On November 29, 2000, an en banc Federal Circuit voted in FESTO CORPORATION v. SHOKETSU KINZOKU KOGYO KABUSHIKI CO., LTD., a/k/a SMC CORPORATION (95-1066) to limit the scope of the doctrine of equivalents.
With respect to the four en banc questions which were answered, the synopsis of the case gives a brief statement of the holding:
In response to En Banc Question 1, we hold that "a substantial reason related to patentability" is not limited to overcoming prior art, but includes other reason related to the statutory requirements for a patent. Therefore, an amendment that narrows the scope of a claim for any reason related to the statutory requirements for a patent will give rise to prosecution history estoppel with respect to the amended claim element.
In response to En Banc Question 2, we hold that "voluntary" claim amendments are treated the same as other claim amendments; therefore, any voluntary amendment that narrows the scope of a claim for a reason related to the statutory requirements for a patent will give rise to prosecution history estoppel with respect to the amended claim element.
In response to En Banc Question 3, we hold that when a claim amendment creates prosecution history estoppel, no range of equivalents is available for the amended claim element.
In response to En Banc Question 4, we hold that "unexplained" amendments are not entitled to any range of equivalents.
The rather lengthy opinion is divided into four sections (overview of the doctrine of equivalents and prosecution history estoppel; the Supreme Court's decision in Warner-Jenkinson v. Hilton Davis 520 U.S. 17, 33, 117 S. Ct. 1040, 137 L. Ed. 2d 146 (1997); answers to the en banc questions; decision on the appeal) and the outcome as to the parties is that Festo, the patentee, lost.
Directionally, Festo would seem to argue for a shift of resources from the litigation side to the prosecution side. Unamended claims are valuable. This suggests not just "more narrow" claims, but, more likely, more claims. Beyond the legalisms, this case may have been the new "low-barrier economy" vs. the old "patents as investment recoupment economy", with the victory to the new kids opening up vast expanses of intellectual property territory to the public. n2
EN BANC QUESTION 3
The biggest debate concerned the demise of the "flexible bar" approach of Hughes-I (Hughes Aircraft Co. v. United States, 717 F.2d 1351, 219 USPQ 473 (Fed. Cir. 1983)). The majority presented two economic rationales, one of predictability/workability and one of fostering innovation.
Of the predictability issue, the majority said:
A problem with the flexible bar approach is that it is virtually impossible to predict before the decision on appeal where the line of surrender is drawn.
The patentee would draw the line just at or slightly short of the prior art, leaving a wide range of equivalents untouched by prosecution history estoppel. The accused infringer, however, would draw the line close to the literal terms of the claims, leaving little or no range of equivalents. These considerations, we think, contribute to the difficulty under the flexible bar approach in predicting with any degree of certainty the scope of surrender that will be found when prosecution history estoppel applies.
( . . . )
We believe that the current state of the law regarding the scope of equivalents that is available when prosecution history estoppel applies is "unworkable." In patent law, we think that rules qualify as "workable" when they can be relied upon to produce consistent results and give rise to a body of law that provides guidance to the marketplace on how to conduct its affairs.
To resolve the problem, the majority argued the new complete bar approach brings certainty:
A complete bar, unlike a flexible bar, thus lends certainty to the process of determining the scope of protection afforded by a patent. With a complete bar, both the public and the patentee know that once an element of a claim is narrowed by amendment for a reason related to patentability, that element's scope of coverage will not extend beyond its literal terms. There is no speculation or uncertainty as to the exact range of equivalents that might be available. This certainty aids both the public and the patentee in ascertaining the true scope and value of the patent without having to resort to litigation to obtain a case by case analysis of what subject matter the claims can cover. With a complete bar, neither the public nor the patentee is required to pay the transaction costs of litigation in order to determine the exact scope of subject matter the patentee abandoned when the patentee amended the claim.
