California Real Estate Journal Dec. 7, 2009 : Page 27
WHERE REAL ESTATE PROFESSIONALS SHARE THEIR INSIGHTS AND OPINIONS THEVIEW RESPONSE Are green buildings properly valued in the marketplace? ��Respond to the question of the week at www.CARealEstateJournal.com and you could be quoted in an upcoming issue. Michael Gottlieb is editor of the California Real Estate Journal. He can be reached at Michael_Gottlieb@DailyJournal.com. Order is Restored BY MICHAEL GOTTLIEB CREJ Editor EDITOR’S NOTE: The author made a sincere attempt to be fair and unbi- ased before being forced to acknowledge it would be impossible. Fight On! A little order was restored to a world that was turned upside down. The Victory Bell remains cardinal red as it has the past 10 out of 11 years and the Silver Shovel has beenreturned to its rightful place at the USC Lusk Center for Real Estate offi ces after a two-year visit across town at the UCLA Ziman Center for Real Estate. Last month, student teams from both real estate programs squared off in NAIOP SoCal’s 12th Annual UCLA/USC Real Estate Challenge, which pits fi ve-member teams from each school against each other in a competition to prepare a strategy recommendation for a conceptual redevelopment project. The teams hadfi ve weeks to create a comprehensive package that is then pre- sented to a panel of industry leaders to judge in written and oral presentations, which culminated in a fi nal audience presentation on Nov. 19 with the winner receiving the Silver Shovel, bragging rights and a $5,000 contribution made in the name of the winning school to the Challenge for Charity. This year’s challenge was to redevelop a 3.9-acre brownfi eld owned by the Los Angeles Department ofWater and Power near downtown Los Angeles, in a pilot LEED-ND planning area and State Enterprise Zone with a goal to maximize the value of the land and attract high-quality jobs to the area. I’ve had the pleasure of attending this terrifi c event for several years now and this year’s presentations were among the best and most diverse I have seen. I’m loathe to admit this publicly but the UCLA team of Natalie Atun Green- berg, Derek Oosterman, Derek Perlman, Gregory Schain, Aaron Zeligs and Team Advisor Paul Habibi came up with a truly revolutionary concept with its Victory Gardens proposal. Their idea to create a high-yield organic food production facility on the site using aquaponic technology to raise organic seafood, fruits and vegetables with a relatively low investment of $4.3 million in construction costs and an unlevered return on cost of 8.5 percent was both feasible and dynamic. The audience clearly was impressed with their presen- tation and while there weren’t any poorly thought-out last-minute timeouts, popular sentiment seemed to be with them. But the USC team of Zachary Adams, Iain M. Gulin, Nicholas Harnsberger, Ben Jensen, Ryan Schierberl and Team Advisor Christian L. Redfearn had the winning proposal: Artesian Green project. Their mixed-use project called for the integration of residential, retail, civic and offi ce space in a clean-tech educational setting that envisioned a 12 percent return for investors. The USC concept was a much more intense use of space and capital but also represented a much more traditional real estate development as opposed to UCLA’s operating business proposal. Speaking to some of the judges after- ward, they told me that approach, along with insights that the USC team did a better job in their presentations to the judges, gave the Trojans their sixth vic- tory and the lead in this crosstown rivalry, along with the countless other ways that USC maintains its superiority over the otherwise fi ne folks at UCLA. Setting the spirit of rivalry aside for a moment, I want to salute the embar- rassment of riches Los Angeles enjoys when it comes to real estate education programs. At a time when quality education is paramount to understanding and managing the challenges in today’s real estate marketplace, both pro- grams are clearly empowering a new generation of potential future leaders in ways that brings the cutting edge of theory out of the classroom and onto the streets. I’d be willing to put our hometown teams against any other programs — I’m talking about Stanford and UC Berkeley, where the real estate challenge origi- nated — for a statewide challenge. Now that would be some competition.