UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

Dennis L. Schmirler, Plaintiff, v. Hon. David J. Kappos, In his official capacity as Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office, Defendant. Case No. 10-C-144

DEFENDANTS MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFFS MOTION FOR SUMMARY J UDGMENT AND IN SUPPORT OF DEFENDANTS CROSS-MOTION FOR SUMMARY J UDGMENT

Defendant David Kappos, Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (Director), by his undersigned counsel, respectfully submits this memorandum in opposition to plaintiff Dennis L. Schmirlers (Mr. Schmirler) motion for summary judgment, and in support of the Defendants crossmotion for summary judgment. SUMMARY OF THE ARGUMENT In this patent case, three inventors, one of whom is Dennis Schmirler, successfully revived an abandoned patent application by affirming that the abandonment had been unintentional. The U.S. Patent and Trademark Office (USPTO) accepted that But when Mr. Schmirlers co-

representation, and the application proceeded to issuance.

inventor, Dr. Edward Portman, requested and received a refund of the patent issue fee through

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American Express, this (1) left the statutorily-required issue fee unpaid, and (2) raised a substantial question as to whether the applicants previous averment of unintentional abandonment of the patent was accurate. The USPTO notified the inventors, through their attorney of record, of these problems and gave them an opportunity to respond. Seven months after sending the notice, and after receiving confirmation from counsel that no response was forthcoming, the USPTO vacated the patent. The final USPTO decision now under review is its decision denying Mr. Schmirlers request to proceed unilaterally in the patent application, without the support of his co-owners. Based on a straightforward application of USPTO rules, the USPTO determined that Mr. Schmirler had not shown sufficient cause and/or an extraordinary situation, as needed for the USPTO to waive its requirement that all co-inventors and/or co-owners of a patent application proceed with one voice before the USPTO. This rule is necessary to avoid embroiling the USPTO in disputes between inventors, disputes that the USPTO does not have the ability or resources to resolve. The USPTOs interpretation and application of its own rules was not arbitrary or capricious, and is entitled to significant deference. Even if Mr. Schmirler is a patentee, as he contends, the result is no different. The alleged patent lapsed when the applicants failed to respond to the USPTOs notice that the patent would be vacated. To revive the lapsed patent, Mr. Schmirler must follow appropriate

administrative procedures for doing so. As set forth in the final decision in this case, and in the Manual of Patent Examining Procedure, the USPTO interprets its rules to require that all patentees act with a single voice before the Office, for the same reason that applicants are required to do so. This interpretation of the USPTOs procedural rules is entitled to controlling weight, and is by no means arbitrary or capricious.

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Mr. Schmirler also purports to challenge the USPTOs decision to vacate the erroneously-issued patent, yet that challenge seeks to bypass USPTO procedures and asks this Court for relief that it cannot grant. Because the patent was erroneously issued in the first place, there is nothing to reinstate. On the other hand, if Mr. Schmirlers argument is that the USPTOs action withdrawing the patent in 2004 had no force and effect, then the patent has surely lapsed for failure to pay maintenance fees that came due in 2004 and 2008. Either way, the question of whether the patent can be revived must be addressed in the first instance by the USPTO. Since revival is a matter of USPTO procedure, and the inventors have not exhausted their remedies before the USPTO as to revival, this Court is in no position to rule on whether the patent should be reinstated at this juncture. STATEMENT OF UNDISPUTED FACTS 1. On May 22, 1996, Co-inventors Dennis Schmirler, Edward Portman, and Michael

Christensen filed U.S. Application No. 08/652, 280 (the 280 application), entitled Compositions, Methods and Devices for the Transdermal Delivery of Drugs. A1-85. 1 2. On April 21, 1999, the attorneys who had been prosecuting the patent application

withdrew from representation, citing their clients non-payment of $16,880.34 in legal fees. A139-48. The withdrawal letter identified the client as Diversified Pharmaceuticals, Inc.

(DPI), and referred to an assignment of co-inventors Portman and Christensen to DPI. A143. The letter indicated that the prosecution file was being shipped to Dr. Portman, and that Mr. Schmirler had been informed of the shipment. A145.

In this brief, the letter A followed by a number refers to a page of the Certified Administrative Record, previously filed with the Court as Document 10. As a review of an agency decision under the Administrative Procedure Act, separate findings of fact are not required under Civ. L.R. 56. 3 Case 2:10-cv-00144-LA Filed 05/10/11 Page 3 of 25 Document 19

3.

