and Trademarks stipulated "that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. sec. 101 and must be examined under 35 U.S.C. secs. 102 and 103." In Re Beauregard, 35 U.S.P.Q.2d 1381, 1384 (Fed. Cir. 1995) (Archer, C.J.).

C. Patent Office Guidelines for Computer-Related Inventions.

On June 2, 1995, the PTO issued Guidelines for Examination of Computer-Implemented Inventions (Proposed). 60 Fed. Reg. 28, 778. These guidelines, at section I.B.1.(c), directed examiners to classify each claim and to
rely on the following presumptions in making this classification.
1. A computer or other programmable apparatus whose actions are directed by a computer program or other form of "software" is a statutory "machine."
2. A computer readable memory that can be used to direct a computer to function in a particular manner when used by the computer is a statutory "article of manufacture."
3. A series of specific operational steps to be performed on or with the aid of a computer is a statutory "process."
On October 3, 1995, the PTO issued a document titled Legal Analysis to Support Proposed Examination Guidelines for Computer-Implemented Inventions. See Official Gazette, U.S. Patent and Trademark Office, 1180 O.G. 14 (November 7, 1995). Subsequently, the PTO issued a document entitled Examination Guidelines for Computer-Related Inventions (Discussion Draft). See 51 BNA PTCJ 422 ff (hereafter "Guidelines"). The latest version of the Guidelines, though labeled a discussion draft, states that they "are final and replace" the earlier guidelines and legal analysis. In general, the Guidelines reflect a willingness to evaluate applications for patent protection of computer-related inventions without reference to the old shibboleths of nonstatutory subject matter. Hence a computer or other programmable apparatus whose actions are directed by a computer program is potentially patentable as a machine. A computer readable storage medium (like a floppy diskette) configured with a program or data that can be used to direct a computer to function in a particular manner is potentially patentable as an article of manufacture. And a series of specific operational steps to be performed on or with the aid of a computer is potentially patentable as a process. At the same time, the Guidelines promise a refreshing new rigor in the examination of computer-related applications by focussing more attention on identifying the invention as set forth in the claims. The Guidelines further specify that examiners must measure the claimed invention against the requirements of sec. 112 that the claims set out and circumscribe the invention with a reasonable degree of precision and particularity, and that there be an adequate written description of the claimed invention, as well as an enabling disclosure. Finally, the Guidelines require an assessment of the claimed computer-related invention in the light of the prior art under the anticipation standards of sec. 102 and the obviousness standards of sec. 103.
INTERNATIONAL PATENT HARMONIZATION PROMPTS CHANGES IN UNITED STATES PATENT LAW

Legislation to implement the General Agreement on Tariffs and Trade ("GATT"), Subtitle C of Title 5 of the Uruguay Round Agreements Act ("the Act"), Public Law 103-465, 108 Stat. 40982 et seq., engineered substantial changes in United States patent law. Most importantly, on and after June 8, 1995, the patent term is now twenty years from earliest effective filing date, and a provisional application, a new device, may now be employed. Continuing international harmonization efforts have led to the proposal of controversial new changes and have provoked lively debate about certain long-standing rules of United States patent law.

A. Twenty-Year Term.

The Act changes the former seventeen-year term from issuance to a twenty-year term from earliest effective filing date, by amending 35 U.S.C. sec. 154(a)(2). The twenty-year term from filing date now matches the duration of patents in most foreign countries. GATT actually required only a minimum term of twenty years from filing. The twenty-year term that was enacted results from an agreement with Japan under which Japan agreed to change its law to permit the initial filing of patent applications in English and to allow for the correction of translations into Japanese. 51 BNA Patent, Trademark and Copyright Journal 7-9 (November 2, 1995). One reason for the change in U.S. law is to preclude issuance of "submarine" patents that have been pending sometimes for decades prior to issuance, at which point they have a duration of seventeen years.

The twenty-year term from filing date can be extended up to five years for delays in prosecution that are due to appeals in the PTO and to judicial review. 35 U.S.C. sec. 154(b). Patent term extension remains available under 35 U.S.C. sec. 156 for regulatory (i.e., FDA) review.

