Category: Patent Law

Federal Circuit Again Finds Computer-Implemented Invention Patent Eligible

Post author By Joshua Grove
Post date September 16, 2016

In Tuesday’s McRO v. Bandai decision, the Federal Circuit has once again reversed a district court’s determination that a computer-implemented invention (aka “software patent”) was not patent eligible under Section 101 of the Patent Act. This continues the Federal Circuit’s recent trend of clarifying the Supreme Court’s two-step patent-eligibility test under Mayo and Alice. The first step asks whether the invention is “directed to” a patent-ineligible concept, such as an abstract idea. If so, the second step then asks whether there is an “inventive concept” that transforms the concept into a patent-eligible invention. While the Supreme Court gave little guidance on what “directed to” and “inventive concept” mean in practice, the Federal Circuit’s recent decisions have made the Mayo-Alice test far less abstract—rather ironic, given that the test itself assesses abstractness.

This past May, the Federal Circuit held in Enfish that, in the software context, the “directed to” inquiry looks at whether “the plain focus of the claims is on an improvement to computer functionality itself.” Since the database claims at issue focused on specific improvements to computer capabilities, they were not “directed to” a patent-ineligible concept under Section 101. Two months later in Bascom, the Federal Circuit stated that an “inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.” And even though each software claim, related to filtering content on the internet, was “known in the art” when taken individually, the Federal Circuit held that the claims, in combination, were patent eligible because they transformed “the abstract idea of filtering content into a particular, practical application of that abstract idea.”

Adding to this recent line of cases upholding the patent-eligibility of computer-implemented inventions, the Federal Circuit’s new opinion in McRO v. Bandai sheds even more light on the Section 101 analysis under the Mayo-Alice test. The invention at issue involved automated lip-syncing for computer-generated animation, which the district court held was drafted too broadly to be patent eligible. The Federal Circuit reversed, noting that courts “must look to the claims as an ordered combination,” even under the first step of the Mayo-Alice test. The Court of Appeals thus found that the proper analytical centerpiece was “whether the claims in these patents focus on a specific means or method that improves the relevant technology.” Since the invention constituted a “combined order of specific rules that renders information into a specific format that is then used and applied to create desired results,” the Federal Circuit held it patent eligible under Section 101.

Several commentators have praised the Federal Circuit’s decision. Bob Sachs, who specializes in patentable subject matter as a partner at Fenwick & West, points out that the Federal Circuit, for the first time, has used preemption to find that the invention was not “directed to” patent-ineligible subject matter. The Federal Circuit here looked at preemption as part of the first step of the Mayo-Alice test, finding it relevant to whether the invention was “directed to” a patent-ineligible concept in the first place. As Sachs explains, the Federal Circuit “confirms Enfish’s holding that the improvement provided by the specific claim limitations can be considered” under the first step of the Mayo-Alice test. Moreover, Sachs notes that the “panel here makes clear that a demonstration of meaningful non-preemption is sufficient to establish that a claim is not ‘directed to’ an abstract idea, and thus eligible at step 1.”

Other observers, including Erich Andersen, VP and Deputy General Counsel at Microsoft, and Gene Quinn of IPWatchdog, have applauded the Federal Circuit for making the patent-eligibility analysis even more concrete in light of the Supreme Court’s rather abstract abstractness test in Mayo and Alice. If anything, the Federal Circuit here has not only built upon its prior precedents in Enfish and Bascom, it has tied them together by explaining that ordered combinations are relevant to both the first and second steps of the Mayo-Alice test. In the end, the patent eligibility of a computer-implemented invention appears far more settled than ever before–a great result for inventors of so-called “software patents.” The Federal Circuit’s decision is certainly a far cry from the supposed death-knell for “software patents” predicted by several commentators after the Supreme Court’s opinion in Alice.

Scalia Law Alums Help Arts & Entertainment Advocacy Clinic Draft Influential Amicus Brief

Post author By Joshua Grove
Post date September 13, 2016

jennifer-atkins — Jennifer Atkins of Cloudigy Law

Last spring, the Arts & Entertainment Advocacy Clinic at Scalia Law School filed an amicus brief on behalf of intellectual property law scholars in the Fox News v. TVEyes copyright infringement case. Assisting the students on the project was practicing IP attorney and Scalia Law alum Jennifer Atkins, who volunteered her time—and the time of her firm, Cloudigy Law—to work closely with the Clinic to craft a professional and influential brief.

Cloudigy Law is a boutique intellectual property law firm located in Tysons Corner, Virginia, that was founded by Antigone Peyton, another Scalia Law alum. Expanding the firm’s reach into all areas of IP law, Antigone recruited other Scalia Law alums including Clyde Findley and Jennifer Atkins to build a “cloud-based” intellectual property and technology firm that stresses client communication and offers an innovative service model that big law firms can’t match. Cloudigy’s attorneys stay on top of current developments in IP law through their Decoding IP blog, which includes podcast discussions of the issues important to their clients.

As a result of its unique approach and dedication to the client, Cloudigy has grown to eleven attorneys and technologists who offer high quality strategic advice to help identify and protect IP and realize its value. The firm uses sophisticated enterprise collaboration technology to effectively share knowledge and deadlines within its litigation team and with its clients. Cloudigy values the relationships it has built with smaller clients, and it has adapted and responded to changes in the legal services market to suit their needs.

Jennifer got involved with the Arts & Entertainment Advocacy Clinic through her Scalia Law alumni connections, partnering with Clinic Director and CPIP Senior Scholar Sandra Aistars and meeting with students to discuss project strategy. Because of her background as an appellate clerk for the Honorable E. Grady Jolly at the United States Court of Appeals for the Fifth Circuit and her extensive appellate practice experience as a partner with Kirkland & Ellis, Jennifer was a perfect match for the Clinic—according to Professor Aistars, Jennifer was an “ideal and impressive partner.”

Emphasizing the role of an amicus brief in litigation, Jennifer encouraged the students to assume perspectives different than those of the parties and to utilize effective writing techniques to produce an outstanding brief that would be useful to the court. As the students worked through drafts, Jennifer made valuable suggestions that helped them get at the underlying policy issues and flesh out a persuasive argument. Working alongside a seasoned professional through the amicus brief process was a truly invaluable experience for the Clinic students and something that they’ll draw on as they begin their legal careers. Jennifer also expressed her appreciation for the opportunity to guide the students through the process, saying it was a “great way for us to give back to our law school.”

As the Arts & Entertainment Advocacy Clinic begins another semester of work, connections with Scalia Law alums and IP professionals* will continue to provide the students with unique opportunities and to foster the mutually beneficial relationships that represent Scalia Law’s esteemed IP law program.

*Lawyers and IP professionals who would like the Clinic to weigh in on a pro-artist copyright case or who would like to explore other volunteer opportunities with the Arts & Entertainment Advocacy Clinic may contact Sandra Aistars at saistars@gmu.edu.

Tags amicus brief, Antigone Peyton, Arts & Entertainment Advocacy Clinic, Cloudigy Law, Jennifer Atkins, Sandra Aistars, Scalia Law

Innovation Legislation Patent Law Patent Litigation Uncategorized

Law Professors & Economists Urge Caution on VENUE Act in Letter to Congress

Post author By Joshua Grove
Post date August 1, 2016

Today, 28 law professors, economists, and political scientists from across the nation submitted a letter to Congress expressing serious concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act. The letter is copied below, and it can be downloaded here: http://ssrn.com/abstract=2816062

Although proponents for the VENUE Act argue that the concentration of patent cases in a few federal district courts is bad for the patent system, this letter explains that the VENUE Act does not solve this problem. Studies show that similar restrictions on venue would only shift this concentration from the Eastern District of Texas to a couple other judicial districts – the District of Delaware and the Northern District of California. These two other districts are recognized as more friendly to defendants, such as the high-tech companies and retailers lobbying heavily for the VENUE Act. The letter also explains that Congress also should be wary of acting, because the rates and patterns in patent litigation are very fluid. For example, the percentage of patent lawsuits filed in the Eastern District of Texas relative to other districts is now declining substantially.