The Patent Examiner ultimately determined that the invention described and

claimed in the 280 application was patentable, and on July 12, 1999, the USPTO issued a Notice of Allowance and Issue Fee Due, requiring the submission of an issue fee payment on or before October 12, 1999. A161-63. The Notice of Allowance was mailed to Dr. Portman. A161. 4. As of December 30, 1999, the USPTO had not received the issue fee, or any other

response to the July 12, 1999, notice, and so, in accordance with USPTO procedures, the USPTO issued a Notice of Abandonment, informing the applicants that the application had been abandoned for failure to pay the issue fee. A164. The Notice of Abandonment was mailed to Dr. Portman. Id. 5. On October 12, 2000, Dr. Portman submitted a petition under 37 CFR 1.137(b)

to revive the application, as having been unintentionally abandoned. Portmans submission authorized the Office to charge fees totaling $1,370.00, including the issue fee, to his American Express credit card. A175-180; Doc. 12-2, Ex. A, p. 2. 6. On October 13, 2000, the fees authorized by Dr. Portman, which accompanied the

October 12, 2000, petition under 37 CFR 1.137(b), were charged to Portmans American Express credit card account. A229 n.1; A86. 7. On October 17, 2000, the USPTO dismissed Dr. Portmans October 12, 2000,

petition, because the petition was not signed by all three co-inventors of the application, or by someone representing the interests of all assignees and/or inventors, as required by USPTO rules, specifically 37 CFR 1.33(b). A181-83. The petition decision was mailed to Portman. A181. 8. On October 23, 2000, the USPTO received a faxed request from Dr. Portman for

an interview with the Petitions Examiner. A185-93. The October 23, 2000, request included a

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copy of the October 12, 2000, petition under 37 CFR 1.137(b) and all the attachments that had accompanied the October 12, 2000 petition. Id. 9. On November 22, 2000 and December 1, 2000, the USPTO received a Substitute

Petition To Revive Pursuant to 37 CFR 1.137(b), a Request for Reconsideration, and two Revocation[s] of Power of Attorney and Appointment of New Attorneys in connection with the 280 Application. A194-211. The Appointments appointed Gary Essman, Joseph Kuborn, and others to represent the applicants, and requested that correspondence be sent to Essman. One of the Appointments was signed by Portman and Schmirler (A209), and the other was signed by Christensen (A200). 10. Referring to Dr. Portmans October 12 payment, the Substitute Petition recited

that the USPTO had received payment of the issue fee and petition fee from the applicant. A195; See also A197 (referring to a telephone conversation in which the Petitions Examiner acknowledged prior receipt of these payments). 11. The Substitute Petition stated that [t]he entire delay in filing the required reply

from the due date for the required reply until the filing of a grantable petition under 37 CFR 1.137(b) was unintentional. A195. 12. The USPTO accepted the powers of attorney to Essman et al. on December 7,

2000, and indicated that future correspondence concerning the application would be sent to Essman. A212. 13. On December 15, 2000, the USPTO received formal drawings in connection with

the 280 application. A213-224.

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14.

On December 21, 2000, the USPTO issued a decision granting the applicants

Request for Reconsideration and Substitute Petition under 37 CFR 1.137(b). A225. 15. On April 10, 2001, the USPTO reported that U.S. Patent No. 6,214,374 (the 374

patent) had issued on the 280 application. A229. 16. On May 8, 2001, the USPTO received a communication dated May 4, 2001, from

Card Support Services, Mellon Client Service Center, Pittsburgh, PA, informing the Office that on April 27, 2001, a chargeback of $1370.00 i.e., the fees authorized by Dr. Portman on October 12, 2000, and charged to his credit card account on October 13, 2000, including the issue fee had been processed. A227. 17. The communication from Card Support Services included a document dated

December 17, 2000, entitled Service Establishment Claim Form, bearing the American Express logo, and addressed to Portman. The Claim form states that the cardholder (Portman), requests credit of the October 13, 2000, fees paid to the Office (which included the issue fee), on the basis that this service was never rendered. Doc. 12-2, Ex. A, p. 5. This document was not received by the USPTO until May 8, 2001. A265. 18. The communication from Card Support Services was also accompanied by a copy

of an American Express Establishment Services invoice of returned charges, dated 3/30/20 [sic] and addressed only to US Patent/Trademark Office, with no further street or post office address, stating Chargeback Reason: No Reply to Request for information. Doc. 12-2, Ex. A, p. 4. 19. On June 7, 2004, the USPTO mailed a Notice of Unsettled Issue Fee Payment

and of Withdrawal of Petition Decision Patent May Be Vacated (the June 7, 2004 notice) to the attorney of record, Gary Essman, notifying the applicants that the December 21, 2000,

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decision granting applicants petition to revive under 37 CFR 1.137(b) had been withdrawn, and that the application remained abandoned. A228-32. 20. The notice explained that 35 U.S.C. 151 preconditions the granting of a patent

upon payment of the issue fee, and that because of the chargeback, the issue fee was never paid, and the USPTOs report that a patent had been granted on April 10, 2001, had thus been in error. A229. 21. The June 7, 2004 notice stated: [A]pplicant appears to have withdrawn the petition and the request for reconsideration/substitute petition . . . received on October 12, 2000 and November 22, 2000, respectively. On or before December 17, 2000, applicant appears to have intentionally requested reversal of the charges on his credit card for the issue fee and for the petition fees, shortly after authorizing the Office to charge the fees. The delay in payment of the issue fee, therefore, does not appear to be unintentional. A230. 22. The June 7, 2004, notice required the applicants, in response to the notice, to

submit the unpaid fees, including the issue fee, along with an appropriate explanation for the apparently intentional chargeback requested by Dr. Portman for the October 12, 2000, issue fee and petition fee payments. A230-31. 23. The June 7, 2004, notice also specified that if no reply was received, the patent

would be vacated and the application would remain abandoned. A231. 24. 25. 26. The applicants were given two months to reply to the June 7, 2004, notice. A231. No reply to the June 7, 2004, notice was received by the USPTO. On January 11, 2005, the USPTO (i.e., Cynthia L. Nessler, Legal Advisor, Office

of Patent Legal Administration) telephoned Essman, the attorney of record, who verified that no reply to the June 7, 2004 notice had been filed. A235, A265.