Patents issuing on applications filed on or before June 7, 1995, have a duration that is the greater of seventeen years from issuance or twenty years from the earliest filing date in the chain. 35 U.S.C. sec. 154(c). This provision has the effect of lengthening the term of many already issued patents. According to the PTO, the average period of pendency for patent applications are: 22.2 months for electrical inventions, 17.7 months for mechanical inventions, 19.7 months for chemical inventions, and 21 months for biotech inventions. Hence many pre-June 7, 1995 patents will be extended beyond seventeen years from issuance.

Independent inventor organizations have prompted the filing of legislation in Congress which would change the patent term to the greater of seventeen years from issuance or twenty years from filing. HR 359 (Rohrbaeher) and S284 (Dole). Such a provision would resurrect the specter of "submarine" patents. HR 359 has been the subject of subcommittee hearings. 51 BNA PTCJ 448-49, 458 (February 1, 1996). Senator Hatch has introduced another bill, S1540, which would permit extensions of patent term for "unusual administrative delay" up to ten years, but still measure the start of the term from filing. Id.

B. Provisional Applications.

Provisional applications represent a new and valuable legal tool contained in the new legislation, available as of June 8, 1995. A provisional application has minimal filing requirements. It need only disclose the subject matter of the invention, but need not set forth claims, or even be signed by the inventor. 35 U.S.C. sec. 111(b). The filing fee is $150.00, 35 U.S.C. sec. 41(a)(1)(C), or $75.00 for independent inventors, non-profit organizations, and small businesses. 35 U.S.C. sec. 41(h). A provisional application will not be examined for patentability, 35 U.S.C. sec. 11(b)(8), placed in an interference, or made the subject of a statutory invention registration. A provisional application is deemed abandoned twelve months after its filing date and is not revivable. 35 U.S.C. sec. 111(b)(5).

The sole purpose of the provisional application is to permit the establishment of an early filing date; a U.S. or foreign application filed within one year of the date of the provisional application can claim the benefit of the provisional filing date, with respect to common subject matter that has been adequately disclosed in the provisional application. 35 U.S.C. sec. 119(e)(1).

The availability of provisional applications points to a new and potentially more economical strategy for securing an early priority date in connection with the development of new technology of uncertain commercial value. Thus a client having a product development program may file a series of provisional applications over the course of nearly a year, culminating, in the twelfth month after the first filing, in a regular United States application and an international application under the Patent Cooperation Treaty, each claiming priority based on all of the previously-filed provisional applications. This strategy will only succeed, of course, if the provisional application(s) relied upon provide disclosure in sufficient detail to permit a person of ordinary skill in the art to practice the technology that is claimed in the regular application and including the best mode contemplated by the inventor of carrying out the invention. 35 U.S.C. sec. 119(e)(1), referencing 35 U.S.C. sec. 112, first paragraph. Thus, even though a provisional application is devoid of most formal requirements and does not require claims defining the invention, it is essential that the provisional application provide a thorough disclosure meeting the requirements of the first paragraph of sec. 112 in order to support the claims later prepared for the regular application filed within twelve months thereafter.

C. First to Invent.

The United States is the only major industrial country that decides inventorship contests on the basis of who was the first to invent rather than on the basis of who was the first to file a patent application. Under United States patent law, proof of acts constituting invention before the filing date of the patent application will establish the earlier date as the priority date. Formerly, U.S. patent law permitted only U.S.-based inventors to prove a date of invention before the filing date of the application. The NAFTA treaty extended this opportunity to activities in Canada and Mexico as well. Under the GATT amendments, inventors in GATT countries are also put on an equal basis with U.S.-based inventors. The Act amends 35 U.S.C. sec. 104 to permit a domiciliary of a "WTO member country" (as well as of a NAFTA country or of the United States) to show acts of invention in the country of domicile for purposes of avoiding prior art references that are used by the PTO in rejecting an application under 35 U.S.C. secs. 102 and 103.