For these reasons, among others detailed in the letter, these academics conclude that Congress should adopt a wait-and-see approach on the VENUE Act. In the very least, until the patent-weakening effects of the America Invents Act’s new PTAB proceedings and recent Supreme Court decisions are better understood, Congress should be reluctant to enact legislation that will further weaken patent rights and potentially harm our innovation economy.

Read the letter below or download it here: http://ssrn.com/abstract=2816062

Letter to Congress from 28 Law Professors
& Economists Urging Caution on the VENUE Act

Dear Chairman Grassley, Ranking Member Leahy, Chairman Goodlatte, and Ranking Member Conyers:

As legal academics, economists, and political scientists who conduct research in patent law and policy, we write to express our concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act.[1] These changes would vastly restrict where all patent owners could file suit—contrary to the general rule that a plaintiff in a civil lawsuit against a corporate defendant can select any court with jurisdictional ties to the defendant.[2]

Given the recent changes in the patent system under the America Invents Act of 2011 and judicial decisions that have effectively weakened patent rights,[3] we believe that Congress should adopt a cautious stance to enacting additional changes that further weaken patent rights, at least until the effects of these recent changes are better understood.

Proponents of amending the venue rules have an initially plausible-sounding concern: the Eastern District of Texas handles a large percentage of patent infringement lawsuits and one judge within that district handles a disproportionate share of those cases. The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.

Indeed, the arguments in favor of this unprecedented move to restrict venue do not stand up to scrutiny. Specifically:

Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”[4] As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized.[5]

Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered).[6] Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.[7]

Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware.[8] These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.[9]

The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum.[10] Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.[11]

The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.[12] Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.

The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.

Innovators and their investors have long been vital to a flourishing innovation economy in the United States. Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both R&D and commercialization. We urge you to exercise caution before enacting further sweeping changes to our patent system that would primarily benefit large infringers to the detriment of these innovators and, ultimately, our innovation economy.

[1] Venue Equity and Non-Uniformity Elimination Act, S.2733, 114th Cong. (2016),
https://www.congress.gov/114/bills/s2733/BILLS-114s2733is.pdf.

[2] See 28 U.S.C. § 1391(c)(2). See generally Ferens v. John Deere Co., 494 U.S. 516, 527 (1990) (“a plaintiff . . . has the option of shopping for a forum with the most favorable law”).

[3] These include, among others: (1) administrative procedures for invalidating patents created by the America Invents Act, which have had extremely high invalidation rates, leading one former federal appellate judge to refer to these procedures as “death squads,” and (2) several decisions by the Supreme Court and the Federal Circuit that have drastically curtailed patent rights for many innovators. See Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent ‘Reform’ Legislation, WASHINGTON TIMES (March 24, 2016), http://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.

[4] Colleen Chien & Michael Risch, A Patent Reform We Can All Agree On, WASH. POST (June 3, 2016), https://www.washingtonpost.com/news/in-theory/wp/2015/11/20/why-do-patent-lawyers-like-to-file-in-texas/.

[5] See Michael C. Smith, “Hot But No Longer Boiling“ – EDTX Patent Case Filings Down almost Half; New Case Allocation and Procedures (No More Letter Briefing for SJ motions), EDTexweblog.com (July 21, 2016), http://mcsmith.blogs.com/eastern_district_of_texas/2016/07/edtx-patent-case-filing-trends-new-case-allocation-andprocedures.html.

[6] Colleen Chien & Michael Risch, What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?, PATENTLY-O (March 11, 2016), http://patentlyo.com/patent/2016/03/happen-patent-couldnt.html. This study also finds that 11% of cases would continue to be filed in the Eastern District of Texas, concentrating nearly two-thirds of all cases in three districts. See id. The authors of this study are presently expanding their investigation to an enlarged data set, which will also capture additional aspects of the VENUE Act. Neither the data nor their results are available yet. However, we have no reason to believe that the expanded data or analysis will produce results other than what has already been shown: a high concentration of patent cases in a small number of districts.

[7] See PricewaterhouseCoopers LLP, 2015 Patent Litigation Study (May 2015) (“PWC Study”), http://www.pwc.com/us/en/forensic-services/publications/assets/2015-pwc-patent-litigation-study.pdf.

[8] Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, LAW360 (Mar. 8, 2016), http://www.law360.com/articles/767955/edtx-judges-love-of-patent-trials-fuels-high-reversal-rate.

[9] See PWC Study, supra note 7 (finding an average affirmance rate of 48% for all districts, compared to an affirmance rate of 42% for the Eastern District of Texas).

[10] See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).

[11] See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947) (“[T]he plaintiff’s choice of forum should rarely be disturbed.”).

[12] See Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 MINNESOTA LAW REVIEW 649 (2014), http://www.minnesotalawreview.org/wpcontent/uploads/2015/02/REVISEDSchwartzetal_MLR.pdf.

Tags "patent trolls", Adam Mossoff, broken patent system, Eastern District of Texas, patent, Ted Sichelman, venue, VENUE Act

Innovation Inventors Patent Law Software Patent Uncategorized

CPIP Scholars File Amicus Brief in Trading Technologies v. CQG

Post author By Joshua Grove
Post date July 29, 2016

Earlier this month, CPIP Senior Scholar Adam Mossoff penned an amicus brief in Trading Technologies v. CQG, currently on appeal to the Federal Circuit. The brief was joined by nine other IP scholars, including CPIP Senior Scholars Mark Schultz and Kristen Osenga.

The amici argue that Trading Technologies’ graphical user interface (GUI) constitutes patentable subject matter under Section 101 of the Patent Act. Noting the Supreme Court’s holding in Bilski v. Kappos that “Section 101 is a dynamic provision designed to encompass new and unforeseen inventions,” the amici urge the Federal Circuit not to interpret Section 101 so narrowly as to “impede the process of future innovation” by “creating unnecessary and innovation-killing ‘uncertainty as to the patentability of software.’”

The recognition that specific computer-implemented technologies are not “abstract” is wholly consistent with the Mayo-Alice test set forth by the Supreme Court in its recent Section 101 decisions, Mayo v. Prometheus Labs and Alice v. CLS Bank. Under the Mayo-Alice framework, Trading Technologies’ GUI is not merely an “abstract idea” incorporating conventional and automatic processes, but rather it exemplifies the technical innovation and “progress of . . . useful Arts” that the patent system is intended to promote.

The Summary of Argument section of the brief is copied below:

SUMMARY OF ARGUMENT

The trial court’s decision represents a proper application of 35 U.S.C. § 101. See Trading Technologies Int’l, Inc. v. CQG, Inc., No. 05-4811, 2015 WL 774655 (N.D. Ill. Feb. 24, 2015). Because the parties address the relevant innovation covered by Trading Technologies’ patents, as well as the application of the Supreme Court’s recent § 101 jurisprudence, amici offer an additional insight that supports the trial court’s decision: the invention of computer-mediated processes is exactly the kind of innovation that the patent system is designed to promote.

As the Supreme Court recognized in Bilski v. Kappos, 561 U.S. 593 (2010), “Section 101 is a dynamic provision designed to encompass new and unforeseen inventions.” Id. at 605 (internal quotations omitted). Thus, this Court should decline the invitation by Appellant to construe § 101 in a crabbed and antiquarian fashion that would limit patent eligibility only to “processes similar to those in the Industrial Age—for example, inventions grounded in a physical or tangible form.” Id. To do so would contravene the Bilski Court’s warning against limiting § 101 to only non-digital inventions, creating thereby unnecessary and innovation-killing “uncertainty as to the patentability of software,” such as Appellee’s graphical-user-interface invention.Id.

To read the full amicus brief, please click here.