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27.

On January 13, 2005, the USPTO mailed a Notice Vacating Patent Grant to

Essman, informing the applicants that the 374 patent had been vacated, and that the application remained abandoned. A234-36. 28. On February 8, 2005, the USPTO published the following erratum in the Official

Gazette of the United States Patent and Trademark Office: All reference to Patent No. 6,214,374 to Dennis L. Schmirler, et a1 of Hartland, WI for COMPOSITIONS, METHODS AND DEVICES FOR THE TRANSDERMAL DELIVERY OF DRUGS appearing in the Official Gazette of April 10, 2001, should be deleted since no patent was granted. A266; see http://www.uspto.gov/web/offices/com/sol/og/2005/week06/paterra.htm (last visited May 10, 2011). 29. On August 19, 2005, a power to inspect the contents of the 280 application,

signed by Mr. Schmirler, was received by the Offices File Information Unit. A237. 30. On October 18, 2007, the USPTO received a petition entitled Petition under 37

CFR 1.182, signed by Mr. Garet Galster and accompanied by exhibits A and B, requesting reinstatement of the vacated 374 patent. A266. The USPTO received duplicates of this petition on April 14 and 28, 2008. A266. 31. On September 2, 2008, the USPTO received a change of power of attorney and

correspondence address, revoking the power of attorney to Gary Essman et al., and appointing, among others, Mr. Galster. The revocation and appointment was signed by Mr. Schmirler, but not by Portman, Christensen, or DPI. A266. 32. On September 11, 2008, USPTO mailed Mr. Galster a decision returning

improper papers. A238-45. The decision determined that the October 18, 2007 petition, the April 2008 duplicate petitions, and the September 2, 2008 change of power of attorney, were improper, because the September 2, 2008 change of power of attorney did not show that Mr. 8 Case 2:10-cv-00144-LA Filed 05/10/11 Page 8 of 25 Document 19

Galster had received a power of attorney from all three joint inventors of the application at the time the petitions were filed. A240. 33. On November 7, 2008, the USPTO received a paper entitled Response to

Decision Returning Improper Papers, from Mr. Galster. A246-61. 34. The USPTO interpreted the November 7, 2008, paper as a petition under 37 CFR

1.36(a) to enter a revocation of power of attorney signed by fewer than all of the applicants or owners of the application, a petition under 37 CFR 1.183 to waive the signature requirements of 37 CFR 1.32(b)(4) and enter a new power of attorney signed by fewer than all of the applicants or owners of the application, and a petition under 37 CFR 1.183 to waive the signature requirements of 37 CFR 1.33(b); or, alternatively, as a petition under 37 CFR 1.182 to enter and treat the October 18, 2007 petition. A267. 35. The November 7, 2008, petition was accompanied by a copy of the October 18,

2007 petition and a copy of the September 2, 2008, change of power of attorney and correspondence address. A267. 36. In its August 5, 2009, final decision, the USPTO denied all relief requested by the

petitions on the basis that the petitions were improperly filed. A262-82. In particular, the USPTO determined that the petitions did not comply with the USPTOs requirement, reflected in its regulations, that [a]ll parties having any portion of the ownership of the patent property must act together as a composite entity in patent matters before the Office (MPEP 301). A270. Thus, the revocation of the power of attorney to Essman could not be entered because it had not been signed by all the inventors and/or co-owners of the patent application, and the petition had failed to show the requisite sufficient cause for waiving the signature requirements of 37 CFR 1.36(a). A271-76. Similarly, the power of attorney to Mr. Galster could not be entered

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because it was not signed by all the inventors or co-owners as required by 37 CFR 1.32(b)(4), and the petition had failed to demonstrate the kind of extraordinary situation required for waiving that signature requirement under 37 CFR 1.183. Id. Because Mr. Galster did not have a valid power of attorney to proceed in the application, the USPTO could not reach the merits of the relief requested that the holding of abandonment be withdrawn, or that the patent application be revived. A276-80. Nevertheless, the USPTO pointed out that any further petition to revive the patent application would have to explain the delay in filing the petition, as well as include a showing the abandonment was not intentional or unavoidable. A277. RESPONSE TO MR. SCHMIRLERS STATEMENT OF FACTS The Director submits that the following assertion (in essence a conclusion of law) alleged in Mr. Schmirlers Statement of Facts is incorrect: On 10 April 2001, pursuant to 35 U.S.C. 100(d), since all fees had been paid appropriately, all procedures had been followed and petition granted, the Office correctly issued U.S. Pat. No. 6,214,374, thereby rendering Mr. Schmirler no longer a patent applicant, but a patentee. (See Exhibit B to Complaint, Dkt. 1-5.). Schmirler S.J. Mem. at 5. Because the statutory preconditions for the patent grant had not been met, the patent did not validly issue. The applicants failure to respond to the USPTOs June 2004 Notice, which set forth the USPTOs position that the patent had not been validly issued, is tantamount to acquiescence to the USPTOs position. As explained in Section C, below, Mr. Schmirler is an applicant, not a patentee. The Director submits that the following assertion alleged in Mr. Schmirlers Statement of Facts has not been established:

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Unbeknownst to Mr. Schmirler, on 13 January 2005, the Office vacated U.S. Patent 6,214,374, which issued on 10 April 2001. Schmirler S.J. Mem. at 7. There is no evidence of record as to what Mr. Schmirler knew or did not know on January 13, 2005. Mr. Schmirler certainly had constructive notice, through his attorney of record, of the impending and actual withdrawal of the patent in January 2005. See SOF 26-27. He presumably received actual notice of the withdrawal at the latest on or about August 19, 2005, when he executed a power to inspect the contents of the 280 application. See SOF 29. LEGAL FRAMEWORK The United States Patent and Trademark Offices primary patent-related function is to examine patent applications. If an application meets the statutorily prescribed criteria for

patentability including subject matter eligibility (35 U.S.C. 101), novelty (35 U.S.C. 102), nonobviousness (35 U.S.C. 103), and compliance with the written description, enablement, and best mode requirements (35 U.S.C. 112) the USPTO will issue the application as a patent after payment of a statutorily prescribed issue fee (35 U.S.C. 151). If, during prosecution of a patent application, the inventors fail to timely respond to a communication from the office, the patent application may become abandoned. 35 U.S.C. 133. A patent may also become abandoned after issuance. If, after issuance, there is a balance remaining for the issue fee, then the USPTO provides notice to the patentees of the deficiency. 35 U.S.C. 151. If the patentees fail to respond within a prescribed time, the patent is said to have lapsed. 35 U.S.C. 151. A patent might also become abandoned if the applicant fails to timely pay a maintenance fee (maintenance fees are due prior to four, eight, and twelve years after issuance). 35 U.S.C. 41(b) (Unless payment of the applicable maintenance fee is

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received in the United States Patent and Trademark Office on or before the date the fee is due or within a grace period of 6 months thereafter, the patent will expire as of the end of such grace period). If the patent application becomes abandoned or a patent lapses, the applicants or patent owners can revive it by: (1) filing a petition, along with a fee, that shows that the abandonment was unavoidable (37 CFR 1.137(a)); or (2) filing a petition, along with a higher fee, stating that the abandonment was unintentional (37 CFR 137(b)); see also 35 U.S.C. 41(c) (providing that the Director may accept late-payment of maintenance fees if made within twenty-four months after the six-month grace period if the delay is shown to the satisfaction of the Director to have been unintentional, or at any time after the six-month grace period if the delay is shown to the satisfaction of the Director to have been unavoidable.). Under Rule 1.137(b)(3), [t]he Director may require additional information where there is a question whether the delay was unintentional. 2 Because the USPTO is unable to mediate disputes between co-inventors or co-assignees, it imposes strict requirements on who may take action in USPTO proceedings. Thus, the USPTOs rules and regulations governing proceedings before the Office consistently require the inventors to act with one voice before the Office. See Manual of Patent Examining Procedure (MPEP) 301 (All parties having any portion of the ownership of the patent property must act together as a composite entity in patent matters before the Office.) (emphasis in original). See
2

Although the patent statutes regarding revival of patents and patent applications for failure to respond to office actions (35 U.S.C. 133), or for failure to pay the issue fee (35 U.S.C. 151) only give the USPTO express authority to revive for unavoidabl[e] abandonment, the USPTO has interpreted this provision as giving it the authority to revive patents and patent applications that have been unintentionally abandoned. The Federal Circuit has not ruled on this practice. Aristocrat Technologies Australia PTY Limited v. Intern. Game Technology, 543 F. 3d 657, 664 (Fed. Cir. 2008).

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generally MPEP 324. This applies to patent applications as well as issued patents. In short, the USPTO will only accept papers from (1) all the owners and/or inventors, acting together, or (2) an attorney who has been appointed to represent the inventors/assignees. See 37 CFR 1.32, 1.33(b). The only exceptions to this occur when it is shown that co-inventors are unavailable or refuse to join in an application (35 U.S.C. 116-18), and in the purely ministerial function of the payment of maintenance fees, where the regulations specifically state that any person or organization may pay maintenance fees and any necessary surcharges on behalf of a patentee, and that [a]uthorization by the patentee need not be filed in the Patent and Trademark Office to pay maintenance fees and any necessary surcharges on behalf of the patentee (37 CFR 1.366(a)). ARGUMENT A. Standard of Review