� FOR THE RECORD In the Nov. 23 edition of the CREJ in an article on Sheppard, Mullin, Richter & Hampton LLP growing its real estate practice, the fi rm’s name was misspelled in the headline. Also attorney Deborah Rosenthal’s name was misspelled. WWW.CAREALESTATEJOURNAL.COM GUEST COLUMN Getting a Slice of the Renewable-Energy Pie a relatively open and fertile market to a more mature and crowded market were characterized by increased use of patents for protecting future areas of business or licensing revenue. The same is expected for renewable energy. While renewable energy may be the next big thing in tech C for the coming decade, as telecommunications was for the 1990s, access to patents as a means to defend turf or gener- ate income has, contrarily, become more challenging. This will not deter businesses fromfi ling for patents. But it will force some of them to reconsider the wisdom of clinging to any lingering, 1990s-vintage patenting strategies. Investment in solar, wind or energy storage, for example, or the integration of those technologies into a smart grid infrastructure will spur innovations that are unquestion- ably groundbreaking and patent-worthy. There also will be innovations that, while not game-changers, are nonethe- less important to business. These are the inventions that advance the art only incrementally. Naturally, a higher bar to patentability should be placed in front of the applicant who seeks a patent on an incremental improvement. So it has been for many, many years in patent law. The differ- ence now, however, is the benefi t of doubt tends to swing in favor of the patent skeptic, not the patent proponent. This changed view was perhaps most vividly expressed in the Supreme Court’s 2007 opinion addressing the legal standard for deciding whether an invention is “obvious,” which, roughly translated, means novel but not patent-worthy. According to the Supreme Court, an invention that is “pre- dictable,” either in its combination of parts or the result it produces, is a key factor in deciding whether it is patentable. And when an invention is predictable there need not even be contemporaneous evidence, such as a document published before the inventor’s light bulb went on, to show that those working in the art would have had a reason to construct a device similar to that invented. This pronouncement, while not altering black letter law, has profoundly reduced a patent opponent’s plan or skeptical patent examiner’s burden of showing obviousness, for the following reason. The counter- balance, or pro-patent side of the coin — one should not be denied a patent when a conclusion of obviousness is unfairly infl uenced by hindsight — simply is not given as much attention as in the 1990s. Patenting incremental improvements in renewable energy, therefore, requires reconsideration of the types of information one needs to solicit from inventors; and if the decision is made to fi le, what goes into or is left out of the patent application in order to increase odds that an acceptable number of fi led applications will issue as patents. In other words, one might be better off assuming that the patent application will be rejected at the outset and the burden of proving non-obviousness will fall squarely on the shoulders of the applicant. What can be done? While a patent offi ce examiner may be entitled to make rather liberal inferences, his or her intellectual leap from a novel invention to an obvious one must still be fi rmly grounded in predicate factual fi ndings, so that the examina- tion is not guided by personal opinion. In patent law these factual fi ndings are known as the Graham factors. If the opponent of a patent right does not correctly resolve each of these factors then, regardless of their opinion, the analysis is fl awed and a patent cannot be denied. For example, the question “would one of ordinary skill in the art at the time of invention have arrived at the same result?” cannot be prop- erly answered until the predicate of the question, i.e., the Graham factors, are determined. Hence, the answer to this question depends on the qualities possessed by this person ontinuing investment in renewable energy and related infrastructure technologies eventually will produce an atmosphere of fierce competi- tion as unclaimed slices of the renewable-energy pie get smaller. In years past, transitions from of ordinary skill and where he or she would have looked, or not looked, to fi nd a solution to the problem. Consider the following example of a patent application directed to an incremental improvement in wind turbines. The application describes a simple but ingenious invention that addresses premature failures in wind turbine gearbox- es. The inspiration for the invention came from an obscure technical journal unrelated to wind turbines. Although the arrangement of parts that produced the desired result is novel, the parts themselves, and combinability of those parts, clearly are not. Moreover, with the benefi t of only the inventor’s rather crude mechanical drawing, one can easily see how to make or use the invention. No further explana- tion is required. A patent examiner may take this patent ap- plication and conclude, at the