Tags abstract idea, Adam Mossoff, Alice, Bilski, Federal Circuit, graphical user interface, GUI, Kristen Osenga, Mark Schultz, Mayo, patentability, Section 101, Trading Technologies

Biotech High Tech Industry History of Intellectual Property Innovation Intellectual Property Theory Inventors Legislation Patent Law Patent Litigation Patent Theory Patentability Requirements Software Patent Supreme Court Uncategorized

Federal Circuit Brings Some Clarity and Sanity Back to Patent Eligibility Doctrine

Post author By Joshua Grove
Post date July 14, 2016

By Adam Mossoff and Kevin Madigan

Following the Supreme Court’s four decisions on patent eligibility for inventions under § 101 of the Patent Act, there has been much disruption and uncertainty in the patent system. The patent bar and most stakeholders in the innovation industries have found the Supreme Court’s decisions in Alice Corp. v. CLS Bank (2014), AMP v. Myriad (2013), Mayo Labs v. Prometheus (2012), and Bilski v. Kappos (2010) to be vague and doctrinally indeterminate. Given the moral panic about the patent system that has been created as a result of ten years of excessive lobbying in D.C. for legislation that weakens patent rights, judges have responded to the excessive discretion they have under these cases by invalidating whole swaths of patented innovation in the high-tech, biotech, and pharmaceutical industries. The Patent Office is also rejecting patent applications at record levels, even for traditional inventions outside of high-tech and life sciences directly affected by the recent § 101 case law.

In Sequenom v. Ariosa, the Supreme Court had the opportunity to bring some clarity to the law of patent eligibility and to reign in some of the judicial and Patent Office excesses, but unfortunately it rejected this opportunity when it denied Sequenom’s cert petition this past June. Fortunately, the Court of Appeals for the Federal Circuit is now taking the lead in providing some much-needed legal guidance on patent eligibility to the inventors and companies working in the innovation industries. In two recent decisions, Enfish v. Microsoft and Rapid Litigation Management v. CellzDirect, the Federal Circuit has set forth some important doctrinal guideposts for defining what counts as a patent-eligible invention. Not only do these two decisions bring some reason and clarity back to the law of patent eligibility under § 101, they provide important doctrinal insights on how stakeholders may wish to address this problem if they ultimately choose to seek relief in Congress.

Enfish and the Patentability of Computer-Implemented Inventions (a/k/a “Software Patents”)

At the time it was decided, some commentators believed that the Alice decision was a directive from on high that most, if not all, computer software programs were not patentable inventions. This was a surprising claim if only because the Alice Court did not once use the phrase “software” in its entire opinion. Of course, “software patent” is not a legal term in patent law; the proper term is “computer-implemented invention,” as used by the Alice Court, and so the Court may have been only avoiding vague rhetoric from the patent policy debates. More important, though, this claim about Alice contradicts the Court’s opinion in Bilski just four years earlier, when the Court warned the Federal Circuit not to adopt a bright-line rule that limited § 101 to only physical inventions of the “Industrial Age,” because this created unnecessary and innovation-killing “uncertainty as to the patentability of software.”

Unfortunately, the ambiguities in Alice and in the Court’s prior patentable subject matter decisions, such as Mayo, left enough discretionary wiggle room in applying the generalized patent-eligibility test to permit judges and patents examiners to wage war on computer-implemented inventions. They thus made real again in the twenty-first century Justice Robert Jackson’s famous observation in 1949 that “the only patent that is valid is one which this Court has not been able to get its hands on.” Jungersen v. Ostby & Barton Co., 335 U.S. 560, 572 (1949) (Jackson, J., dissenting). As one commentator remarked several months after Alice was decided, “It’s open season on software patents.” The data over the next several years has borne out the truth of this statement.

The key argument against patents on computer-implemented inventions, such as key components of word processors, programs that run internet searches (like the patented innovation that started Google), and encryption software, is that such inventions are inherently “abstract.” The judicial interpretation of § 101 has long maintained that abstract ideas, laws of natural, and natural phenomena are unpatentable discoveries. In Alice, for instance, the Court held that a complex software program for extremely complex international financial transactions was an “abstract idea” and thus unpatentable under § 101. But beyond claims that something long known is “abstract,” the Court has failed to define with precision what it means for a discovery to be abstract. With little to no specific guidance from the Alice Court, it is no wonder that judges and examiners have succumbed to the recent moral panic about patents and declared “open season” on patents covering computer-implemented inventions.

In this context, the Federal Circuit’s decision in Enfish v. Microsoft is extremely important because it ends the unreasoned, conclusory “I know it when I see it” rejections of patents as “abstract” by judges and examiners.

In Enfish, the Federal Circuit reversed a trial court’s summary judgment that a patent on a computer-implemented invention was an unpatentable abstract idea. The patent covered a type of database management system on computers, a classic incremental innovation in today’s digital world. In its decision, the trial court dissected the invention down into the most basic ideas in which all inventions can be reframed as representing; for example, methods of using internal combustion engines can easily be reframed in terms of the basic laws in thermodynamics. In this case, the trial court asserted that this patent on a computer-implemented invention covered merely the “abstract purpose of storing, organizing, and retrieving” information. The trial court thus easily concluded that the invention was merely “abstract” and thus unpatentable.

The Federal Circuit rejected the trial court’s conclusory assertion about the invention being “abstract” and further held that such assertions by courts are a legally improper application of § 101. With respect to the patent at issue in this case, Judge Todd Hughes’ opinion for the unanimous panel found that

the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity. Accordingly, we find that the claims at issue in this appeal are not directed to an abstract idea within the meaning of Alice.

More important, the Enfish court cautioned courts against the methodological approach adopted by the trial court in this case, in which “describing the claims at such a high level of abstraction and untethered from the language of the claims all but ensures that the exceptions to § 101 swallow the rule.” The court recognized that adopting a “bright-line” rule that computer-implemented inventions—the “software patents” decried by critics today—are necessarily “abstract” runs counter to both § 101 and the recent Supreme Court cases interpreting and applying this provision: “We do not see in Bilski or Alice, or our cases, an exclusion to patenting this large field of technological progress.”

Further confirming that Enfish represents an important step forward in how courts properly secure technological innovation in the high-tech industry, the Federal Circuit relied on Enfish in its recent decision in BASCOM Global Services Internet Inc v AT&T Mobility LLC. Here, the Federal Circuit again rejected the trial court’s dissection of a patent claim covering a software program used on the internet into an “abstract” idea of merely “filtering content.” The BASCOM court emphasized that courts must assess a claim as a whole—following the Alice Court’s injunction that courts must assess a patent claim as “an ordered combination of elements”—in determining whether it is a patentable invention under § 101. As numerous patent scholars explained in an amicus brief filed in support of Sequenom in its failed cert petition before the Supreme Court, requiring a court to construe a “claim as a whole” or “the invention as a whole” is a basic doctrinal requirement that runs throughout patent law, as it is essential to ensuring that patents are properly evaluated both as to their validity and in their assertion against infringers.

CellzDirect and the Patentability of Discoveries in the Bio-Pharmaceutical Industry

The high-tech industry is not the only sector of the innovation industries that has been hit particularly hard by the recent §101 jurisprudence. The biotech and pharmaceutical industries have also seen a collapse in the proper legal protection for their innovative discoveries of new therapeutic treatments. One recent study found that the examination unit at the Patent Office responsible for reviewing personalized medicine inventions (art unit 1634) has rejected 86.4% of all patent applications since the Supreme Court’s decision in Mayo. Anecdotal evidence abounds of numerous rejections of patent applications on innovative medical treatments arising from extensive R&D, and the most prominent one was the invalidation of Sequenom’s patent on its groundbreaking innovation in prenatal diagnostic tests.

In this light, the decision on July 5, 2016 in Rapid Litigation Management v. CellzDirect is an extremely important legal development for an industry that relies on stable and effective patent rights to justify investing billions in R&D to produce the miracles that comprise basic medical care today. In CellzDirect, the trial court found unpatentable under § 101 a patent claiming new methods for freezing liver cells for use in “testing, diagnostic, and treating purposes.” The trial court asserted that such a patent was “directed to an ineligible law of nature,” because scientists have long known that these types of liver cells (hepatocytes) could be subjected to multiple freeze-thaw cycles.

