Tag: innovation

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Innovation Inventors Patent Law Uncategorized

Artur Fischer's Life Illustrates the Power of Invention

Whether taking a photograph, hanging a picture, or doing some work around the house, it’s easy to take for granted all the inventions that make our lives better on a daily basis. But the devices, tools and machines we use every day are all the products of creative genius, hard work and constant innovation. Look around you and you’ll see countless devices that were once the brainchild of a visionary who was able to put his or her idea into practice, secure a patent, and improve the world. One of these visionaries just passed away, and it’s important to recognize him and the patent system that facilitated his extraordinary life in creation.

Artur Fischer is considered one of the greatest inventors of all time, with over 1,100 registered patents. The New York Times recently ran an obituary detailing his life and highlighting many of the inventions that would become regarded as some of the most resourceful of the 20th century and would earn him comparisons to Thomas Edison.

The obituary notes that while Artur Fischer was a locksmith by training, he was a compulsive tinkerer and patented his first invention when he created a synchronized mechanism that triggered a camera flash when the shutter was released. Although Fischer may not have considered himself an inventor at the time, he was looking for a better way to photograph his infant daughter and decided to take matters into his own hands. It wasn’t long before a large camera company bought his device and Fischer was able to dedicate his life and career to coming up with hundreds of solutions to nagging technical problems.

Fischer’s path from mundane job to innovating genius is one that has been repeated by the world’s most respected thinkers and inventors (think Albert Einstein at the Swiss patent office), and one that would not be possible without a strong patent system and assurances in intellectual property rights. Had Fischer not been able to secure a patent in his synchronized flash photography trigger, and subsequently profit from the sale to a large company, he may have just returned to his job as a locksmith and not pursued a passion that led to so many beneficial creations.

Fischer kept tinkering and inventing well into his 80s, telling a German magazine in 2007, “I am interested in any problem to which I can provide a solution.” In 2014, the European Patent Office presented him with a lifetime achievement award recognizing a creative mind and imaginative spirit that only comes along once in a generation. Artur Fischer’s life is a testament that when a great innovator is supported by a patent system that respects and encourages his work, the sky is the limit.

 

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Economic Study Innovation Inventors Legislation Patent Law Uncategorized

How Patents Help Startups Grow, Innovate, and Succeed

Many academic studies of the patent system focus on the negative, extrapolating from anecdotes about a few bad actors to make the case that our patent system is broken and to bolster cries for legislation weakening patent rights. Precious few studies focus on the countless honest and hardworking patent owners whose inventive labors benefit us all. But understanding how patents support inventive enterprises is a crucial part of the equation, especially at a time when Congress is considering legislation that would make it extremely difficult for startups and individual inventors to enforce their patent rights.

In a newly-published working paper, The Bright Side of Patents, CPIP Edison Fellow Deepak Hegde, along with co-authors Joan Farre-Mensa and Alexander Ljungqvist, take a look how patents help startups grow. They show that, contrary to the claims made by several academics and activists, startups are not victims of the patent system. On the contrary, patents help startups become more successful and innovative.

The study finds that “patent approvals help startups create jobs, grow their sales, innovate, and eventually succeed.” When a startup’s first patent application is approved, its employment growth increases by 36% and its sales growth increases by 51% on average over the next five years. First-patent approval also has a strong causal effect on a startup’s continued ability to innovate, increasing the number of subsequent patent grants by 49% and increasing the quality of those patents by 27%. In fact, a startup with first-patent approval is twice as likely to end up listed on a stock exchange—a common indication of success for a startup.

Negatively affecting startups are delays in the patent application process and ultimate application rejections. For every year an ultimately-approved patent application is delayed, the startup’s employment growth decreases by 21% and its sales growth decreases by 28% on average over the following five years. Furthermore, each year a patent application is delayed, the average number of subsequent patents granted decreases by 14% while the quality of those patents decreases by 7%. And for each year of delay, the probability that a startup will go public is cut in half.