outset, that the invention is not patent-worthy because it would have been obvious. Then the patent examiner will conduct literature-based searches for each piece of the invention in order to justify the denial of a patent right . The examiner’s erroneous conclusion can be revealed by identifying fl aws in the examiner’s resolution of the Graham factors, such as the level of ordinary skill or the scope of knowledge in the wind turbine art at the time of the inven- tion. The traverse may, on the one hand, be communicated in the fi rst instance during patent prosecution by producing documents or fi ling declarations with the examiner. On the other hand, if the patent application already provides insight into the Graham factors, then the case for patentability ought to be more persuasive. Evidence of non-obviousness taken straight from the application deserves more respect than similar evidence presented for the fi rst time and in response to an examination report rejecting the application. A more persuasive application, therefore, might tell the story of how the inventor’s inspiration for the solution to the gearbox problem came from a source wholly outside the fi eld of wind turbines. This can rebut a fi nding of obvious- ness . One of ordinary skill in wind turbines would not have looked outside of his or her fi eld to fi nd a novel solution to the problem. The inventor’s discovery, therefore, was not the product of ordinary skill but extraordinary effort. Other rationales have been articulated to defeat claims of obviousness. In each case, the objective is to persuade the examiner or tribunal that the evidence presented is inconsistent with a fi nding of obviousness. And because of this inconsistency between the teachings of the art at the time of the invention and the ex post facto conclusions made here today, the patent opponent’s conclusion of obviousness is unfairly tainted by hindsight. In other words, without the benefi t of the patent application to use as a guide or roadmap, the patent opponent would have stood no chance of reconstructing the invention. Since 2007 there has been a dramatic shift in the burdens of proof for obviousness. Patent opponents are getting the benefi t of the doubt. And patent examiners are presumed to be immune from the dangers of hindsight. As such, the impropriety of denying someone a patent right based on not objective fi ndings but hindsight reconstruction of an inven- tion is today a burden of persuasion carried by the applicant, not the patent examiner. In the 1990s the opposite was true. But that was then. This is now.� James L. Reed is a senior patent at- torney with the global lawfi rm Squire, Sanders & Dempsey, focusing his prac- tice on intellectual property matters, including patent prosecution, counsel- ing, litigation and intellectual property transactions in a range of fi elds. CALIFORNIA REAL ESTATE JOURNAL DEC. 7, 2009 PAGE 27 INSIDER’S VIEWPOINT
Order is Restored
Michael Gottlieb
EDITOR’S NOTE: The author made a sincere attempt to be fair and unbiased before being forced to acknowledge it would be impossible. Fight On! A little order was restored to a world that was turned upside down. The Victory Bell remains cardinal red as it has the past 10 out of 11 years and the Silver Shovel has been returned to its rightful place at the USC Lusk Center for Real Estate offi ces after a two-year visit across town at the UCLA Ziman Center for Real Estate. Last month, student teams from both real estate programs squared off in NAIOP SoCal’s 12th Annual UCLA/USC Real Estate Challenge, which pits fi ve-member teams from each school against each other in a competition to prepare a strategy recommendation for a conceptual redevelopment project. The teams had fi ve weeks to create a comprehensive package that is then presented to a panel of industry leaders to judge in written and oral presentations, which culminated in a fi nal audience presentation on Nov. 19 with the winner receiving the Silver Shovel, bragging rights and a $5,000 contribution made in the name of the winning school to the Challenge for Charity. This year’s challenge was to redevelop a 3.9-acre brownfi eld owned by the Los Angeles Department of Water and Power near downtown Los Angeles, in a pilot LEED-ND planning area and State Enterprise Zone with a goal to maximize the value of the land and attract high-quality jobs to the area. I’ve had the pleasure of attending this terrifi c event for several years now and this year’s presentations were among the best and most diverse I have seen. I’m loathe to admit this publicly but the UCLA team of Natalie Atun Greenberg, Derek Oosterman, Derek Perlman, Gregory Schain, Aaron Zeligs and Team Advisor Paul Habibi came up with a truly revolutionary concept with its Victory Gardens proposal. Their