In her opinion for a unanimous panel, Chief Judge Sharon Prost held that the method in this case is exactly the type of innovative process that should be secured in a patent. Reflecting the same methodological concern in Enfish and BASCOM, the CellzDirect court rejected the trial court’s dissection of the patent into its foundational “laws of nature” and conventional ideas long-known in the scientific field:

The claims are simply not directed to the ability of hepatocytes to survive multiple freeze-thaw cycles. Rather, the claims of the ’929 patent are directed to a new and useful laboratory technique for preserving hepatocytes. This type of constructive process, carried out by an artisan to achieve “a new and useful end,” is precisely the type of claim that is eligible for patenting.

In other words, merely because a patentable process operates on a subject matter that constitutes natural phenomena does not mean the patent improperly claims either those natural phenomena or the laws of nature that govern them. To hold otherwise fails to heed the Mayo Court’s warning that “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” and thus to dissect all patents down into these unpatentable foundations would “eviscerate patent law.” The CellzDirect court was explicit about this key methodological point in evaluating patents under § 101: “Just as in [the industrial process held valid by the Supreme Court in] Diehr, it is the particular ‘combination of steps’ that is patentable here”—the invention as a whole.

Conclusion

The U.S. has long prided itself as having a “gold standard” patent system—securing to innovators stable and effective property rights in their inventions and discoveries. As scholars and economic historians have long recognized, the patent system has been a key driver of America’s innovation economy for more than two hundred years. This is now threatened under the Supreme Court’s § 101 decisions and the “too broad” application of the Court’s highly generalized patent-eligibility tests to inventions in the high-tech and bio-pharmaceutical sectors. The shockingly high numbers of rejected applications at the Patent Office and of invalidation of patents by courts, as well as the general sense of legal uncertainty, are threatening the “gold standard” designation for the U.S. patent system. This threatens the startups, new jobs, and economic growth that the patent system has been proven to support. Hopefully, the recent Enfish and CellzDirect decisions are the first steps in bringing back to patent-eligibility doctrine both reason and clarity, two key requirements in the law that have been sorely lacking for inventors and companies working in the innovation economy.

Tags abstract idea, Adam Mossoff, Bilski, Bob Sachs, broken patent system, innovation, patent, patent litigation, patentability, Section 101, Supreme Court, USPTO

Biotech Innovation Patent Law Uncategorized

Proposed CREATES Act Threatens Patent Owners’ Rights

Post author By Joshua Grove
Post date July 5, 2016

By Erika Lietzan, Kevin Madigan, & Mark Schultz

Earlier this month, a bipartisan group of Senators introduced the Creating and Restoring Equal Access to Equivalent Samples Act (or CREATES Act). The proposed bill is aimed at deterring what the bill’s author, Sen. Patrick Leahy, claimed were “inappropriate delay tactics that are used by some brand-name drug manufacturers to block competition from more affordable generic drugs.” Whether the bill would produce the intended consequences is the subject of some debate, but we thought it important to point out some (hopefully) unintended consequences: The CREATES Act would impose vague standards and draconian remedy provisions to force innovators to surrender their intellectual property rights for the benefit of generic competitors.

The CREATES Act

It’s no surprise that the legislation might generate unintended consequences, as it would add further complexity to an already challenging regulatory scheme for approving drugs.

As a general rule, for a generic drug manufacturer to get permission to market a duplicate of an already approved drug, it usually[1] must have access to samples of the already approved drug. The generic drug company uses these samples in the bioequivalence studies required in its abbreviated new drug application. The same general principle applies to companies developing biosimilar versions of already approved biological medicines; they conduct comparative trials for approval of their abbreviated applications, and these trials generally require samples of the “reference” product. In addition, FDA sometimes[2] requires drug and biologic manufacturers to develop risk evaluation and mitigations strategies (REMS) if safety measures beyond standard labeling are needed to ensure that the product’s benefits outweigh its risks. These REMS can include elements to assure safe use (ETASU)—essentially, a system of use or distribution restrictions—if necessary to mitigate a specific serious risk. A generic or biosimilar manufacturer seeking to distribute its version of a product that is subject to a risk management distribution program must generally develop its own system or negotiate to share the existing system.

The CREATES Act is spurred by concerns that innovators are hampering competition by strategically exploiting these regulatory requirements imposed on their generic and biosimilar competitors. That is, critics contend that innovators are raising barriers that prevent their generic and biosimilar competitors from obtaining samples of the reference drug and from participating in existing distribution programs.

While the FTC and members of Congress have raised these concerns before, the concerns are particularly topical because of the controversy surrounding Turing Pharmaceuticals and its notorious former CEO Martin Shkreli (described by one publication as the most-hated man in America). Turing is a small company that acquired the only license to market the off-patent drug Daraprim and raised the price by over 5000%, meanwhile preventing potential competitors from obtaining samples for use in developing a competing supply. While Turing is a small company marketing an off-patent drug, its actions have been misattributed (through confusion or purposeful obfuscation) to mainstream, R&D-intensive innovative drug companies.

The CREATES Act proposes to prevent strategic exploitation of regulatory requirements by giving generic and biosimilar manufacturers their own strategic advantage in their negotiations with competitors – the threat of a lawsuit. The Act would give these follow–on developers the ability to sue their competitors to obtain samples of any drugs that they wish to use as references in testing for approval of generic and biosimilar versions. Follow–on drug developers could also sue their competitors to be allowed to share in existing distribution systems.

Although the Act contemplates that the parties will negotiate with respect to purchase of samples and sharing of any distribution system already in place, it would decisively shift bargaining power in favor of follow-on competitors. To begin with, it imposes unreasonable deadlines on innovators—for instance, one month to manufacture and provide samples, after which the follow–on applicant may sue. Also, it creates enormous liability exposure. If the plaintiff proves its case, the court will order the innovator to provide “sufficient” quantities of its product for testing and, if applicable, to share its REMS distribution system with its follow–on competitor. Further, the court must award not only reasonable attorney fees and costs, but also a “monetary amount sufficient to deter” the innovator from failing to provide other applicants with sufficient quantities, or failing to share its risk management system, as applicable. The “maximum” award—which will surely be taken as a suggestion at least of the magnitude envisioned—is the total revenue on the product for every day that the innovator failed to provide samples or to agree to share its developed risk management system. It bears no rational relationship to any harm suffered by the follow–on applicant and is functionally punitive.

The CREATES Act Creates Potential Intellectual Property Problems

The CREATES Act raises two significant intellectual property issues. Essentially, it would create a mechanism to force innovators and patent owners to supply their products and intellectual property to their competitors.

First, it would require an intellectual property owner to make its product for the benefit of a competitor. The Act allows a generic or biosimilar applicant to sue for drug samples to use in testing. In many instances, those drugs will still be under patent. While the so-called Bolar provision permits a generic or biosimilar applicant to conduct tests during the patent term, the CREATES Act turns the Bolar shield into a sword by empowering a court to order a company to provide its patented drug to a potential competitor. This, in turn, will require the company to manufacture the drug for that competitor. Whether it makes a small or large supply for the market, it will need to adjust its production to ensure supplies for its competitor as well, and indeed as many competitors as want samples. This conflicts directly with a basic and valued tenet of the patent system in the United States: we do not require a patent owner to practice his or her invention. In short, the CREATES Act directs courts to order patent owners to practice their patents for the benefit of others.

Second, it would require a drug company with intellectual property rights in a REMS distribution system to forego those rights for the benefit of a competitor. The Act allows a generic or biosimilar applicant to sue the innovator in order to use the specific risk management system that the innovator developed. Although current law creates a default rule that generic drug companies and drug innovators should use a single shared system, there is no such default rule for biosimilar companies and biologic innovators. And the default for generic drugs is simply a default; FDA may waive the default if, for instance, some aspect of the system is claimed by a patent or subject to trade secret protection. This bill would authorize the court to order the innovator to share its system, regardless of any unexpired patent or trade secret protection. It short, it permits courts to order intellectual property holders to surrender their intellectual property or face the threat of monetary penalties.