As a separate point, the majority argued that elimination of the "flexible bar" would foster innovation:
Thus, under the complete bar approach, technological advances that would have lain in the unknown, undefined zone around the literal terms of a narrowed claim under the flexible bar approach will not go wasted and undeveloped due to fear of litigation. The public will be free to improve on the patented technology and design around it without being inhibited by the threat of a lawsuit because the changes could possibly fall within the scope of equivalents left after a claim element has been narrowed by amendment for a reason related to patentability. This certainty will stimulate investment in improvements and design-arounds because the risk of infringement will be easier to determine. In general, the difficulty in counseling the public and the patentee on the scope of protection provided by an amended element is greatly reduced under the complete bar approach due to the certainty and predictability such a bar produces.
OTHER VIEWPOINTS
Judge Plager said of the majority view: It is a second-best solution to an unsatisfactory situation.
The preferred solution: A better solution would be to declare the doctrine of equivalents -- a judge-made rule in the first place -- to have its roots firmly in equity, and to acknowledge that when and in what circumstances it applies is a question of equitable law, a question for which judges bear responsibility. We have admitted to these roots in a number of cases.
He further noted: In today's rulings the court attempts to limit some of the indeterminacy of the doctrine with a set of bright-line rules, trading off areas of uncertainty for a degree of rigidity. Unfortunately, this attempt at injecting certainty into the doctrine contains the potential for unintended consequences, consequences that may do nothing but exacerbate the problem.
Judge Lourie wrote: However, in light of experience, and recognizing the Congressional requirement for precision in claims, 35 U.S.C. @ 112, P 2, I am persuaded that when we have the opportunity en banc to depart from an unworkable rule by holding patent applicants to their actions in the PTO, we should do so. Adoption of a firmer rule today is in the best interest of the patent system. He also noted: In fact, today we merely extend the Supreme Court's complete bar [in Warner-Jenkinson] against the application of the doctrine of equivalents, which applies when it is unclear why an amendment was made and the patentee fails to rebut the presumption that an amendment was made for reasons relating to patentability, to cases in which the patentee clearly amended a claim for patentability reasons.
Judge Lourie further observed: It has been suggested that there are settled expectations in the bar and innovation community regarding the present rule. The only settled expectation currently existing is the expectation that clever attorneys can argue infringement outside the scope of the claims all the way through this court of appeals. Such a settled expectation should become unsettled. Surely, when prosecuting a patent, patent practitioners have no settled expectations of being able to assert the doctrine of equivalents. Any patent attorney who fails to claim all that his inventor has invented, and that is patentable, is ill-advised to settle for a narrower claim than he considers justified on the assumption that he can rely on the doctrine of equivalents for broader coverage. Such reliance is a highly risky prospect given that the patent statute requires precise claims. 35 U.S.C. @ 112, P 2.
Judge Lourie addressed the innovation issue: In the future, a competitor may more closely approach the limits of the claims in a patent in which a narrowing amendment has been made without fear of liability. Occasional injustices may occur. However, I believe that such occasional injustices will be greatly outnumbered by competitors who will be able to introduce innovative products outside the scope of claims without fear of unjustified, protracted, and expensive litigation. In today's world, the specter of unpredictable equivalence claims haunts too many business decisions, while the overwhelming majority of equivalence claims ultimately fail. It is more than justified to lessen this fear and hold patent applicants to the consequences of their public prosecution decisions. The rule we announce today should encourage innovation, lessen uncertainty, and diminish the volume of unnecessary litigation, while providing patentees with protection commensurate with the disclosed and allowed scope of their inventions.
Judge Michel (joined by Judge Rader) observed: Would-be copyists, of course, will exploit the majority's bar. Unwittingly, the majority has severely limited the protection previously available to patentees. Indeed, it may nullify the doctrine of equivalents. Under the majority's approach, anyone who wants to steal a patentee's technology need only review the prosecution history to identify patentability-related amendments, and then make a trivial modification to that part of its product corresponding to an amended claim limitation.
Of the innovation issue, he noted: Furthermore, this court's imposition of a complete bar creates a perverse incentive for patent applicants, particularly those who are financially unable to invoke the appeals process, to simply abandon their applications. In many cases, it may be more effective to protect an invention by maintaining it as a trade secret than by accepting a patent that will publicize the invention, but provide protection only from literal infringement.