Hence to protect their U.S. patent rights, inventors in WTO and NAFTA countries - as well as in the U.S. - should now keep careful written records documenting the conception and reduction to practice of their inventions. The records should be dated and corroborated, preferably by one or more witnesses who understand the invention. The witnesses should, after reviewing the written disclosure of the invention, date and sign each page of the records beneath a notation "witnessed and understood" or words to that effect. Preferably the records are kept as pages in a permanently bound notebook (an inexpensive spiral bound notebook will do) to assure their integrity. Written documentation of invention is important not only to defeat a conflicting claimant, but also to overcome certain potential prior art references in PTO proceedings.

Note, however, that while the Act purported to put U.S. and foreign inventors on an even footing, it did not amend 35 U.S.C. sec. 102(g), which provides that a person is not entitled to a patent if "before the applicant's invention thereof the invention was made in this country by another who had not abandoned, suppressed, or concealed it" (emphasis added). A resolution of the apparent potential conflict may have to await judicial attention.

While the dramatic changes in U.S. patent law resulting from the GATT amendments have prompted other legislative proposals for changing the U.S. patent system in the interest of international harmonization, there has to date been no proposal to determine U.S. inventorship contests on the basis of first to file rather than first to invent.

D. Eighteen Month Publication.

Under current United States patent law, all U.S. patent applications remain secret until the patent issues. All major industrial countries other than the Untied States provide for publication of a patent application eighteen months after its effective filing date. As part of an agreement with Japan, legislation has been introduced in Congress to provide for publication of United States applications eighteen months after filing (HR 1733). A second bill provides for expanding third party participation in reexamination proceedings (HR 1732). In return, Japan agreed to change its law to eliminate a procedure by which third parties can oppose the grant of a patent before issuance and also to implement a procedure to provide for accelerated examination of patent applications. 51 BNA PTCJ 7-9 (November 2, 1995).

The two bills have already been the subject of subcommittee hearings, but await further legislative action. Certain independent inventor organizations oppose publication at eighteen months as an unwise change to what they regard as a superior U.S. patent system, prompted by agreements with "suspect" foreign interests. 51 BNA PTCJ 7-9 (November 2, 1995) and 50-52 (November 9, 1995).

Keep in mind that U.S. patent applicants who pursue foreign patents directly or under the Patent Cooperation Treaty already have their applications published at eighteen months.
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E. Prior Use Defense.

Under present law, 35 U.S.C. sec. 102(g), the prior inventor who has "abandoned, suppressed or concealed" his invention can be found to infringe a patent granted to a later inventor who promptly filed an application for the same invention. One therefore follows the trade secret route under the peril not only of theft or independent development by third parties, but also of infringing a patent granted to another for one's own invention. Under HR 2235, a good faith prior user of patented technology has a defense to an infringement action. The use must be commercial and must occur before the effective filing date of the application for the patent. The bill was well received at subcommittee hearing on October 26, 1995. 51 BNA PTCJ 9- 11 (November 2, 1995).

STRATEGY FOR PATENT PROTECTION OF COMPUTER-RELATED INVENTIONS

A company engaged in the development of new technology and new products, particularly one interested in exploiting international markets, faces difficult and complex issues of timing and budgeting in developing a strategy for patent protection. Particularly for a new concern, the expense of patent protection may loom large in relation to the resources of the enterprise. Depending upon the technology involved and the scope of the disclosure received from the inventor, a single U.S. patent application may involve an expenditure of $5,000.00 to $40,000.00 or more from initial filing to issuance. This figure does not include the time required of inventors or other company officials. Pursuit of international protection may require multiples of these expenditures over a period of years. Nonetheless, the availability of provisional applications provides a lower cost means of securing early priority dates and permitting reassessment of the commercial value of the technology up to a year later, before the decision is made to invest in more expensive regular applications in the United States and in foreign jurisdictions.