One big reason why patents help startups is that they make it easier to access capital from external investors. The authors find that patents serve to mitigate frictions in information between potential investors and startups. Patents play an important role by alleviating startups’ concerns about having their inventions misappropriated by investors and by alleviating investors’ concerns about the credibility, quality, and monetary future of the startups. Having access to capital in turn sets startups on a path of growth where they can turn ideas into products and services, generate jobs, increase revenue, and undertake further innovation.

What makes this study unique is its unprecedented access to the USPTO’s internal databases, which allowed the authors to evaluate detailed review histories of both approved and rejected patent applications. Prior studies only focused on approved applications, thus making it impossible to accurately separate out the economic and innovative effects. The authors here are able to demonstrate the direct benefits of patent protection with causal evidence from a large-sized sample—45,819 first-time patent applications filed by startups.

There is a surprising amount of criticism of the patent system today. Some claim that patents are a waste of time and resources for startups, useful only for defensive purposes. Others claim that patents actually harm startups. The authors here show that startups that secure patent protection are in fact more likely to succeed. As Congress considers yet another round of large-scale patent legislation, lawmakers need to understand the role that enforceable patent rights play in enabling startups to grow and succeed. This study is a great step in adding some much needed clarity to the ongoing patent policy debates.

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Biotech Gene Patents Innovation Inventors Uncategorized

How IP-Fueled Innovations in Biotechnology Have Led to the Gene Revolution

scientist looking through a microscopeWe’ve released a new issue paper, The Gene Revolution, by Amanda Maxham, a research associate and writer at the Ayn Rand Institute.

Dr. Maxham explores how innovations in biotechnology, enabled by the intellectual property rights that protect them, have led to the “Gene Revolution,” where scientists use genetic engineering to dramatically improve human life. In order to combat widespread misinformation about genetically modified organisms (GMOs), she traces mankind’s long history of improving plants, animals, and microorganisms to better serve our needs.

We’ve included the Executive Summary below. To read the full issue paper, please click here.

The Gene Revolution

By Amanda Maxham

Executive Summary

Mankind has been improving plants and animals for millennia. Simply by selecting and breeding those they liked best, our ancestors radically improved upon wild species. Today’s biological inventors, with a deeper understanding of genetics, breeding, and heredity, and with the protection of intellectual property rights, are using the technology of genetic engineering to start a “Gene Revolution.”

In the field of medicine, custom-built genetically engineered microorganisms are brewing up rivers of otherwise rare human hormones, life-saving medicines, and much-needed vaccines. In agriculture, scientists are combining their understanding of plant genetics with laboratory techniques of modern molecular biology to “unlock” the DNA of crop plants. By inserting genes from other plants or even common microorganisms, they are able to give plants desirable traits, solving problems that farmers have faced for millennia—faster and more precisely than ever before.

But despite its successes and a bright future, biotechnology is under attack by activists who spread misinformation and foster consumer mistrust. They have been directly responsible for onerous regulations and other hurdles to innovation that are threatening to stifle what could and should be the “third industrial revolution.”

In an effort to combat this misinformation, this paper situates genetic engineering within mankind’s long history of food improvement and then highlights how genetic engineering has dramatically improved human life. In it, you’ll find 29 plants, animals, and microorganisms, from insulin-secreting E. coli to engineered cotton, from cheese-making fungus to chestnut trees, that represent the promise and possibilities that the Gene Revolution holds–if we hold precious and continue to protect the freedom to invent and the power of scientific innovation.

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Strong IP Protection Provides Inventors and Creators the Economic Freedom to Create

Here’s a brief excerpt of a post by Terrica Carrington that was published on IPWatchdog.

CPIP went against the grain with this conference, and showed us, bit by bit, what our world might look like today without intellectual property rights. Music wouldn’t sound the same. Movies wouldn’t look the same. You wouldn’t be reading this on your smartphone or have access to the cutting-edge biopharma and healthcare products that you rely on. And some of our greatest artists and inventors might be so busy trying to make ends meet that they would never create the amazing artistic works and inventions that we all enjoy. In short, CPIP explored how intellectual property rights work together as a platform that enables us to innovate, share, and collaborate across industries to develop incredible new products and services at an astounding rate.