idea to create a high-yield organic food production facility on the site using aquaponic technology to raise organic seafood, fruits and vegetables with a relatively low investment of $4.3 million in construction costs and an unlevered return on cost of 8.5 percent was both feasible and dynamic. The audience clearly was impressed with their presentation and while there weren’t any poorly thought-out last-minute timeouts, popular sentiment seemed to be with them. But the USC team of Zachary Adams, Iain M. Gulin, Nicholas Harnsberger, Ben Jensen, Ryan Schierberl and Team Advisor Christian L. Redfearn had the winning proposal: Artesian Green project. Their mixed-use project called for the integration of residential, retail, civic and offi ce space in a clean-tech educational setting that envisioned a 12 percent return for investors. The USC concept was a much more intense use of space and capital but also represented a much more traditional real estate development as opposed to UCLA’s operating business proposal. Speaking to some of the judges afterward, they told me that approach, along with insights that the USC team did a better job in their presentations to the judges, gave the Trojans their sixth victory and the lead in this crosstown rivalry, along with the countless other ways that USC maintains its superiority over the otherwise fi ne folks at UCLA. Setting the spirit of rivalry aside for a moment, I want to salute the embarrassment of riches Los Angeles enjoys when it comes to real estate education programs. At a time when quality education is paramount to understanding and managing the challenges in today’s real estate marketplace, both programs are clearly empowering a new generation of potential future leaders in ways that brings the cutting edge of theory out of the classroom and onto the streets. I’d be willing to put our hometown teams against any other programs — I’m talking about Stanford and UC Berkeley, where the real estate challenge originated — for a statewide challenge. Now that would be some competition.
Getting a Slice of the Renewable-Energy Pie
Continuing investment in renewable energy and related infrastructure technologies eventually will produce an atmosphere of fierce competition as unclaimed slices of the renewable-energy pie get smaller. In years past, transitions from a relatively open and fertile market to a more mature and crowded market were characterized by increased use of patents for protecting future areas of business or licensing revenue. The same is expected for renewable energy. While renewable energy may be the next big thing in tech for the coming decade, as telecommunications was for the 1990s, access to patents as a means to defend turf or generate income has, contrarily, become more challenging. This will not deter businesses from fi ling for patents. But it will force some of them to reconsider the wisdom of clinging to any lingering, 1990s-vintage patenting strategies. Investment in solar, wind or energy storage, for example, or the integration of those technologies into a smart grid infrastructure will spur innovations that are unquestionably groundbreaking and patent-worthy. There also will be innovations that, while not game-changers, are nonetheless important to business. These are the inventions that advance the art only incrementally. Naturally, a higher bar to patentability should be placed in front of the applicant who seeks a patent on an incremental improvement. So it has been for many, many years in patent law. The difference now, however, is the benefi t of doubt tends to swing in favor of the patent skeptic, not the patent proponent. This changed view was perhaps most vividly expressed in the Supreme Court’s 2007 opinion addressing the legal standard for deciding whether an invention is “obvious,” which, roughly translated, means novel but not patent-worthy. According to the Supreme Court, an invention that is “predictable,” either in its combination of parts or the result it produces, is a key factor in deciding whether it is patentable. And when an invention is predictable there need not even be contemporaneous evidence, such as a document published before the inventor’s light bulb went on, to show that those working in the art would have had a reason to construct a device similar to that invented. This pronouncement, while not altering black letter law, has profoundly reduced a patent opponent’s plan or skeptical patent examiner’s burden of showing obviousness, for the following reason. The counterbalance, or pro-patent side of the coin — one should not be denied a patent when a conclusion of obviousness is unfairly infl uenced by hindsight — simply is not given as much attention as in the 1990s. Patenting incremental improvements in renewable energy, therefore, requires