Authored by Anthony A. Hartmann
The Leahy-Smith America Invents Act (AIA) made major revisions to the US patent system. Among other revisions, it converted the United States from being the last "first-to-invent" country to a member of the "first inventor- to-file" community. One area of the patent system affected by this conversion is derivation. Derivation is an old, legal concept that refers to a claim that recites not the invention of the alleged inventor but the invention derived from another.1 The AIA redefines when and how a claim of derivation may be made.
For patent applications with a claim having an effective filing date on or after March 16, 2013,2 the US patent system is no longer concerned with whether the inventor actually was the first to invent. Thus, when two parties independently invent the same subject matter, the winner is the party who reaches the US Patent and Trademark Office first. However, as the Supreme Court explained in Agawan Co. v. Jordan, policy considerations dictate that a party should not benefit from "fraudulently and surreptitiously obtain[ing] the patent for that which he well knew was the invention of his informant."3
Prior to the AIA, evidence of derivation was a form of prior art that could be used to invalidate a claim under pre-AIA 35 U.S.C. § 102(f) and § 103(a).4 This evidence typically was used in the context of a priority dispute. For example, an interference proceeding before the Board of Patent Appeals and Interferences could address derivation issues between the claims of a pending application and the claims of either a patent or another pending application.5 Similarly, derivation could be addressed in a civil action in a Federal district court between claims of two interfering patents.6
Derivation and priority are related concepts.7 Priority addresses inventorship—who was the first to conceive and reduce to practice the invention. Derivation addresses originality—who invented the subject matter at issue. Priority assumes independent invention by the parties; derivation does not.
Under the AIA, derivation is no longer an invalidity defense available to any party, having been removed from the list of prior art under 35 U.S.C. § 102. However, Section 3 of the AIA established derivation proceedings before the new Patent Trial and Appeal Board (PTAB) for certain patent applicants under 35 U.S.C. § 135. Derivation proceedings are PTAB trial proceedings operating under the same rules as Inter Partes Reviews, Post Grant Reviews, and Covered Business Method Reviews.8 As for aggrieved patent owners, the AIA established a limited cause of action for derivation in Federal district courts under 35 U.S.C. § 291. Another change is with the burden of proof necessary to establish derivation. While in an interference proceeding, it is clear and convincing evidence, a derivation proceeding operates under the preponderance of evidence standard.9 The burden of proof in district court presumably remains the clear and convincing standard per 35 U.S.C. § 282.
As of January 15, 2015, the PTAB has yet to institute a derivation proceeding. In July 2014, the PTAB denied three related petitions to institute derivation proceedings in Catapult Innovations PTY Ltd. v. adidas AG, DER2014-00002, DER2014-00005, and DER2014-00006 (July 18, 2014), citing, among other things, a failure to establish conception of the derived invention.10 In each petition, Catapult Innovations had sought a finding that adidas AG, the assignee of the three patent applications, derived the claimed inventions from Catapult Innovations.
Derivation claims commonly arise in collaborative ventures involving parties assisting the original inventor to make and/or market the invention. Here, adidas Wearable Sports Electronics (AWSE), a wholly owned subsidiary of adidas AG, expressed an interest in licensing Catapult Innovation's technology and collaborating with Catapult Innovations to develop further software and algorithms.11 A two-day presentation and demonstration occurred in October 2010.12 However, issues regarding licensing of patents and Catapult Innovation's request for a nondisclosure agreement as part of conducting further discussions led to the collapse of the discussions.13 Adidas AG filed a series of patent applications on March 31, 2011.
Catapult Innovation's petition for a derivation proceeding alleged that the claims from the three adidas AG's patent applications were derived from the two-day presentation and demonstration to AWSE by Mr. Holthouse, the founder and CEO of Catapult Innovations.14 The subject of the claims and the presentation/demonstration was an athletic activity monitoring system that facilitates live monitoring of a plurality of individuals.