Judge Linn (joined by Judge Rader) observed: [The] new bright line rule, as simple as it is hoped to be in application, wrongfully sets in place a regime that increases the cost and complexity of patent prosecution to the detriment of individual inventors, start-up companies, and others unable to bear these increased costs. The new regime also places greater emphasis on literary skill than on an inventor's ingenuity; gives unscrupulous copyists a free ride on the coattails of legitimate inventors; and changes the rules under which prosecution strategies were formulated for thousands of extant patents no longer subject to correction.
He further stated: [The] majority's new bright line rule, by constraining limitations amended for a statutory purpose to their literal terms, is likely to encourage insubstantial changes to an established product, rather than investment in break-through technological advancements. Such a rule, therefore, promotes free riding and undercuts the return on a patentee's investment.
Judge Newman, who had a long section on innovation in her dissent, observed: It is generally agreed that long-term economic growth requires a policy framework that encourages the creation and commercialization of new technologies, as contrasted with a policy that facilitates appropriation of the creative product, lest the creative product dry up in the face of too-easy appropriation. "Knowledge capital," secured by intellectual property rights, now rivals the traditional economic components of labor productivity, capital formation, and natural resources, as the foundation of economic growth.
She also observed: The present patent law has supported a blossoming of technology-based industry in a competitive environment that is conspicuous for its entrepreneurial vigor. The balance among inventor, investor, competitor, and consumer, and the effect of the doctrine of equivalents on that balance, is not explored in the parties' briefs and had sparse amicus participation, for it was not at issue. Of course no patentee would choose to rely on the doctrine of equivalents to support commercial investment. The public and private interests served by the doctrine of equivalents derive from its deterrence of close imitation, thereby helping to assure to the patentee the benefit of the invention, while obliging would-be competitors to advance the technology instead of simply skirting the edge of the claims.
PREVIOUS THOUGHTS
In January 2000, Steven Andersen n3 wrote of the questions in Festo: "The answers to those questions should bring consistency to the law and may alter the balance of power between patent holders and alleged infringers in disputes." We shall see.
IN PASSING
Congratulations to Intellectual Property Today on its anniversary at the millennium. Of Manny Schecter's comments on "Rembrandts in the Attic," (IPT, pp. 10-11, Dec. 2000), note that, although Rembrandts "lionized" Xerox innovation leadership, Xerox is now trying to partner-off Xerox PARC (see Peter Coy, "Research Labs Get Real. It's About Time," Business Week, p. 51 (Nov. 6, 2000)) and that Rich Thoman of Xerox was removed (see Kate Kelly, "Blood in the Boardroom," Time, p. 98 (Nov. 6, 2000). Rembrandts also featured Priceline's patent strategy, which analysis might be revisited in view of the recent business performance. Although Rembrandts deservedly highlighted IBM's IP strategy, it perhaps did not fully explore the IP implications of the DOS/Gates/Kildall saga.
ENDNOTES
n1 The views expressed are those of only the author and not of any employer, past, present, or future. The author may be reached at ebert@prodigy.net or ebert@lawyer.com. The author holds a Ph.D. in physical chemistry from Stanford
University and a J.D. from the University of Chicago.
n2 For some writings on a low barrier economy, see those of Lawrence Lessig in, for example, the Industry Standard, pp. 1-52 (Nov. 6, 2000). Therein, Lessig notes that lawyers of software developers "must determine whether underpaid and overworked bureaucrats in Washington have issued a 20-year monopoly covering their 'new idea.'" He also states: "Thus the nature of the patent cycle: a process created by lawyers that benefits only one group with any real certainty -- lawyers." Lessig questions whether the value of such patents has been analyzed: "Overworked and underfunded, regulations don't have time to determine whether this explosion in software and business method patents will do any good."
n3 Corporate Legal Times, p. 72 (Jan. 2000). See also Victoria Slind-Flor, "Dying Doctrine of Equivalents: Festo case changes the rules for patent seekers and granters," National Law Journal, December 18, 2000.