To read the rest of this post, please visit IPWatchdog.

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Federal Circuit Should Reconsider Ariosa v. Sequenom: The Panel Decision Threatens Modern Innovation

Here’s a brief excerpt of a post by Devlin Hartline that was published on IPWatchdog.

In an amicus brief co-authored by Kevin Noonan of McDonnell Boehnen Hulbert & Berghoff LLP and Professor Adam Mossoff of George Mason University School of Law, twenty-three law professors urge the Federal Circuit to take a second look at the innovation-threatening panel decision in Ariosa v. Sequenom. They filed their amicus brief on Thursday, August 27, 2015, in support of Sequenom’s petition for rehearing en banc.

Before turning to the important points made by these amici, I’ll first explain what the Sequenom case is about and how the Federal Circuit panel reached the wrong conclusion in striking down Sequenom’s important innovation for diagnostic testing. . . .

To read the rest of this post, please visit IPWatchdog.

 

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Patent Law Uncategorized

#AliceStorm: July is Smoking Hot, Hot, Hot…and Versata is Not, Not, Not

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

July invokes images of hot days, cool nights, and fireworks. When it comes to #Alicestorm, the fireworks are happening in the courts, with the Federal Circuit lighting up the sky.

Table1

In just the first ten days of July, there have been twelve decisions on patent eligibility—more decisions in the first ten days of any month since the dawn of time. At this pace, we could see some twenty to thirty decisions this month. #AliceStorm is accelerating.

Here are the numbers by motion type:

Motions

Here are the numbers for all the courts, by tribunal:

Courts

Finally, here’s a summary of the number of Section 101 decisions by the various judges on the Federal Circuit since Alice:

Fed cir

I leave the interpretation of this graph as an exercise for the reader.

Versata: The Federal Circuit is Large and In Charge

While the indices are steady, the recent decisions are very interesting. Most importantly, there have been two Federal Circuit decisions in July, Versata Development Group v. SAP Am., Inc. and Intellectual Ventures I LLC v. Capital One Bank (USA), both of which found the patents in suit ineligible. Today, I’ll focus on Versata.

Versata was a closely watched appeal since it was the first appeal to the Federal Circuit of a Covered Business Methods review. The Court covered a lot of ground including 1) whether it could review PTAB’s determination that Versata’s patent was eligible for CBM review, 2) what is the meaning of “covered business method patent,” including whether USPTO’s definitions of a “financial product or service” and “technological invention” were correct, 3) what is the appropriate standard for claim construction, broadest reasonable interpretation or one correct construction, and 4) an evaluation of the merits. Briefly, the court decided:

  • The Court can review PTAB final decisions, even when they touch upon the same legal issues that lead to the institution decision (which the Federal Circuit does not have authority to review), including whether a patent qualifies as a covered business method patent;
  • The USPTO’s definitions of covered business method patent (which simply copies the statutory language without any definition at all) are just fine.
  • PTAB can use broadest reasonable construction; and
  • Versata’s patent is for a financial service, not a technological invention and is an ineligible abstract idea.

I’m not going to do an extensive analysis of the Federal Circuit’s handling of all these issues. Essentially, the Federal Circuit is saying: PTAB, keep up the good work of invalidating patents, but just remember, we’re still in charge. Instead, I’m going just to highlight some of the issues in the Court’s reasoning regarding the definitions of a covered business method patent.

As background, Versata’s patent is a way of determining prices where you have a very complex collection of products types and business groups, all overlapping and intersecting. Consider a company like General Motors with dozens of divisions and subsidiaries, hundreds of cars, and millions of parts. The problem is that conventional systems use multiple database tables to track and compute prices, requiring significant storage and reducing run-time performance. In a nutshell, Versata used hierarchical data structures representing product and business organizational hierarchies to store and compute product prices. By using hierarchical data structures, Versata’s invention saved memory and resulted in faster run-time performance than existing approaches.

What Is a Financial Product or Service?