37 C.F.R. § 42.405 identifies the requirements a Petitioner must address in its petition for a derivation proceeding. For example, the petition must establish a series of one-way and two-way "same or substantially the same" relationships. As illustrated in Exhibit 1, there must be "same or substantially the same" analyses between the petitioner's claim (P), the respondent's earlier claim (R), and the invention disclosed by the petitioner to the respondent (D).15 To be the "same or substantially the same" means to be "patentably indistinct," for example, the petitioner's claim must be anticipated by or obvious over the respondent's claim.16 After consideration of the three related petitions, the PTAB determined that Catapult Innovations' petitions failed to apply the same D in both the "one-way" P to D analysis and the "one-way" D to R analysis.17
Catapult Innovations argued that the invention disclosed to the respondent (D) was the entirety of the information communicated over the two days of presentation and demonstration.18 The PTAB, however, concluded that Catapult Innovations failed to identify any of its own claims as being the same or substantially the same as all of this communicated information.19
A petition for a derivation proceeding also must demonstrate that the earlier claimed invention was derived from an inventor named in the petitioner's patent application and that this inventor did not authorize the filing of the earlier patent application.20 Rule 42.405(c) provides that a derivation showing is not sufficient unless it is supported by corroborated, substantial evidence, including at least one affidavit addressing communication of the derived invention and lack of authorization that, if unrebutted, would support a determination of derivation.21 Whether there is sufficient corroboration is determined by applying a rule of reason analysis and considering all pertinent evidence.22 Substantial evidence is that which a reasonable person might accept as adequate to support a conclusion.23
In these three related cases, the PTAB found that Catapult Innovations' petitions presented substantial evidence that: (1) Catapult Innovations disclosed the invention to AWSE; (2) adidas AG's claims were directed to an invention that is the same or substantially the same as the invention disclosed; (3) Catapult Innovations had at least one qualifying claim; and (4) adidas AG's applications were not authorized.24 Hence, Catapult Innovations met the requirements for a communication as defined by the Supreme Court in Agawan Co. v. Jordan (the communication "enabled an ordinary mechanic, without the exercise of any ingenuity and special skill on his part, to construct and put the improvement in successful operation").25
Catapult Innovations, however, did not provide evidence of prior conception, only prior possession. In fact, the statements of facts in Catapult Innovations' petitions were directed to "Prior Possession and Disclosure of the Invention."26 The petitions also argued that "Holthouse and Catapult were in possession of the technology underlying the claims."27 The words "conception" and "conceive" cannot be found.
The PTAB explained that "[p]ossession indicates little, if anything, about originality of invention. One who possessed the invention might have acquired it from someone else. It is unfounded to assume that one who had an invention in his or her possession must have conceived of the invention and be the source or origin of that invention."28 In effect, the PTAB required evidence that the petitioner had not derived the communicated invention from another. As to the substantive law of derivation, the PTAB applies the jurisprudence previously developed under pre-AIA 35 U.S.C. § 135(a).29 Hence, "the party asserting derivation must establish prior conception of the claimed subject matter and communication of that conception to an inventor of the other party."30
In its requests for reconsideration, Catapult Innovations alleged that the PTAB abused its discretion by requiring a communication of a conception.31 Catapult Innovations noted that the language of 35 U.S.C. § 135 focuses on the "invention," which exists when there is a conception and a subsequent reduction to practice.32 Hence, Catapult Innovations contended that its communication of an actual reduction to practice was sufficient under the statute.33 In denying the requests for reconsideration, the PTAB emphasized that derivation addresses originality and communication of a reduction to practice does not address originality.34
This should not have been a surprise to Catapult Innovations. While the rules concerning derivation in 37 C.F.R. Part 42 do not expressly mention conception, it was a well-known element of derivation. The Courts have stated repeatedly that to show derivation, the asserting party must separately prove both conception and communication of the derived invention.35 And as did the PTAB in the three related cases, the Courts have rejected claims of derivation when there was a lack of evidence of conception.36
Moreover, the importance of including corroborating evidence of conception was expressly highlighted in the comments from the Federal Register providing the Final Rules to implement the derivation proceedings:
Derivation requires both earlier conception by the party alleging derivation as well as communication of the conception. Thus, by requiring demonstration of derivation, [37 C.F.R. § 42.405] necessarily requires a showing of earlier conception as well as corroboration of that earlier conception.37
The Federal Circuit in Burrough Wellcome Co. v. Barr Labs has summarized the law of conception:
Conception is the touchstone of inventorship, the completion of the mental part of invention. It is the formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice. Conception is complete only when the idea is so clearly defined in the inventor's mind that only ordinary skill would be necessary to reduce the invention to practice, without extensive research or experimentation. Because it is a mental act, courts require corroborating evidence of a contemporaneous disclosure that would enable one skilled in the art to make the invention.
Thus, the test for conception is whether the inventor had an idea that was definite and permanent enough that one skilled in the art could understand the invention; the inventor must prove his conception by corroborating evidence, preferably by showing a contemporaneous disclosure. An idea is definite and permanent when the inventor has a specific, settled idea, a particular solution to the problem at hand, not just a general goal or research plan he hopes to pursue. The conception analysis necessarily turns on the inventor's ability to describe his invention with particularity. Until he can do so, he cannot prove possession of the complete mental picture of the invention. These rules ensure that patent rights attach only when an idea is so far developed that the inventor can point to a definite, particular invention.
But an inventor need not know that his invention will work for conception to be complete. He need only show that he had the idea; the discovery that an invention actually works is part of its reduction to practice.38
The definition of conception has remained essentially unchanged for more than a century.39 By presenting only evidence of its reduction to practice, Catapult Innovations did not establish when the inventor, Mr. Holthouse, had a definite and permanent idea of the complete and operative invention.