The legal standard applied to a summary judgment motion is well known: Summary judgment should be rendered if the administrative record demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In an APA action, however, only questions of law are presented: [W]hen a party seeks review of agency action under the APA before a district court, the district judge sits as an appellate tribunal. The entire case on review is a question of law, and the complaint, properly read, actually presents no factual allegations, but rather only arguments about the legal conclusion to be drawn about the agency action. . . . [The district courts review] is based on the agency record and limited to determining whether the agency acted arbitrarily or capriciously. Rempfer v. Sharfstein, 583 F.3d 860, 865 (D.C. Cir. 2009) (original alterations, citations, and quotation marks omitted); see Marshall County Health Care Auth. v. Shalala, 988 F.2d 1221,

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1226 (D.C. Cir. 1993) (when an agency action is challenged . . . [t]he entire case on review is a question of law, and only a question of law). B. Judicial Review Under the APA

The APAs general judicial review provision authorizes a court to set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A). In the seminal case explicating such review, the Supreme Court explained that the scope of review under this standard is narrow, and that a court is not to substitute its judgment for that of the agency. Motor Vehicle Manufacturers Assn of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Normally, an agency [action] would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Id. In short, judicial review pursuant to 706(2)(A) is highly deferential and the courts role is to determine whether the record reveals that a rational basis exists for [the agencys] decision. Manufactured Housing Institute v. EPA, 467 F.3d 391, 398 (4th Cir. 2006). The burden of showing that the agency action was arbitrary and capricious lies with the plaintiff, with a presumption in favor of finding the agency action valid. See Oh. Valley Environmental Coalition v. Aracoma Coal Co., 556 F.3d 177, 192 (4th Cir. 2009). Congress has granted the PTO authority to establish regulations . . . govern[ing] the conduct of proceedings in the Office, 35 U.S.C. 2(b)(2)(A), and USPTO rules issued pursuant to this authority receive deference under Chevron U.S.A., Inc. v. Natural Resources Defense

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Council, Inc., 467 U.S. 837 (1984). See also Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1337 (Fed. Cir. 2008) (Because the Patent Office is specifically charged with administering statutory provisions relating to the conduct of proceedings in the Office, [courts] give Chevron deference to its interpretations of those provisions. (citation omitted)). The USPTOs interpretation of its own regulations is entitled to substantial deference. See Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 413-14 (1945) (holding that an agencys interpretation of its own regulation is entitled to controlling weight unless it is plainly erroneous or inconsistent with the regulation); Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (holding that courts must accord substantial deference to [the] agencys interpretation of its own regulations); Bender v. Dudas, 490 F.3d 1361, 1367 (Fed. Cir. 2007) (deferring to USPTOs interpretation of its own regulation pursuant to Seminole Rock because the key words of the regulation were undefined and left to the agency to determine). C. Mr. Schmirlers Status Is That of an Applicant The USPTO

The USPTO issued U.S. Patent No. 6,214,374 on April 10, 2001.

subsequently vacated the patent for three overlapping reasons: First, as a result of Dr. Portmans chargeback (SOF 16-18), the issue fee had never been paid, and thus the patent did not validly issue. A229; A236; 35 U.S.C. 151 (establishing payment of issue fee as a precondition for patent issuance and to prevent patent lapse). Second, because the chargeback cast doubt on the applicants representation that the previous abandonment had been unintentional, the USPTO withdrew its petition decision reviving the previously-abandoned application. SOF 19. That petition decision had served as a precondition to the patent grant. SOF 20. Third, when the USPTO offered the applicants, through their attorney of record, the opportunity to clear up the situation by paying the missing issue fee and explaining why the chargeback did not render the

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abandonment intentional the applicants, again through their attorney, failed to do so. SOF 24-26. Under these circumstances, it was appropriate for the USPTO to vacate the patent grant, and return the inventors to the status they enjoyed prior to the erroneous patent grant: that of patent applicants. Mr. Schmirler is thus a patent applicant, in U.S. Patent Application No. 08/652,280. That application currently stands abandoned, for the applicants failure to respond to the June 7, 2004 Notice, which informed them of the problems and required a response to prevent the patent from being vacated. SOF 19-26. It is also abandoned because the USPTOs December 20, 2000 petition decision reviving it has been withdrawn. SOF 19. As set forth below, a petition to revive the application must be submitted by all of the applicants and owners together, or by an attorney properly appointed by all applicants and owners. 3 See 37 CFR 1.32, 1.33(b)(4). D. Because Mr. Galster Did Not Have a Signed Power of Attorney From All Applicants and Owners, the USPTO Could Not Consider Papers Filed By Mr. Galster in Connection With the 280 Application Absent Extraordinary Circumstances

Currently, the attorney of record for this patent application is Gary Essman. Essman has been attorney of record since November 2000, when co-inventors Schmirler, Portman, and Christensen all signed powers of attorney appointing him to represent their interests in connection with the application, in accordance with USPTO rules. Garet Galsters proferred power of attorney signed only by Mr. Schmirler did not comply with USPTO rules and was refused. Accordingly, Mr. Galster has no authority to act in the USPTO on the 280 application.