An innovator may have lawful and legitimate reasons for declining to manufacture its patented product for its competitors and for declining to share its patented risk management system with those competitors. Yet, the unreasonable deadlines and punitive liability provisions of the CREATES Act mean that it will have little scope to resist the demands of its competitors. This essentially nullifies the innovator’s intellectual property—which will discourage future investment and innovation in the pharmaceutical industry.

Important IP Rights in Safety Systems: The Example of Celgene

The IP problems unleashed by the CREATES Act are illustrated by their effect on the IP rights and incentives of a company such as the Celgene Corporation (which submitted a statement on the bill to the Senate Judiciary Committee). Celgene is an innovative biopharmaceutical company that focuses on treatments for cancer and immune–inflammatory related diseases in patients with limited treatment options. The company’s first approved drug was Thalomid, initially approved by FDA for leprosy and then approved for its primary indication—multiple myeloma, a particularly pernicious form of blood and bone marrow cancer. The active ingredient of Celgene’s product, thalidomide, is a powerful teratogen, causing severe disfiguring birth defects. It was marketed in other parts of the world in the late 1950s and early 1960s as a treatment for morning sickness in women, and FDA has estimated that more than 10,000 children in 46 countries were born with severe birth defects attributable to thalidomide. As a result of this history and the special risks associated with this life–saving medicine, Celgene developed an extremely detailed and meticulous protocol dedicated to ensure safe distribution, prescription, and use. Essentially, Celgene’s innovative contribution was inventing a safe way to use an otherwise dangerous drug to fight cancer. The company’s special system for managing the risk of thalidomide is formalized at FDA as the “elements to assure safe use” portion of a REMS. It is also subject to patent protection.

The CREATES Act would force companies such as Celgene to share the proprietary elements of their REMS programs. It would give the company the choice: share its patent system or face a lawsuit that might result in catastrophic damages and mandatory sharing anyway. This functionally nullifies the patent. This, in turn, would discourage innovation and investment in the programs. The essence of thalidomide, and other drugs subject to use and distribution restrictions, is that these drugs require special programs. Their benefits do not outweigh their risks, without these special programs in place. If functionally nullifying the innovator’s patent protection means the innovator will not invest in creative solutions to difficult safety risks, then the products that require these solutions cannot be approved—and will never reach patients.

Conclusion

The CREATES Act has been presented as a panacea for the suspect activity of a few bad actors. But while it might force those companies to share their products and safety systems, it would also affect—and penalize—the much larger group of innovators that have legitimate reasons for withholding the fruits of their labors. By imposing unreasonable deadlines for action, failing to consider legitimate explanations for the choices made by innovative drug manufacturers, and imposing draconian penalties, it tramples the intellectual property rights of drug innovators. Yet, this industry is deeply reliant on intellectual property rights; they provide the incentive for research into tomorrow’s cures. The CREATES Act should be laid aside, if Congress truly wants to promote innovation and investment in life-saving medicines for future generations of Americans.

Erika Lietzan is an Associate Professor at University of Missouri School of Law and is participating in CPIP’s 2016-2017 Thomas Edison Innovation Fellowship Program.

[1]In fact, the situation is more complicated than proponents of this bill have stated. In instances where samples of an already-approved drug are unavailable for any reason, FDA has several regulatory options at its disposal. After all, if a brand company withdraws its product from the market, that doesn’t preclude generic companies from seeking approval, even years later. So long as the Reference Listed Drug (RLD) was not withdrawn for safety or efficacy reasons, it can be cited in a generic application. In that situation, one thing FDA can do is designate another generic to be the RLD for bioequivalence testing. The statute says only that the ANDA must demonstrate bioequivalence; it does not expressly require that the generic applicant use the innovator’s product in the testing.

Even if there aren’t other generics, it might be possible to obtain ANDA approval based on a showing of bioavailability and the same therapeutic effect. FDA has repeatedly noted, when finding that a particular RLD was not withdrawn for safety or efficacy reasons, that the agency may approve an ANDA for a generic version of a withdrawn product even if the withdrawn product is not commercially available. These Federal Register notices state that if the RLD is not available for bioequivalence testing, the applicant should contact the FDA’s Office of Generic Drugs to determine what showing would be required to satisfy the approval requirements of the statute.

[2]Despite the controversy around this issue, there are relatively few REMS, and even fewer with ETASU. The FDA maintains a downloadable list on its website, with the ETASU marked. As of this writing (July 2016) there are 75 REMS listed, only 40 of which have ETASU. Of these, 6 already have approved generics that share in an approved risk management system. More than a dozen of the remaining products are still under regulatory exclusivity.

Tags biologics, biosimilars, Bolar provision, Celgene, CREATES Act, Erika Lietzan, FDA, FTC, generics, innovation, intellectual property, Martin Shkreli, medicine, patents, Patrick Leahy, R&D, REMS, Thalomid

Innovation Inventors Patent Law Statistics Uncategorized

Do As I Say, Not As I Do: Google’s Patent Transparency Hypocrisy

Post author By Joshua Grove
Post date June 30, 2016

It is common today to hear that it’s simply impossible to search a field of technology to determine whether patents are valid or if there’s even freedom to operate at all. We hear this complaint about the lack of transparency in finding “prior art” in both the patent application process and about existing patents.

The voices have grown so loud that Michelle K. Lee, Director of the Patent Office, has made it a cornerstone of her administration to bring greater transparency to the operations of the USPTO. She laments the “simple fact” that “a lot of material that could help examiners is not readily available, because the organizations retaining that material haven’t realized that making it public would be beneficial.” And she’s been implementing new programs to provide “easy access by patent examiners to prior art” as a “tool to help build a better IP system.”

We hear this complaint about transparency most often from certain segments of the high-tech industry as part of their policy message that the “patent system is broken.” One such prominent tech company is search giant Google. In formal comments submitted to the USPTO, for instance, Google asserts that a fundamental problem undermining the quality of software patents is that a “significant amount of software-related prior art does not exist in common databases of issued patents and published academic literature.” To remedy the situation, Google has encouraged the Patent Office to make use of “third party search tools,” including its own powerful search engines, to locate this prior art.

Google is not shy about why it wants more transparency with prior art. In a 2013 blog post, Google Senior Patent Counsel Suzanne Michel condemned so-called “patent trolls” and argued that the “PTO should improve patent quality” in order to “end the growing troll problem.” In comments from 2014, three Google lawyers told the Patent Office that “poor quality software patents have driven a litigation boom that harms innovation” and that making “software-related prior art accessible” will “make examination in the Office more robust to ensure that valid claims issue.” In comments submitted last May, Michel even proposed that the Patent Office use Google’s own patent search engines for “streamlining searches for relevant prior art” in order to enhance patent quality.

Given Google’s stance on the importance of broadly available prior art to help weed out vague patents and neuter the “trolls” that wield them, you’d think that Google would share the same devotion to transparency when it comes to its own patent applications. But it does not. Google has not mentioned in its formal comments and in its public statements that even using its own search engine would fail to disclose a substantial majority of its own patent applications. Unlike the other top-ten patent recipients in the U.S., including many other tech companies, Google keeps most of its own patent applications secret. It does this while at the same time publicly decrying the lack of transparency in the patent system.

The reality is that Google has a patent transparency problem. Not only does Google not allow many of its patent applications to be published early or even after eighteen months, which is the default rule, Google specifically requests that many of its patent applications never be published at all. So while Google says it wants patent applications from around the world to be searchable at the click of a mouse, this apparently does not include its own applications. The numbers here are startling and thus deserve to be made public—in the name of true transparency—for the first time.