reconsideration of the types of information one needs to solicit from inventors; and if the decision is made to fi le, what goes into or is left out of the patent application in order to increase odds that an acceptable number of fi led applications will issue as patents. In other words, one might be better off assuming that the patent application will be rejected at the outset and the burden of proving non-obviousness will fall squarely on the shoulders of the applicant. What can be done? While a patent offi ce examiner may be entitled to make rather liberal inferences, his or her intellectual leap from a novel invention to an obvious one must still be fi rmly grounded in predicate factual fi ndings, so that the examination is not guided by personal opinion. In patent law these factual fi ndings are known as the Graham factors. If the opponent of a patent right does not correctly resolve each of these factors then, regardless of their opinion, the analysis is fl awed and a patent cannot be denied. For example, the question “would one of ordinary skill in the art at the time of invention have arrived at the same result?” cannot be properly answered until the predicate of the question, i.e., the Graham factors, are determined. Hence, the answer to this question depends on the qualities possessed by this person of ordinary skill and where he or she would have looked, or not looked, to fi nd a solution to the problem. Consider the following example of a patent application directed to an incremental improvement in wind turbines. The application describes a simple but ingenious invention that addresses premature failures in wind turbine gearboxes. The inspiration for the invention came from an obscure technical journal unrelated to wind turbines. Although the arrangement of parts that produced the desired result is novel, the parts themselves, and combinability of those parts, clearly are not. Moreover, with the benefi t of only the inventor’s rather crude mechanical drawing, one can easily see how to make or use the invention. No further explanation is required. A patent examiner may take this patent application and conclude, at the outset, that the invention is not patent-worthy because it would have been obvious. Then the patent examiner will conduct literature-based searches for each piece of the invention in order to justify the denial of a patent right . The examiner’s erroneous conclusion can be revealed by identifying fl aws in the examiner’s resolution of the Graham factors, such as the level of ordinary skill or the scope of knowledge in the wind turbine art at the time of the invention. The traverse may, on the one hand, be communicated in the fi rst instance during patent prosecution by producing documents or fi ling declarations with the examiner. On the other hand, if the patent application already provides insight into the Graham factors, then the case for patentability ought to be more persuasive. Evidence of non-obviousness taken straight from the application deserves more respect than similar evidence presented for the fi rst time and in response to an examination report rejecting the application. A more persuasive application, therefore, might tell the story of how the inventor’s inspiration for the solution to the gearbox problem came from a source wholly outside the fi eld of wind turbines. This can rebut a fi nding of obviousness . One of ordinary skill in wind turbines would not have looked outside of his or her fi eld to fi nd a novel solution to the problem. The inventor’s discovery, therefore, was not the product of ordinary skill but extraordinary effort. Other rationales have been articulated to defeat claims of obviousness. In each case, the objective is to persuade the examiner or tribunal that the evidence presented is inconsistent with a fi nding of obviousness. And because of this inconsistency between the teachings of the art at the time of the invention and the ex post facto conclusions made here today, the patent opponent’s conclusion of obviousness is unfairly tainted by hindsight. In other words, without the benefi t of the patent application to use as a guide or roadmap, the patent opponent would have stood no chance of reconstructing the invention. Since 2007 there has been a dramatic shift in the burdens of proof for obviousness. Patent opponents are getting the benefi t of the doubt. And patent examiners are presumed to be immune from the dangers of hindsight. As such, the impropriety of denying someone a patent right based on not objective fi ndings but hindsight reconstruction of an invention is today a burden of persuasion carried by the applicant, not the patent examiner. In the 1990s the opposite was true. But that was then. This is now.
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