The Director uses the term applicants and owners to refer to Mr. Schmirler (who is both an applicant and an owner) and his co-owner or co-owners. Although the record does not clearly identify Mr. Schmirlers co-owner or co-owners, it is clear that Mr. Schmirler is not the sole owner of the patent application. 16 Case 2:10-cv-00144-LA Filed 05/10/11 Page 16 of 25 Document 19

To take action with respect to a patent application, an attorney must have powers of attorney from each applicant and owner. Thus, 37 CFR 1.33(b) provides that [a]mendments and other papers . . . filed in [a patent] application must be signed by: (1) A patent practitioner of record appointed in compliance with 1.32(b); (2) A patent practitioner not of record who acts in a representative capacity under the provisions of 1.34; (3) An assignee as provided for under 3.7l(b) of this chapter; or (4) All of the applicants ( 1.4l(b)) for patent, unless there is an assignee of the entire interest and such assignee has taken action in the application in accordance with 3.71 of this chapter. 37 CFR 1.33(b). Mr. Galster is none of the above. He is neither an assignee nor an applicant, and thus subsections (3) and (4) do not apply. Subsection (1) does not apply because Mr. Galster has not been appointed in compliance with 1.32(b), which requires the power of attorney to [b]e signed by the applicant for patent ( 1.41(b)) or the assignee of the entire interest of the applicant, where applicant refers to the inventor or joint inventors who are applying for a patent, or to the person mentioned in 1.42, 1.43, or 1.47 who is applying for a patent in place of the inventor. See 37 CFR 1.41(b). 4 In other words, the USPTO rules operate to ensure that an attorney seeking to act with respect to a patent application has the authority to do so from all

Mr. Schmirler does not dispute that Rule 1.41(b) defines applicant to include all the applicants and owners of a patent application. See Schmirler S.J. Mem. at 18. Nevertheless, he considers it duplicitous for the USPTO to rely on this definition, while also pointing to the action of a single inventor (Portman) in initiating the chargeback as a basis for vacating the patent. Br. at 22. There is no inconsistency. The rules require that all applicants and owners of the patent proceed with a single voice. The rules also require that to revive an abandoned application, the applicants must show that the abandonment was unintentional or unavoidable. 37 CFR 1.137. Portmans chargeback raised the inference that the abandonment may have been intentional, thereby undermining the applicants prior assertion of unintentionality. SOF 21. When the USPTO issued the June 7, 2004 notice, it became 17 Case 2:10-cv-00144-LA Filed 05/10/11 Page 17 of 25 Document 19

applicants and owners of the patent application. authority.

Mr. Galster does not claim to have that

Subsection (2) of section 1.33(b) likewise does not apply, because Mr. Galster does not have the authority to (2) act[] in a representative capacity under the provisions of 1.34, because that section requires that he be authorized to represent the particular party on whose behalf he or she acts. 37 CFR 1.34. In this case, because Mr. Galster is seeking to take action with respect to the jointly-owned 280 application, the party on whose behalf he is seeking to act is the applicant i.e., the applicants and co-owners of the 280 application. See 37 CFR 1.41(b). He does not have authority to represent anyone other than Mr. Schmirler, and thus cannot take action on the application under subsection (2). Nor has Mr. Schmirler shown the requisite extraordinary situation that might warrant suspension of the USPTO rules under 37 CFR 1.183, so as to permit Galster to take action based on Mr. Schmirlers power of attorney alone. A274-75 & n.15. The other inventors

assigned their interests to DPI (SOF 2), and, regardless of the status of DPI, those interests still exist. As explained in the final decision, the question of who owns the remaining interest in the patent application is a matter of state law, and Mr. Schmirler has not satisfactorily shown that the answer to that question cannot be ascertained. Id. For example, although the persons most likely to know the status of the remaining interest are Essman, Portman, and Christensen, Mr. Schmirler fails to assert that he has made any attempt whatsoever to contact any of those individuals to find out who owns the remaining share of the application. Id.; see also A273 n.14 (suggesting that Schmirler send a power of attorney to Portman and Christensen by certified mail). incumbent on the applicants to rebut that inference. It was the applicants failure to respond to that notice that resulted in the withdrawal of the patent. 18 Case 2:10-cv-00144-LA Filed 05/10/11 Page 18 of 25 Document 19

Mr. Schmirler does not appear to dispute that if he is merely an applicant, he cannot get relief from this Court. See Schmirler S.J. Mem. at 11-12 (arguing only that Mr. Schmirler is a patentee, not an applicant). As shown above, assuming Mr. Schmirler is an applicant, the USPTOs regulations plainly preclude Mr. Galster from taking action with respect to the 280 application. Accordingly, if the Court agrees that Mr. Schmirlers status is that of an applicant, then it must grant the USPTO summary judgment on the question of whether it was proper for the USPTO to refuse to consider the petitions and power of attorney submitted by Mr. Galster. The USPTOs decision not to consider the improperly-filed papers was neither arbitrary nor capricious. E. Even if Mr. Schmirler Was Once a Patentee, and Even if That Status Survived the Vacation of the Patent, That Would Not Change the Result in This Case

Perhaps recognizing the futility of arguing against Rule 1.33(b), Mr. Schmirler instead argues that he is a patentee, not an applicant, and that the USPTOs rules do not clearly spell out under what circumstances an attorney can take action with respect to an issued patent. As already explained, there is little question that Mr. Schmirler is anything other than a patent applicant at this stage. See Section C, above. Even assuming that Mr. Schmirlers interest in the vacated patent is a property interest, 5 this still does not help him. The USPTO imposes the same signature requirements for