Public Disclosure of Patent Applications

Beginning with the American Inventors Protection Act of 1999 (AIPA), the default rule has been that a patent application is published eighteen months after its filing date. The eighteen-month disclosure of the patent application will occur unless an applicant files a formal request that the application not be published at all. An applicant also has the option to obtain early publication in exchange for a fee. Before the AIPA, an application would only be made public if and when the patent was eventually granted. This allowed an applicant to keep her invention a trade secret in case the application was later abandoned or rejected.

The publication of patent applications provides two benefits to the innovation industries, especially given that the waiting time between filing of an application and issuance of the patent or a final rejection by an examiner can take years. First, earlier publication of applications provides notice to third parties that a patent may cover a technology they are considering adopting in their own commercial activities. Second, publication of patent applications expands the field of publicly-available prior art, which can be used to invalidate either other patent applications or already-issued patents themselves. Both of these goals produce better-quality patents and an efficiently-functioning innovation economy.

Separate from the legal mandate to publish patent applications, Google has devoted its own resources to creating greater public access to patents and patent applications. From its Google Patent Search in 2006 and its Prior Art Finder in 2012 to its current Google Patents, Google has parlayed its search expertise into making it simple to find prior art from around the world. Google Patents now includes patent applications “from the USPTO, EPO, JPO, SIPO, WIPO, DPMA, and CIPO,” even translating them into English. It’s this search capability that Google has been encouraging the Patent Office to utilize in the quest to make relevant prior art more accessible.

Given Google’s commitment to patent transparency, one might expect that Google would at least be content to allow default publication of its own applications under the AIPA’s eighteen-month default rule. Perhaps, one might think, Google would even opt for early publication. However, neither appears to be the case; Google instead is a frequent user of the nonpublication option.

Google’s Secrecy vs. Other Top-Ten Patent Recipients

After hearing anecdotal reports indicating that Google was frequently using its option under the AIPA to avoid publishing its patent applications, we decided to investigate further. We looked at the patents Google received in 2014 to see what proportion of its applications was subject to nonpublication requests. To provide context, we also looked at how Google compared to the other top-ten patent recipients in this regard. The results are startling.

Unfortunately, there’s no simple way to tell if a nonpublication request was made when a patent application was filed using the USPTO’s online databases—nonpublication requests are not an available search field. The same appears to be true of subscription databases. The searches therefore have to be done manually, digging through the USPTO’s Public PAIR database to find the application (known in patent parlance as the “file wrapper”) for each individual patent that includes the individual application documents. Those interested in doing this will find startling numbers of patent applications kept secret by Google, both in terms of absolute numbers but also as compared to the other top-ten recipients of U.S. patents.

By way of example as to what one needs to look for, take the last three patents issued to Google in 2014: D720,389; 8,925,106; and 8,924,993.

For the first patent, the application was filed on December 13, 2013, and according to the application data sheet, no request was made to either publish it early or not publish it at all:

Since no such request was made, the application would normally be published eighteen months later or upon issuance of the patent. Indeed, that is what happened in due course—this patent issued just over one year after the application was filed, as it was concurrently published and issued in December of 2014.

For the second patent in our small set of examples, the application was filed on April 20, 2012. In this case, Google requested nonpublication by including a letter requesting that the application not be published:

Google thus opted out of the default eighteen-month publication rule, and the application was not published until the patent issued in December of 2014, some twenty months later.

Finally, for the third patent, the application was filed on November 10, 2011, and the application data sheet shows that Google requested the application not be published:

Google here again opted out of the default publication rule, and the application was not published until the patent issued in December of 2014—more than three years after the application was filed.

We applied this methodology to a random sample of 100 patents granted to each of the top-ten patent recipients in 2014.

In 2014, Google was one of the top-ten patent recipients, coming in sixth place with 2,649 issued patents:

SOURCES: USPTO PatentsView Database & USPTO Patent Full-Text and Image Database

We randomly sampled 100 patents for each of the top-ten patent recipients for 2014. We reviewed the file wrapper for each to determine the proportion of nonpublication requests in each sample.

Our results revealed that Google is an extreme outlier among top-ten patent recipients with respect to nonpublication requests. Eight of the top-ten patent recipients made zero requests for nonpublication, permitting their patent applications to be published at the eighteen-month deadline. The eighth-ranking patent recipient, Qualcomm, requested that one application not be published. By contrast, Google formally requested that 80 out of 100—a full 80%—of its applications not be published.

The following chart shows these results:

SOURCE: USPTO Public PAIR Database

Conclusion

Based on this result, Google deliberately chooses to keep a vast majority of its patent applications secret (at least it did so in 2014). This secrecy policy for its own patent applications is startling given both Google’s public declarations of the importance of publication of all prior art and its policy advocacy based on this position. It is even more startling when seen in stark contrast to the entirely different policies of the other nine top patent recipients for 2014.

It is possible that 2014 was merely an anomaly, and that patent application data from other years would show a different result. We plan to investigate further. So, stay tuned. But for whatever reason, it appears that Google doesn’t want the majority of its patent applications to be published unless and until its patents finally issue. This preference for secrecy stands in contrast to Google’s own words and official actions.

As one of the top patent recipients in the U.S., you’d think Google would want its applications to be published as quickly as possible. The other top recipients of U.S. patents in 2014 certainly adopt this policy, furthering the goal of the patent system in publicly disclosing new technological innovation as quickly as possible. The fact that Google does otherwise speaks volumes.

Economic Study Innovation Inventors Patent Law Patent Licensing Uncategorized

How Strong Patents Make Wealthy Nations

Post author By Joshua Grove
Post date June 24, 2016

By Devlin Hartline & Kevin Madigan

How did the world’s wealthiest nations grow rich? The answer, according to Professor Stephen Haber of Stanford University, is that “they had well-developed systems of private property.” In Patents and the Wealth of Nations, recently published in the CPIP Conference issue of the George Mason Law Review, Haber explains the connection: Property rights beget trade, trade begets specialization, specialization begets productivity, and productivity begets wealth. Without a foundation of strong property rights, economic development suffers. But does the same hold true for intellectual property, particularly patents? Referencing economic history and econometric analysis, Haber shows that strong patents do indeed make wealthy nations.

Before diving into the history and analysis, Haber tackles the common misconception that patents are different than other types of property because they are monopolies: “It is not, as some IP critics maintain, a grant of monopoly. Rather, it is a temporary property right to something that did not exist before that can be sold, licensed, or traded.” The simple reason for this, Haber notes, is that a patent grants a monopoly only if there are truly no substitutes, but this is almost never the case. Usually, there are many substitutes and the patent owner has no market power. And the “fact that patents are property rights means that they can serve as the basis for the web of contracts that permits individuals and firms to specialize in what they do best.”

Turning back to his claim that strong patents make wealthy nations, Haber presents data showing the relationship between the strength of enforceable patent rights and the level of economic development across several different countries. The results are remarkably clear: “there are no wealthy countries with weak patent rights, and there are no poor countries with strong patent rights.” The following figure shows how GDP per capita increases as patent rights get stronger:

Haber - Figure 1: The Relationship Between Enforcable Patent Rights and GDP/c in 2010 (Excludes Oil-Based Economies, 2005 PPP$). X-axis: Strength of Enforceable Patent Rights in 2010 (from 0 to 45). Y-axis: GDP Per Capita in 2010, PPP$ from PWT 8.1 (from $0 to $60,000).

Of course, while it’s clear that patent strength and GDP per capita are related, it’s possible that the causality runs the other way. That is, how do we know that an increase in GDP per capita doesn’t foster an environment where patents tend to be stronger? This is where the evidence from economic historians and econometric analysts comes into play. Exploring what economic history has to tell us about the impact of patent laws on innovation, Haber asks whether the Industrial Revolution was bolstered by the British patent system and whether the United States emerged as a high-income industrial economy because of the U.S. patent system.