In an effort to assist business managers in planning and budgeting for patent protection, our firm has devised a general strategy chart which provides time lines and typical costs. This chart should only be used with guidance from a practitioner thoroughly grounded in the various procedures that must be employed in pursuing a successful program of patent protection in the United States and internationally. Note also that the endnote comments are an integral part of the strategy document.

Strategy for Patent Protection: Timing of Events and Typical Costs

Time	Event	Estimated Cost $
Start	Receive disclosure	0
2 weeks (1 - 4 weeks)²	Conduct patent and literature search on Dialog Allscience collection of computerized databases and prepare report ¹	1,600 (1,000 - 2,500)²
3 weeks (1 - 8 weeks)	Prepare and file initial provisional application ³	2,000 ⁴ (500 - 6,000)
various times before 12 months	Prepare and file additional provisional applications as necessary	1,000 ⁵ (500 - 6,000)
11 months	Prepare and file regular U.S. application	6,000 ⁶ (3,000 - 10,000)
11 months	Prepare and file international application under Patent Cooperation Treaty (PCT) designating European Patent Office and Japan with international search conducted in European Patent Office ⁷	4,000 (4,000 - 7,000 ⁸)
18 months	Request for Examination of PCT application	1,500
20 - 40 months	Prosecute U.S. application to issuance	5,000 (4,000 - 10,000)
30 months	File in European Patent Office	12,000 ⁹ (8,000 - 15,000)
30 months	File in Japan	9,000 ¹⁰
years 4-5	Prosecute application in European Patent Office	5,000 (3,000-10,000)
year 5	Issuance of European Patent and national phase recording in various European countries	12,000 ¹¹ (8,000-40,000)
years 8 ¹²+	Prosecute application in Japan to issuance	5,000 (3,000 - 10,000)

¹ This step can be delayed until after filing of initial provisional application if it is deemed important to establish an early filing date.

² For items in this column, the first figure represents a typical amount, and the figures in parentheses represent a likely range.

³ The provisional application can be filed with exceptional speed if necessary, since few formalities are required. The effectiveness of the application in establishing a filing date, however, depends on providing in the application enough detail of the invention to make the disclosure "enabling;" that is, the invention (as later claimed in the regular application) must be described in enough detail to enable a person of ordinary skill in the field of the invention to make and use the invention. The "best mode" of carrying out the invention must also be disclosed. (These considerations encourage the preparation of a rather thorough application.) As an alternative, if a relatively early examination is desired, it is possible to file a regular application directly, and to skip the filing of a provisional application.

⁴ This figure assumes a modest amount of work on the inventor's disclosure prior to filing, perhaps preparing a number of broad claims, and putting the disclosure in patent application format. It is possible, however, to do more, at additional cost. If the technology is ripe enough, one could, for example, prepare an application meeting the formalities for a regular application but file it as a provisional application.

⁵ Similar cost considerations apply for successive provisional applications as described in the previous footnote.

⁶ The cost of a regular application depends not only on the technology and on the scope of the disclosure received from the inventor, but also on whether it has been preceded by a provisional application. If a provisional application has been filed that can be used as a basis for the regular application, then a portion of the work on a regular application has already been done. This figure assumes no previous provisional application.

⁷ This filing, together with the Request for Examination, referred to immediately below, has the effect of postponing for eighteen months the time when an application must be filed in Japan and Europe (and many other countries if designated).

⁸ Higher PCT filing fees apply to applications that are more than thirty pages long, or that designate effectiveness in additional countries. Higher fees can also result from applications having claims directed to what the international searching authority considers more than one invention; failure to pay a search surcharge does not invalidate the application, but prevents an international search from being conducted on the additional inventions.

⁹ The costs depend, among other things, on the number of countries being designated.

¹⁰ The costs depend, among other things, on the length of the application, which must be translated into Japanese.

¹¹ The costs depend on the number of countries, and which countries, are designated. The patent must be in the native language of each country, and therefore translation is necessary for most countries, although a single translation can sometimes suffice for several countries: German for Switzerland, Germany, and Austria, for example.

¹² Examination must be requested within seven years after filing, although, if requested earlier, may commence a somewhat shorter number of years after filing.