This assumption is tenuous at best. Assuming that the 374 patent validly issued and that Schmirler was a bona fide patentee upon issuance, the patent has since been vacated after notice and an opportunity to be heard to Schmirler, through the attorney of record. A228-36. Given that the patent no longer exists, Schmirlers interest in the vacated patent can no longer be characterized as that of a patentee. At most, the owner of a lapsed or expired patent holds an expectancy the hope that he will be able to meet the conditions for reviving the patent. Unless and until the patent is revived, there is no property right, and thus no reason to treat the patentee any differently from an applicant (whose right is also a mere expectancy).

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taking action with respect to patents as for taking action with respect to applications. The regulation governing powers of attorney makes it clear that the same requirement applies to applications and issued patents. Thus, section 1.32 defines a power of attorney as a written document by which a principal authorizes one or more patent practitioners or joint inventors to act on his or her behalf (37 CFR 1.32(a)(2)) and in turn defines the term principal, as either an applicant for patent (1.4l(b)) or an assignee of entire interest of the applicant for patent or in a reexamination proceeding, the assignee of the entirety of ownership of a patent (37 CFR 1.32(a)(3) (emphasis added). The rules governing assignees likewise require owners of patents to act with a single voice. Thus, Rule 3.71(b) requires an assignee of a patent being reexamined to be either the sole assignee, or to act with all other partial assignees and inventors, in order to conduct the prosecution of a reexamination proceeding. 37 CFR 3.71(b). Rule 3.73 (Establishing Right of Assignee To Take Action) states that [t]he inventor is presumed to be the owner of a patent application, and any patent that may issue therefrom, unless there is an assignment (37 CFR 3.73(a)) (emphasis added). The same rule also provides that [i]f the submission under this section is by an assignee of less than the entire right, title and interest, such assignee must indicate the extent (by percentage) of its ownership interest, or the Office may refuse to accept the submission as an establishment of ownership. 37 CFR 3.73(c)(2. The rules nowhere suggest that a part-owner of a patent, such as Mr. Schmirler, can take unilateral action before the Office without his co-owners. To the contrary, they uniformly indicate that he cannot. Patentees are subject to the signature requirements for the same reason applicants are because the USPTO does not have the resources or ability to mediate disputes between coowners of patents as to the proper course of action with respect to a patent, the USPTO requires

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that an attorney seeking to take action with respect to a patent have signature authority from all applicants and owners of the patent. In any event, the USPTO plainly interprets its regulations as imposing the same signature requirements on patentees as on applicants. See MPEP 301 (All parties having any portion of the ownership of the patent property must act together as a composite entity in patent matters before the Office (MPEP 301); see also A278-79 (interpreting USPTO regulations as imposing the same signature requirements on patentees as on applicants). Because that interpretation is not plainly erroneous or inconsistent with the

regulation, it is entitled to controlling weight. Bowles v. Seminole Rock, 325 U.S. at 413-14. 6 Mr. Schmirlers argument that he is a tenant-in-common with a right to protect his property (Schmirler S.J. Mem. at 12-15) does not change this result. The fact that a patent coowner can license the patent without consulting his co-owners is simply not relevant to the question whether USPTO rules permit the contemplated unilateral action by a partial owner in this case. Indeed, the logical consequence of Mr. Schmirlers argument would be that every partowner of a patent could take unilateral and independent (and potentially conflicting) action before the USPTO. The USPTO rules are designed to prevent this, and properly so. The USPTOs rules also have the beneficial effect of encouraging inventors and applicants to have
6

The exceptions to the signature requirement that Schmirler points out (Schmirler S.J. Mem. at 15-16) actually prove the rule. In order for a single applicant to proceed on a patent application without his co-owners, the applicant must make a showing, to the Directors satisfaction, that the co-owners are unavailable or refuse to join in the application. 35 U.S.C. 116. An assignee seeking to proceed without an inventors signature must make a similar showing. 35 U.S.C. 118. Mr. Schmirler has made no analogous showing here. See A275 (holding that Schmirlers failure to show a refusal to sign by his co-owner(s) precluded a finding of extraordinary circumstances to justify waiving the signature requirements). For the purely ministerial function of paying a maintenance fee, the USPTO does not require a power of attorney; indeed, it permits any person or organization to pay maintenance fees on behalf of a patentee. 37 CFR 1.366(a). Thus, the only exception to the signature requirement that does not involve a showing of a refusal to sign is expressly spelled out in the regulations, and involves a purely ministerial function.