Section 18(d)(1) of the statute that authorizes the CBM review states that a covered business method patent is:

a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions

The question is what is a financial product or service. The Court adopted the USPTO’s parsing of the phrase into financial and product or service. In doing so, the Court adopted PTAB’s incorrect grammatical parsing of the statute, which looked at the definition of financial apart from products and services. According to PTAB, “The term financial is an adjective that simply means relating to monetary matters.”

Running with this analysis the court concludes:

We agree with the USPTO that, as a matter of statutory construction, the definition of “covered business method patent” is not limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses. The plain text of the statutory definition contained in § 18(d)(1)— “performing . . . operations used in the practice, administration, or management of a financial product or service”— on its face covers a wide range of finance-related activities. The statutory definition makes no reference to financial institutions as such, and does not limit itself only to those institutions.

To limit the definition as Versata argues would require reading limitations into the statute that are not there.

This analysis is incorrect. The phrase financial product or service is not just the adjective financial modifying the nouns products and services—it’s not like sweet pastries and pies or funny songs and videos or complex issues and problems. Rather, financial product and financial service are open compound nouns, like high school, cell phone, and half sister. The meaning of these nouns is not determined by looking at the meaning of the individual words; the entire noun has its own meaning. When you attended high school, you did not go to a school that was “of great vertical extent”; when you speak on your cell phone you’re not talking on a telephone made of “the smallest structural and functional unit of an organism.” And when you offer to introduce me to your half sister, I don’t ask “Left or right?”

The term financial product means something specific and different from the simple combination of financial and product. It’s important to remember that the Covered Business Method program was pushed by three of the largest financial lobbying groups: the Financial Services Roundtable, the Independent Community of Banks of America, and the Securities Industry and Financial Markets Association. In the financial industry, financial products and services has a specific meaning.

Consider the following definitions of financial product:

a product that is connected with the way in which you manage and use your money, such as a bank account, a credit card, insurance, etc.
Cambridge Dictionary of Business English

Financial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities. Financial products are categorised in terms of their type or underlying asset class, volatility, risk and return.
EconomyWatch

Better yet, look at the U.S. Treasury’s definition:

The overarching definition of financial product will focus on the key attributes of, and functions performed by, financial products. A financial product will be defined as:

A facility or arrangement through which a person does one or more of the following:

— Makes a financial investment;
— Manages a financial risk;
— Obtains credit; or
— Obtains or receives a means of payment.

The facility or arrangement may be provided by means of a contract or agreement or a number of contracts or agreements.

The term financial services is equally specific

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, investment funds, real estate funds and some government sponsored enterprises.
Wikipedia, “Financial services”

Financial Services is a term used to refer to the services provided by the finance market. Financial Services is also the term used to describe organizations that deal with the management of money. Examples are the Banks, investment banks, insurance companies, credit card companies and stock brokerages.
Streetdictionary.com, “What exactly does financial services mean?”

The USPTO and the Federal Circuit ignored these definitions of financial products and services as used by the very industries that sought protection from abusive business methods patents. The Court even notes that “It is often said, whether accurate or not, that Congress is presumed to know the background against which it is legislating.” Indeed, it did here, but the Court simply chooses to discount both that background and correct English language usage.

The Court further argues that the statutory definition makes no reference to financial institutions as such, implying that Congress did not intend to limit financial products and services to the financial services industries. To riff off the logical fallacy—evidence of an absence is not the absence of evidence. There was no need to mention explicitly the financial industry in the statute because the industry context is built into the terms themselves. Contrary to the Court’s final statement, the limitations are already in “the plain text of the statute.”

In short, looking up the Random House definition of the adjective financial apart from financial products and services is like extracting greasy from spoon and concluding that a greasy spoon is an oily small, shallow oval or round bowl on a long handle.

Spoons

Whether you are talking business or busing tables, you must interpret words according to the relevant context, the relevant grammar, and the relevant dictionary.

Deference to the USPTO’s Expertise: Only Sometimes

In concluding its analysis of the meaning of a covered business method patent, the Court relies on a deference argument. In its final paragraph regarding the propriety of USPTO’s definition of financial product and services, the Court says:

Furthermore, the expertise of the USPTO entitles the agency to substantial deference in how it defines its mission.