LITIGATION-RELATED DEVELOPMENTS

Since intellectual property rights have no value unless they are enforceable, an effective business strategy must include consideration of plans for enforcing and defending intellectual property rights. Patent infringement litigation has achieved new prominence and vigor over the past fifteen years as the Court of Appeals for the Federal Circuit ("CAFC"), established in 1981 to provide a single appellate voice on patent issues, has issued ruling after ruling which materially strengthens the rights of patent holders. Damages awards for patent infringement measured in tens of millions of dollars, and in some cases, in hundreds of millions of dollars, have underscored the tremendous commercial value of patents. For a company faced with a potential infringer or accused of infringing patents held by another, an effective approach to litigation is a necessary component of business strategy. Key appellate rulings handed down over the past year will have an important impact on every patent dispute and on planning for the enforcement of patent rights.

A company with substantial international activities will obviously also have to concern itself with patent disputes in foreign jurisdictions. While every case is likely to present unique issues, it is essential for management to rely upon their United States patent counsel to secure effective local representation in the foreign jurisdiction and to coordinate litigation strategy consistent with the business objectives of management.

United States patent law has seen dramatic rulings over the past year. In Markman v. Westview Instruments, Inc., 53 F.3d 1967, 34 U.S.P.Q.2d 1321 (CAFC 1995) (en banc), cert. granted, ___ U.S. ___, 116 S.Ct. 40 (1995), the Court, by an eight to three majority, held that "in a case tried to a jury, the court has the power and obligation to construe as a matter of law the meaning of language used in the patent claim" and that the "construction given the claims is reviewed de novo on appeal." 34 U.S.P.Q.2d at 1329. Extrinsic evidence may be used by the court to reach a correct conclusion as to the meaning of the claim language, but, according to the majority, such extrinsic evidence would be reviewed by the court in its discretion and would not constitute the creation of a factual issue for jury determination. The Markman ruling generates difficult procedural issues in a patent infringement action. Should the court hold a "Markman" hearing with both sides presenting "extrinsic" evidence, leading to a court-announced interpretation of the claims? Should the court's claim construction be reserved for the jury charge conference after all evidence has been presented? The United States Supreme Court heard oral argument on the Markman case on January 8, 1996. At the Price Waterhouse Intellectual Property Leadership Forum held in Tucson, Arizona on February 14-17, 1996, a panel of leading patent trial attorneys was divided on the question whether the Supreme Court would affirm or reverse Markman. A decision is expected by summer.

Confounding prognostication, the CAFC held in Hilton Davis Chemical Co. v. Warner-Jenkinson Co., 35 U.S.P.Q.2d 1641 (Fed. Cir. 1995) (en banc), that determining infringement under the doctrine of equivalents is a question for the jury, not an equity matter exclusively for determination by the court. The seven to five majority ruling also held that the question of infringement under the doctrine of equivalents could be presented at trial without having to make a threshold showing of bad faith by the alleged infringer. Some regard it as anomalous that the CAFC took claim construction even on a disputed record away from the jury in Markman, but then squarely held that the often amorphous question of infringement under the doctrine of equivalents was for the jury.

Patent damages was the subject of the long-awaited ruling by the Federal Circuit in Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995) (en banc). In a splintered approach, the eight to four majority opinion held that a patentee may recover damages for lost sales of a product not covered by its patent where the defendant had taken those sales away by selling its infringing device, on the grounds that such lost sales were a reasonably foreseeable consequence of the infringing conduct of the defendant. However, the Court denied recovery for lost sales of dock levelers ordinarily sold along with the patented truck restraint product on the ground that the packaging of patented truck restraints and dock levelers for bid and sale purposes was a business convenience and not because they together constituted a functional unit. The Court held that the entire market value rule, which permits recovery on sales of unpatented components sold with patented components was limited to circumstances in which the unpatented components

function together with the patented component in some manner so as to produce a desired end product or result. All the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit.