To the first question, Haber notes that the consensus among historians is that “from at least the latter half of the eighteenth century, the patent system promoted the inventive activity associated with the Industrial Revolution.” He then cites the recent book by Sean Bottomley that carefully shows how “many of the changes to Britain’s patent laws and their enforcement—the requirement for detailed specifications, patents conceived as property rights, the emergence of patent agents—all preceded, rather than followed, the onset of industrialization.” Haber also cites a research paper by Petra Moser, which finds that countries in the nineteenth century with weak patent systems trailed both Britain and the United States in technological development.

Moving to the United States, Haber notes that three generations of economic historians have agreed that just after it gained independence, the country’s strong patent system played a pivotal role in fomenting the remarkable industrial developments that soon followed. After pointing out that the United States was the first country to call for a patent system in its Constitution, Haber compares the GDP per capita for the United States, Britain, and Brazil from 1700 to 1913. The following figure shows just how quickly the agrarian American colonies caught up with, and ultimately surpassed, Britain in GDP per capita, while the GDP per capita of Brazil, a country that became independent at about the same time but had no patent system, stagnated:

Haber - Figure 2: GDP per capita, 1700-1913 (in Real 1990 Dollars). UK, USA, and Brazil. X-axis: 1700, 1820, 1930, 1840, 1850, 1860, 1870, 1880, 1890,1900, 1913. Y-axis: $0 to $5,500 by $500 increments.

As the figure shows, the GDP per capita in the United States and Brazil were less than half that of Britain in 1700, and by 1913, the United States had overtaken Britain as both countries left Brazil far behind. Noting that “there is uniformity of views among economic historians that the U.S. patent system played a large role” in this success, Haber provides specifics examples of improvements upon the British patent system that contributed to it, including broad access to property rights in technology through low fees and a routine and impersonal application process under the Patent Act of 1790. He goes on to highlight the importance of major reforms to the U.S. patent system introduced in the Patent Act of 1836, including the examination process that “reduced concerns third parties might have had about a patent’s novelty, thereby facilitating the evolution of a market for patented technologies.”

The second half of the nineteenth century saw the development of an active market for inventions in the United States, leading to the emergence of a class of specialized and independent inventors as well as patent brokers, patent agents, and patent attorneys, who would connect the inventors with manufacturers looking to buy or license new technologies. While some of these intermediaries were derided, much like the “patent trolls” of the twenty-first century, as “patent sharks,” Haber contends that this market for inventions played a critical role in the emergence of new industrial technologies and centers: “[O]ne would be hard pressed to make the case that patents in the nineteenth century, or the intermediaries who represented their inventors, did anything but facilitate the rapid development of American manufacturing.”

Haber then shifts his focus to econometric analysis, examining the different ways that economic scholars research the relationship between patent rights and economic progress in different countries over a period of time. He stresses that accurate econometric estimation of causal relationships is a relatively young area of inquiry requiring considerable care. He uses the example of a widely-cited study by Josh Lerner, which looks at “whether the strengthening of patents affects the rate of change of innovation in an economy within a two-year window after a patent reform.” Haber points out that many changes neither begin nor end so quickly. With laser technology, for example, “follow-on innovations” have developed “over decades, not two-year windows,” and Lerner’s study thus discounts much innovation.

Looking at studies that utilize a “very long time dimension,” Haber cites one finding that “there is a significant positive effect of patent laws on innovation rates” and another finding that “patent intensive industries in countries that improve the strength of patents experience faster growth in value added than less patent-intensive industries in those same countries.” Haber praises a recent study by Jihong Zhang, Ding Du, and Walter G. Park, who “not only find that there is a positive relationship between the strength of enforceable patent rights and innovation in developed economies, but that that relationship holds for underdeveloped economies as well.”

In sum, Haber states that “there is a critical mass of multi-country studies” that leads to two conclusions:

First, there is a causal relationship between the strength of patent rights and innovation. Second, this relationship is non-linear: there are threshold effects such that stronger patent rights positively impact innovation once a society has already reached some critical level of economic development. The reason for the non-linearity probably resides in the fact that innovation is not just a product of the strength of patent rights, but of other features of societies, which are necessary complements, that tend to be absent at low levels of economic development.

Finally, Haber looks at whether the innovation landscape of the twenty-first century is somehow so different that the lessons from economic history and econometric analysis no longer apply. In particular, he questions whether the emergence of patent licensing firms, sometimes called “patent assertion entities” or “PAEs,” and the alleged strategic behavior of “patent holdup” with standard-essential patents (SEPs) are really new features of the U.S. patent system that might hinder innovation. Haber concludes that the evidence shows that neither PAEs nor patent holdup is hindering innovation. In fact, there’s little reason to think that patent holdup even exists.

Haber takes on the recent study by James Bessen and Michael Meurer, which claims that PAEs are a new phenomenon that “constitute a direct tax on innovation” to the tune of “$29 billion per year.” This claim has been rebutted, Haber notes, by scholars such as B. Zorina Khan, whose recent study shows that many great inventors of the nineteenth century were themselves PAEs. Haber further cites the recent paper by David L. Schwartz and Jay P. Kesan that carefully demonstrates fundamental problems with Bessen and Meurer’s methodology, including selection bias, the conflation of “costs” with “transfers,” the lack of a benchmark for comparison, and the failure to even consider the benefits of PAE activity.

Turning to patent holdup, Haber points out that products have long been comprised of numerous patented innovations, and he cites a recent paper by Adam Mossoff showing that there’s nothing “new about firms whose sole source of revenue comes from the licensing of essential patents.” As to evidence that innovation is hindered by patent holdup, Haber notes that the “theoretical literature” says it’s possible, but the “evidence in support of this theory, however, is largely anecdotal.” Haber then cites his recent study with Alexander Galetovic and Ross Levine, which looks at the “extensive economics literature on the measurement of productivity growth” and shows that “SEP holders” are not able “to negotiate excessive royalty payments” as predicted by the patent holdup theory.

In conclusion, Haber acknowledges that while “no single piece of evidence” should “be viewed as dispositive,” it’s certainly quite “telling that the weight of evidence from two very different bodies of scholarship, employing very different approaches to evidence—one based on mastering the facts of history, the other based on statistical modeling—yield the same answer: there is a causal relationship between strong patents and innovation.” Haber then challenges the naysayers to make their case: “Evidence and reason therefore suggest that the burden of proof falls on those who claim that patents frustrate innovation.” Given the copious evidence showing that strong patents make wealthy nations, the IP critics have their work cut out for them.

For a PDF version of this post, please click here.

Innovation Inventors Legislation Patent Law Patent Litigation Uncategorized

Changes to Patent Venue Rules Risk Collateral Damage to Innovators

Post author By Joshua Grove
Post date March 22, 2016

Advocates for changing the patent venue rules, which dictate where patent owners can sue alleged infringers, have been arguing that their remedy will cure the supposed disease of abusive “trolls” filing suit after suit in the Eastern District of Texas. This is certainly true, but it’s only true in the sense that cyanide cures the common cold. What these advocates don’t mention is that their proposed changes will weaken patent rights across the board by severely limiting where all patent owners—even honest patentees that no one thinks are “trolls”—can sue for infringement. Instead of acknowledging the broad collateral damage their changes would cause to all patent owners, venue revision advocates invoke the talismanic “troll” narrative and hope that nobody will look closely at the details. The problem with their take on venue revision is that it’s neither fair nor balanced, and it continues the disheartening trend of equating “reform” with taking more sticks out every patent owner’s bundle of rights.

Those pushing for venue revision are working on two fronts, one judicial and the other legislative. On the judicial side, advocates have injected themselves into the TC Heartland case currently before the Federal Circuit. Though it has no direct connection to the Eastern District of Texas, advocates see it as a chance to shut plaintiffs out of that venue. Their argument in that case is so broad that it would drastically restrict where all patentees can sue for infringement—even making it impossible to sue infringing foreign defendants. Yet they don’t mention this collateral damage as they sell the “troll” narrative. On the legislative side, advocates have gotten behind the VENUE Act (S.2733), introduced in the Senate last Thursday. This bill leaves open a few more venues than TC Heartland, though it still significantly limits where all patent owners can sue. Advocates here also repeat the “troll” mantra instead of offering a single reason why it’s fair to change the rules for everyone else.