The overall mission of the USPTO is to issue patents for inventions. The Ninth Circuit made a similar observation about the Copyright Office. In Garcia v. Google, the Copyright Office refused to register Garcia’s five-second appearance in a film. The Ninth Circuit noted “We credit this expert opinion of the Copyright Office—the office charged with administration and enforcement of the copyright laws and registration.” And thus the Ninth Circuit found it appropriate to defer to the office’s expertise in deciding copyrightable subject matter. The parallel could not be more perfect: the USPTO is the office charged with the administration and enforcement of the patent laws and registration. Likewise, the courts should defer to its expertise as well.

Here, when the USPTO comes up with a definition of technology in its interpretation of Section 18(d)(1) of the patent statute–a very small part of its mission–the Federal Circuit says that the Office is due substantial deference. Yet, when the Office comes up with a definition of Section 101–the section of the statute most fundamental to its mission–and when an examiner implements that definition and determines that a particular claim satisfies Section 101, that definition and that decision is given no deference at all.

Thus, I find it rather inconsistent of the Court to be deferential the USPTO’s definition of technology in a very narrow context, but entirely dismissive of the USPTO’s historical expertise in identifying patent eligible subject matter. When it comes to patents, the USPTO is like Rodney Dangerfield: it gets no respect.

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Patent Licensing and Secondary Markets in the Nineteenth Century

The following post comes from CPIP Programs and Research Associate Terrica Carrington, a rising 3L at George Mason University School of Law, and Devlin Hartline, Assistant Director at CPIP. They review a paper from CPIP’s 2014 Fall Conference, Common Ground: How Intellectual Property Unites Creators and Innovators, that was recently published in the George Mason Law Review.

By Terrica Carrington & Devlin Hartline

In his paper, Patent Licensing and Secondary Markets in the Nineteenth Century, CPIP Senior Scholar Adam Mossoff gives important historical context to the ongoing debate over patent licensing firms. He explains that some of the biggest misconceptions about such firms are that the patent licensing business model and the secondary market for patents are relatively new phenomena. On the contrary, Mossoff shows that “famous nineteenth-century American inventors,” such as Charles Goodyear, Elias Howe, and Thomas Edison, “wholeheartedly embraced patent licensing to commercialize their inventions.” Moreover, he demonstrates that there was “a vibrant secondary market” where patents were bought and sold with regularity.

Like many inventors, Mossoff explains, it was curiosity—rather than market success—that drove Charles Goodyear to create. Despite having invented the process for vulcanized rubber, Goodyear “never manufactured or sold rubber products.” While he enjoyed finding new uses for the material, commercialization was not his niche. Instead, Goodyear “transferred his rights in his patented innovation to other individuals and firms” so that they could capitalize on his inventions. “As the archetypal obsessive inventor,” notes Mossoff, “Goodyear was not interested in manufacturing or selling his patented innovations.” In fact, his assignees and licensees “filed hundreds of lawsuits in the nineteenth century,” demonstrating that “patent licensing companies are nothing new in America’s innovation economy.”

Mossoff next looks at Elias Howe, best known for his invention of the sewing machine lockstitch in 1843, who “licensed his patented innovation for most of his life.” Howe was also famous for “suing commercial firms and individuals for patent infringement” and then entering into royalty agreements with them. It was Howe’s troubles with “noncompliant infringers” that “precipitated the first ‘patent war’ in the American patent system—called, at the time, the Sewing Machine War.” Howe engaged in “practices that are alleged to be relatively novel today,” such as “third-party litigation financing,” and he even joined “the first patent pool formed in American history,” known as “the Sewing Machine Combination of 1856.”

Finally, Mossoff discusses Thomas Edison, whom many consider to be “an early exemplar of the patent licensing business model.” Edison sold and licensed his patents, especially early on, so that he could fund his research and development. However, Edison is a “mixed historical example” since “he manufactured and sold some of his patented innovation to consumers, such as the electric light bulb and the phonograph.” Moreover, despite his “path-breaking inventions,” the marketplace was often dominated by his competitors. Mossoff notes that Edison was a better inventor than businessman: “At the end of the day, Edison should have stuck to the patent licensing business model that brought him his justly earned fame as a young innovator at Menlo Park.”