35 U.S.P.Q.2d at 1073. This "functional component" requirement would appear to be entirely inconsistent with the Court's allowance of recovery for unpatented truck restraint sales on the grounds of reasonable foreseeability. Judge Newman, in dissent, commented:

I know of no law or policy served by eliminating recovery of actual damages when patents are involved. In holding that those injured by the infringement shall not be made whole, the value of the patent property is diminished. The majority's half-a-loaf award, wherein the patentee and the other plaintiffs are denied recovery of a significant portion or all of their proven damages, is an important policy decision.

Rite-Hite's partial endorsement of reasonable foreseeability, coupled with its anomalous "functional component" limitation on the entire market value rule, leaves the law governing recovery of lost profits as patent damages in an uncertain state.

The Federal Circuit applied Rite-Hite in King Instrument Corp. v. Perego, 65 F.3d 941, 36 U.S.P.Q.2d 1129 (Fed. Cir. 1995), upholding a district court award of lost profits to a patentee who did not make, use or sell the patented device. Defendant's infringing tape loader machine competed with plaintiff patentee's tape loader machine, which did not, however, employ the patented technology. The Court emphasized the standard for lost profits as follows:

To recover lost profits damages for patent infringement, the patent owner must show that it would have received the additional profits "but for" the infringement. The patent owner bears the burden to present evidence sufficient to show a reasonable probability that it would have made the asserted profits absent infringement.

36 U.S.P.Q.2d at 1137. Interestingly, two of the three judges on the panel which decided the King Instrument Corp. case were Judges Newman and Rader, who had joined in dissenting from the Rite-Hite majority's denial of lost profits based on the "functional component" limitation it announced for the entire market value rule.

In Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807, 34 U.S.P.Q.2d 1014 (1st Cir. 1995), aff'd without opinion, ___ U.S. ___, 64 U.S.L.W. 4059 (1996), the First Circuit refused copyright protection to the hierarchy of menu commands used by Lotus 1-2-3®, the famous spreadsheet program. In developing its rival QuatroPro® spreadsheet program, Borland did not copy any computer code from the Lotus program, but included an emulation mode in which QuatroPro® could be operated by the same keystrokes as Lotus 1-2-3®. Following a loss at trial on the issue of copyright liability, Borland removed the emulation mode from QuatroPro®, but retained a "key reader" permitting QuatroPro® to interpret "macros" (a stored sequence of keystrokes for performing multiple operations automatically) written for 1-2-3®; therefore QuatroPro® still retained a portion of the menu command hierarchy.

The First Circuit held that literal copying of the command hierarchy cannot be evaluated by the abstraction-filtration- comparison test developed in Computer Associates International v. Altai, Inc., 982 F.2d 673, 23 U.S.P.Q.2d 241 (2d Cir. 1992), because it encourages a finding of base copying of copyrighted subject matter, whereas here the issue is whether the admittedly copied matter is protectable by copyright. Though the menu command hierarchy consisted of 469 commands organized into 50 menus, the First Circuit found the command structure to be a "method of operation," analogous to buttons on a video cassette recorder that is not protectable under copyright law pursuant to 17 U.S.C. sec. 102(b). The concurring opinion by Judge Boudin noted that patent protection has different requirements, and that affording protection to the Lotus command hierarchy, a de facto standard, would effectively preclude competition.

The rationale employed by the First Circuit restricts copyright protection available to computer software programs and thus makes patent protection all the more important. The Lotus v. Borland case was argued in the Supreme Court on January 8, 1996, the same day as Markman. That was also the date of a record snowstorm which closed most of Washington, D.C. The Supreme Court, however, carried on. Only Justice Stephens was absent, detained in Florida because the D.C. snowstorm prevented planes from landing. However, Justice Stephens recuses himself in all cases involving IBM, which had purchased Lotus shortly before the case was heard in the Supreme Court. The remaining eight justices split four to four, resulting in an affirmance without opinion. Hence Lotus v. Borland is controlling precedent in the First Circuit only. The controversy about whether a software program like the Lotus command hierarchy which is or becomes a de facto standard should be denied protection under the copyright statute remains unresolved elsewhere.


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