With both TC Heartland and the VENUE Act, venue revision advocates want to change the meaning of one word: “resides.” The specific patent venue statute, found in Section 1400(b) of Title 28, provides that patent infringement suits may be brought either (1) “in the judicial district where the defendant resides” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” On its face, this seems fairly limited, but the key is the definition of the word “resides.” The general venue statute, found in Section 1391(c)(2) of Title 28, defines residency broadly: Any juridical entity, such as a corporation, “shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” Taken together, these venue statutes mean that patent owners can sue juridical entities for infringement anywhere the court has personal jurisdiction over the defendant.

The plaintiff in TC Heartland is Kraft Foods, a large manufacturer incorporated in Delaware and headquartered in Illinois that runs facilities and sells products in Delaware. The defendant is TC Heartland, a large manufacturer incorporated and headquartered in Indiana. TC Heartland manufactured the allegedly-infringing products in Indiana and then knowingly shipped a large number of them directly into Delaware. Kraft Foods sued TC Heartland in Delaware on the theory that these shipments established personal jurisdiction—and thus venue—in that district. TC Heartland argued that venue was improper in Delaware, but the district court rejected that argument (see here and here). TC Heartland has now petitioned the Federal Circuit for a writ of mandamus, arguing that the broad definition of “reside” in Section 1391(c)(2) does not apply to the word “resides” in Section 1400(b). On this reading, venue would not lie in Delaware simply because TC Heartland did business there.

TC Heartland mentions in passing that its narrow read of Section 1400(b) is favorable as a policy matter because it would prevent venue shopping “abuses,” such as those allegedly occurring in the Eastern District of Texas. Noticeably, TC Heartland doesn’t suggest any policy reasons why Kraft Foods should not be permitted to bring an infringement suit in Delaware, and neither do any of the amici supporting TC Heartland. The amicus brief by the Electronic Frontier Foundation (EFF) et al. argues that Congress could not have intended “to permit venue in just about any court of the patent owner’s choosing.” But why is this hard to believe? The rule generally for all juridical entities is that they can be sued in any district where they chose to do business over matters relating to that business. This rule has long been regarded as perfectly fair and reasonable since these entities get both the benefits and the burdens of the law wherever they do business.

The EFF brief goes on for pages bemoaning the perceived ills of forum shopping in the Eastern District of Texas without once explaining the relevancy to Kraft Foods. It asks the Federal Circuit to “restore balance in patent litigation,” but its vision of “balance” fails to account for the myriad honest patent owners like Kraft Foods that nobody considers to be “trolls.” The same holds true for the amicus brief filed by Google et al. that discusses the “harm forum shopping causes” without elucidating how it has anything to do with Kraft Foods. Worse still, the position being urged by these amici would leave no place for patent owners to sue foreign defendants. If the residency definitions in Section 1391(c) don’t apply to Section 1400(b), as they argue, then a foreign defendant that doesn’t reside or have a regular place of business in the United States can never be sued for patent infringement—an absurd result. But rather than acknowledge this collateral damage, the amici simply sweep it under the rug.

The simple fact is that there’s nothing untoward about Kraft Foods filing suit in Delaware. That’s where TC Heartland purposefully directed its conduct when it knowingly shipped the allegedly-infringing products there. It’s quite telling that venue revision advocates are using TC Heartland as a platform for changing the rules generally when they can’t even explain why the rules should be changed in that very case. And this is the problem: If there’s no good reason for keeping Kraft Foods out of Delaware, then they shouldn’t be advocating for changes that would do just that. Keeping patent owners from suing in the Eastern District of Texas is no reason to keep Kraft Foods out of Delaware, and it’s certainly no reason to make it impossible for all patent owners to sue foreign-based defendants that infringe in the United States. Advocates of venue revision tacitly admit as much when they say nothing about this collateral damage. This isn’t fair and balanced; it’s another huge turn of the anti-patent ratchet disguised as “reform.”

The same is true with the VENUE Act, which copies almost verbatim the venue provisions of the Innovation Act. This bill would also severely restrict where all patent owners can sue by making it so that a defendant doesn’t “reside” wherever a district court has personal jurisdiction arising from its allegedly-infringing conduct. To its credit, the VENUE Act does include new provisions allowing suit where an inventor conducted R&D that led to the application for the patent at issue. It also allows suit wherever either party “has a regular and established physical facility” and has engaged in R&D of the invention at issue, “manufactured a tangible product” that embodies that invention, or “implemented a manufacturing process for a tangible good” in which the claimed process is embodied. Furthermore, the bill makes the same venue rules applicable to patent owners suing for infringement and accused infringers filing for a declaratory judgment, and it solves the problem of foreign-based defendants by stating that the residency definition in Section 1391(c)(3) applies in that situation.

While the proposed changes in the VENUE Act aren’t as severe as those sought by venue revision advocates in TC Heartland, they nevertheless take numerous venues off of the table for patentees and accused infringers alike. But rather than acknowlede these wide-sweeping changes and offer reasons for implementing them, advocates of the VENUE Act simply harp on the narrative of “trolls” in Texas. For example, Julie Samuels at Engine argues that the “current situation in the Eastern District of Texas makes it exceedingly difficult for defendants” to enforce their rights and that we need to “level the playing field.” Likewise, Elliot Harmon at the EFF Blog suggests that the VENUE Act will “finally address the egregious forum shopping that dominates patent litigation” and “bring a modicum of fairness to a broken patent system.” Yet neither Samuels nor Harmon explains why we should change the rules for all patent owners and accused infringers—especially the ones that aren’t forum shopping in Texas.

The VENUE Act would simply take a system that is perceived to favor plaintiffs and replace it with one that definitely favors defendants. For instance, an alleged infringer with continuous and systematic contacts in the Eastern District of Virginia can currently be sued there, but the VENUE Act would take away this option since it’s based on mere general jurisdiction. Likewise, the current venue rules allow suits anywhere the court has specific jurisdiction over the defendant—potentially in every venue for a nationwide enterprise—yet the VENUE Act would make dozens of these venues improper. Furthermore, patentees can now bring suits against multiple defendants in a single forum, saving time and money for all involved, but the VENUE Act would make this possibility much less likely to occur.

The “troll” narrative employed by venue revision advocates may sound appealing on the surface, but it quickly becomes clear that they either haven’t considered or don’t care about how their proposed changes would affect everyone else. If we’re going to talk about abusive litigation practices in need of revision, we should talk about where they’re occurring across the entire patent system. This discussion should include the practices of both patent owners and alleged infringers, and we should directly confront the systemic collateral damage that any proposed changes would cause. As it stands, there’s little hope that the current myopic focus on “trolls” will lead to any true reform that’s fair and balanced for everyone.

Innovation Inventors Legislation Patent Law Uncategorized

No Consensus That Broad Patent ‘Reform’ is Necessary or Helpful

Post author By Joshua Grove
Post date March 10, 2016

Here’s a brief excerpt of an op-ed by Adam Mossoff & Devlin Hartline that was published in The Hill:

Two recent op-eds published in The Hill argue that broad patent legislation—misleadingly labeled “reform”—is needed because the U.S. patent system is fundamentally broken. In the first, Timothy Lee contends that opponents “cannot with a straight face” argue that we don’t need wide-sweeping changes to our patent system. In the second, Michele Boldrin and David K. Levine maintain that there is “consensus among academic researchers” that the system is “failing.”

Both op-eds suggest that there are no principled reasons, whether legal or economic, to object to the overhaul of the patent system included in the Innovation Act. Both op-eds are wrong.

To read the rest of this op-ed, please visit The Hill.

Tags Adam Mossoff, broken patent system, David Levine, Devlin Hartline, innovation, innovation act, Michele Boldrin, patent litigation, patent reform, patent troll, patents, STRONG Patents Act, The Hill, Timothy Lee, TROL Act

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