While some might call these inventors anomalies, Mossoff reveals that they were in good company with others who utilized the patent licensing business model to serve “one of the key policy functions of the patent system by commercializing patented innovation in the United States.” These include “William Woodworth (planing machine), Thomas Blanchard (lathe), and Obed Hussey and Cyrus McCormick (mechanical reaper)” and many others who “sold or licensed their patent rights in addition to engaging in manufacturing and other commercial activities.” This licensing business model continues to be used today by innovative firms such as Bell Labs, IBM, Apple, and Nokia.

Mossoff next rebuts the “oft-repeated claim” made by many law professors that “large-scale selling and licensing of patents in a secondary market is a recent phenomenon.” This claim is as “profoundly mistaken as the related assertion that the patent licensing business model is novel.” Mossoff notes that during the Sewing Machine War of the Antebellum Era, “the various patents obtained by different inventors on different components of the sewing machine were purchased or exchanged between a variety of individuals and firms.” As early as the 1840s, individuals acquired patents in the secondary market and used them to sue infringers.

In fact, Mossoff points out that it was not uncommon to see newspaper ads offering patents for sale in the nineteenth century:

The classified ads in Scientific American provide a window into this vibrant and widespread secondary market. In an 1869 issue of Scientific American, among ads touting the value to purchasers of “Woodbury’s Patent Planing and Matching and Moulding Machines” and ads declaring “AGENTS WANTED—To sell H.V. Van Etten’s Patent Device for Catching and Holding Domestic Animals,” one finds ads offering patents and rights in patents for sale:

Such ads were ubiquitous in the nineteenth century, says Mossoff, and they “belie any assertions about the absence of such historical secondary markets by commentators today.” Similarly, Mossoff points to research showing the “fundamental and significant role” performed by intermediaries known as “patent agents,” the “predecessors of today’s patent aggregators.” These patent agents invested in a wide range of products and industries—a remarkable feat given the “constraints of primitive, nineteenth-century corporate law and the limited financial capabilities of market actors at that time.”

In his brief yet insightful account of the history of patent licensing firms, Mossoff refutes the modern misconception that “the patent licensing business model and secondary markets in patents are novel practices today.” It’s important to set the record straight, especially as many in modern patent policy debates rely on erroneous historical accounts to make negative inferences. The evidence from the nineteenth century isn’t that surprising since it reflects “the basic economic principle of the division of labor that Adam Smith famously recognized as essential to a successful free market and flourishing economy.” Casting “aspersions on this basic economic principle,” Mossoff concludes, “strikes at the very core of what it means to secure property rights in innovation through the patent system.”

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#AliceStorm In June: A Deeper Dive into Court Trends, and New Data On Alice inside the USPTO

The following guest post from Robert R. Sachs, Partner at Fenwick & West LLP, first appeared on the Bilski Blog, and it is reposted here with permission.

By Robert R. Sachs

The most important thing that happened in June was not the invalidation of yet another pile of patents, but the rather more consequential decision of the Supreme Court to recognize the right of same-sex couples to marry. Unlike patent law issues, when it comes to constitutional law, the Court can recognize the complexity and depth of the issue and, not surprisingly, the Court is deeply divided. That the Court is unanimous on equally complex and divisive issues in patent law—such as eligibility—speaks to me that they do not have the same deep understanding of the domain.

Now, let’s do the #AliceStorm numbers. First, the federal courts:

Table1

Since my May 28 update, there have been 19 § 101 decisions including two Federal Circuit decisions, Internet Patents Corp. v. Active Network, Inc. and Ariosa Diagnostics, Inc. v. Sequenom, Inc., both holding the challenged patents ineligible. Overall, the Federal Court index is up 3.1% in decisions and an (un?)healthy 6.2% in patents. The Motions on Pleading index is holding steady; the last five decisions on § 101 motions to dismiss have found the patents in suit invalid.