In its requests for reconsideration, Catapult Innovations alleged, however, that it had made a corroborated disclosure of Mr. Holthouse's conception. Catapult Innovations identified the listing of Mr. Holthouse as a sole inventor of its application, which was corroborated by his inventor's declaration that he is the inventor of the claims and by the set of manuals provided to AWSE.40 Not surprisingly, the PTAB disagreed.41 Neither the 2013 patent application nor the inventor's declaration could establish a prior conception since they post-dated the 2010 communication. As to whether or not the manuals communicated to AWSE could evidence a prior conception, the argument was not made in the petition so the PTAB "could not have overlooked an argument that was not presented."42
Several lessons may be learned from a review of the three related decisions denying institution of a derivation proceeding. First, patent practitioners need to be aware of and address the state of pre-AIA derivation law before submitting a petition for a derivation proceeding. There is extensive case law addressing the issues of conception, communication, and corroboration. Second, petitioners need to present the best case possible in their petition. In contrast to interference practice, where proofs of derivation can be developed through discovery after institution, the PTAB has a "goal of avoiding institution of costly [derivation] proceedings that lack merit."43 Third, petitioners need to explicitly identify how the evidence establishes each element. Whether the proceeding is instituted will depend on what the petitioner argues. The PTAB will not develop the argument for you. For example, with respect to Inter Partes Reviews, the PTAB noted that different results for instituting a proceeding may occur when they review the same evidence presented and argued in a different manner.44 Fourth, inventors should maintain corroborating evidence of their work so as to be able to establish an earlier conception of the claimed subject matter, not merely possession. This can be done by recording and witnessing inventive acts in paper or electronic notebooks.
Endnotes
1 See Agawan Co. v. Jordan, 74 U.S. 583, 596–597 (1869).
2 Public Law No. 112-29, § 3(n).
3 Agawan, 74 U.S. at 597.
4 OddzOn Products, Inc. v. Just Toys, Inc., 122 F.3d 1396, 1401–1402 (Fed. Cir. 1997).
5 Pre-AIA 35 U.S.C. § 135.
6 Pre-AIA 35 U.S.C. § 291.
7 Price v. Symsek, 988 F.2d 1187, 1190 (Fed. Cir. 1993); Applegate v. Scherer, 332 F.2d 571, 573 (C.C.P.A. 1964).
8 37 C.F.R. § 42.2 (definition of "trial")
9 Price, 988 F.2d at 1194; 37 C.F.R. § 41.1.
10 Catapult Innovations PTY Ltd. v. adidas AG, DER2014-00002, Paper No. 19 at 18-19. Because the three cases are nearly identical, all citations are to DER2014-00002.
11 Id. at 6.
12 Id. at 7.
13 Id. at 8–9.
14 Catapult, DER2014-00002, Paper No. 19 at 10.
15 Id. at 16–17; 37 C.F.R. §§ 42.405(a)(2), 42.405(b)(3)(i).
16 37 C.F.R. § 42.401; "Changes to Implement Derivation Proceedings; Final Rule," 77 Fed. Reg. 56068, 56072 (Sept. 11, 2012) (comment 2).
17 Catapult, DER2014-00002, Paper No. 19 at 18.
18 Id. at 11.
19 Id.
20 37 C.F.R. § 42.405(b)(2).
21 See also, Price, 988 F.2d at 1194–1195; Davis v. Reddy, 620 F.2d 885, 889 (C.C.P.A. 1980).
22 Martek Biosciences Corp. v. Nutrinova Inc., 579 F.3d 1363, 1374–1375 (Fed. Cir. 2009).
23 Falkner v. Inglis, 448 F.3d 1357, 1363 (Fed. Cir. 2006).
24 Catapult, DER2014-00002, Paper No. 19 at 15–18.
25 Agawan, 74 U.S. at 602–603; see also, Gambro Lundia AB v. Baxter Healthcare Corp., 110 F.3d 1573, 1577 (Fed. Cir. 1997).
26 Catapult, DER2014-00002 Paper No. 7 at 6.
27 Id. at 28.
28 Catapult, DER2014-00002, Paper No. 19 at 18.
29 Id. at 3.
30 Id. at 4.
31 Catapult, DER2014-00002, Paper No. 20 at 6.
32 Id.
33 Id. at 7.
34 Catapult, DER2014-00002, Paper No. 21 at 3.
35 See, e.g., Creative Compounds LLC v. Starmark Labs., 651 F.3d 1303 1313 (Fed. Cir. 2011); Gambro Lundia, 110 F.3d at 1576; Egnot v. Looker, 387 F.2d 680, 687 (C.C.P.A. 1967).
36 See, e.g., Gambro Lundia, 110 F.3d at 1577.
37 77 Fed. Reg. at 56075.
38 Burroughs Wellcome Co. v. Barr Labs., Inc., 40 F.3d 1223, 1227–1228 (Fed. Cir. 1994) (internal quotation marks and citations omitted).
39 Dawson v. Dawson, 710 F.3d 1347, 1352 (Fed. Cir. 2013).
40 Catapult, DER2014-00002, Paper No. 20 at 8–9.
41 Catapult, DER2014-00002, Paper No. 21 at 4.
42 Id.
43 77 Fed. Reg. at 56074.
44 Mitsubishi Plastics Inc. v. Celgard, IPR2014-00524, Paper No. 27 at 5 (Nov. 21, 2014).
Reprinted with permission from the IP Litigator, published by Aspen Law and Business. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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