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clear agreements among themselves regarding the ownership and control of any patent rights prior to embarking on the patent prosecution process. See, e.g., Practicing Law Institute, Joint Ventures and Strategic Alliances: Ownership of Developed Intellectual Property--Issues and Approaches, 956 PLI/P 83, 101 (Jan.-Feb. 2009) (Parties contemplating joint ownership of patents should consider and, in most cases include provisions in their agreement specifying, how the decision whether or not to file a patent application and prosecution and maintenance of those that are filed will be handled.). F. Mr. Schmirlers Challenge to the Withdrawal of the Patent Is Premature for Failure to Exhaust Administrative Remedies

The agencys final decision in this case merely determined that Mr. Schmirlers proferred power of attorney and petition failed to comply with the agencys signature requirement, and thus were improper. A281. To the extent that Mr. Schmirler is challenging the USPTOs decision to vacate the 374 patent, that challenge is premature. Basic principles of administrative law require that a plaintiff exhaust available administrative remedies prior to bringing an action in Court, especially in cases where the relevant statute provides that certain administrative procedures shall be exclusive. McKart v. United States, 395 U.S. 185, 193-94 (1969); see also id. (The agency, like a trial court, is created for the purpose of applying a statute in the first instance. Accordingly, it is normally desirable to let the agency develop the necessary factual background upon which decisions should be based.). In this case, the responsibility for

administering the statutes regarding revival rests with the USPTO in the first instance. See Morganroth v. Quigg, 885 F. 2d 843, 847 (1989) (The Commissioner of Patents and Trademarks is primarily responsible for the application and enforcement of these narrow technical and specialized statutory and regulatory provisions governing abandonment and revival of patent applications.). 22 Case 2:10-cv-00144-LA Filed 05/10/11 Page 22 of 25 Document 19

Administrative exhaustion would require a proper challenge to the January 11, 2005, decision vacating the patent. That challenge would involve a showing by all the owners of the application that the abandonment and attendant delays were not intentional, and would thus require an explanation from Dr. Portman regarding the circumstances surrounding the American Express chargeback of the issue fee. It would likely also require an explanation of why the inventors failed to respond to the June 7, 2004 notice, and why Mr. Schmirler did not act more promptly following the USPTOs January 11, 2005, withdrawal of the patent, or after his own August 19, 2005 power to inspect (SOF 29). Only after the USPTO has ruled on the

sufficiency of those showings could the USPTOs action become reviewable under the APA. Mr. Schmirlers contention that there is zero evidence on the administrative record that Mr. Portman ever disputed fees or requested a refund of fees paid (Schmirler S.J. Mem. at 17), is not only incorrect (see SOF 17 & Doc. 12-2, Ex. A, p. 5), but it also serves to underscore the fact that the applicants and owners here have failed to exhaust administrative remedies. A proper revival petition before the Office will necessarily involve evidence regarding the circumstances of the chargeback which is currently lacking, and which is necessary to any decision to revive the patent application or reinstate the patent. 7

Mr. Schmirler is also wrong to suggest that this Court would have the power to reinstate the patent, or even that ordering the USPTO to accept the late payment of all fees would cause the patent to be reinstated. The patent has been vacated, and there is no statutory authority for a court to revive it. Cf. Gould v. Quigg, 822 F.2d 1074, 1079 (Fed. Cir. 1987) (Turning now to the issue of whether the district court has authority to direct the issuance of a patent, we conclude it does not.). Assuming Schmirlers argument is that the USPTOs withdrawal of the patent was of no force and effect, then the patent has long since expired for failure to pay the statutorily-required maintenance fees, and is likewise beyond the power of this Court to revive. 35 U.S.C. 41(b) (Unless payment of the applicable maintenance fee is received in the Patent and Trademark Office on or before the date the fee is due or within a grace period of six months thereafter, the patent will expire as of the end of such grace period.); 35 U.S.C. 41(b)(3) (authorizing the USPTO to revive an expired patent upon appropriate showing).

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The challenge to the withdrawal of the patent is in any event without merit, because the USPTOs withdrawal of the patent was fully justified under the circumstances. Dr. Portmans chargeback removed one of the statutory preconditions for patent grant that the issue fee has been paid. 35 U.S.C. 151 (requiring that an issue fee shall be paid, and that [a]ny remaining balance of the issue fee shall be paid within three months from the sending of a notice thereof, and, if not paid, the patent shall lapse at the termination of this three-month period.). His chargeback also raised questions regarding the applicants representation that the original abandonment had been unintentional. A230. Finally, when the applicants failed to respond to the June 7, 2004, Notice which specifically explained that failure to respond would result in the patent being vacated the USPTO had no choice but to vacate the patent. CONCLUSION For the reasons set forth above, the Director respectfully requests that its motion for summary judgment be granted, and that Mr. Schmirlers motion for summary judgment be denied. Dated this 10th day of May, 2011. JAMES L. SANTELLE United States Attorney By: /s/ Chris R. Larsen CHRIS R. LARSEN Assistant United States Attorney Eastern District of Wisconsin 517 E. Wisconsin Ave., Room 530 Milwaukee, WI 53202 (414) 297-1700 Facsimile: (414) 297-4394 State Bar No. 1005336 chris.larsen@usdoj.gov

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Of Counsel: Thomas W. Krause Frances M. Lynch Office of the Solicitor United States Patent & Trademark Office 600 Dulany St. Alexandria, VA 22314 571-272-9035 Thomas.Krause@USPTO.GOV Frances.Lynch@USPTO.GOV

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