We can look more specifically at the invalidity rate by type of motion and tribunal:

Table2

For example, the 73.1% invalidity rate in the federal courts breaks down into 70.2% (66 of 96) in the district courts and a stunning 92.9% in the Federal Circuit (13 for 14). Motions on the pleadings and motions to dismiss are running equally, at a 69% defense win rate.

The 73.7% summary judgment success rate is consistent with the high rate on motions to dismiss. Since the courts have taken the position that there are no relevant facts to patent eligibility and there is no actual presumption of validity in practice, there is now little difference between the underlying showings required for the two types of motions. That’s odd since on the motions to dismiss the court is to look only at the pleadings, while on summary judgment they have the full file history, expert testimony, the inventor’s testimony and other evidence before them. Why such evidence is not helping—and indeed appears to be hurting—patentees is because the court is evaluating it from their lay perspective. In my opinion, the correct perspective is that of a person of ordinary skill in the art (POSITA). What a court may consider merely abstract may be easily recognized as a real-world technology by an engineer; a claim term that appears trivial to a court (“lookup table”, “isolated”) or may be significant to the expert.

We can also evaluate how individual the various district courts are doing.

Table3

(The (-1) values in the bottom five rows indicate that the court held that patent was not invalid).

Of the 66 district court decisions since Alice that have invalidated patents on § 101, Delaware, the Central and Northern Districts of California account for 58% of the decisions. The most prolific judges are shown here:

Table4

Yet, when it comes to finding abstract ideas, the USPTO remains the champ. The best avenue to attack a patent under § 101 is through the Covered Business Method (CBM) review program. A challenger files an institution petition before the Patent Trial and Appeal Board (PTAB) arguing that the challenged patent is directed to a financial product or service, and setting forth their ineligibility arguments. PTAB then issues an institution decision as to whether to grant the petition or not. The standard at this stage is whether it is more likely than not that the claims are ineligible. Once instituted, there is a full proceeding leading up to a final decision as to whether or not the patent is invalid.

At PTAB, CBM institution decisions are up (19 since May 28), and PTAB leads the race with the courts with an 88.6% invalidity rate on CBM institutions, and an unbeatable 100% rate (unchanged) on CBM final decisions.

Table5

If only the SF Giants could play their game this well.

Alice and the Patent Prosecutor

In my previous post, I drilled down in the impact of Alice on prosecution in terms of office action rejections and abandonments. My dataset was some 300,000 applications for the pre- and post-Alice period prepared for me by the team at Patent Advisor. Since then, I’ve received an additional 190,000 samples, comprising all office actions issued by the USPTO in September and October 2014. Together, the data set has over 490,000 office actions and notices of allowances:

Table6

The additional data from September and October fill in the trends in § 101 rejections that I showed before. As I explained, Tech Center 3600 includes more than just business methods, including literally down-to-earth technologies like earth moving and well boring. The § 101 rejections are concentrated in three E-commerce work groups:

Table7

There is some good news for software. The computer-related art units, TC 2100 and TC 2400, show considerably lower and steady § 101 rejection rates pre- and post-Alice.

Table8

After Alice, I think most software prosecutors expected to get non-final § 101 rejections, and consistent with past practice, expected to overcome them by amendment and argument. That would lead to final rejection based on prior art or an allowance. And that’s generally been true—except in a number of areas. In this following table, I compare the percentage of final office actions with § 101 rejections before and after Alice, in various Tech Centers and within TC 3600.

Table9

It’s important to remember the obvious: that you don’t get to a final rejection on § 101 without a first having a non-final rejection. Thus, this comparison shows how successful prosecutors were in overcoming non-final § 101 rejections before and after Alice—or equally how aggressive examiners were in maintaining these rejections. For example, before Alice 8.1% of final rejections in TC 1600 included a § 101 rejection, doubling to 16.7% after Alice—thus indicating that examiners were much more likely to maintain the rejection after Alice, but still a relatively low rate overall. By comparison in TC 2600, the rate of final rejections on § 101 declined after Alice, from 10% to 7.7%. This could be because it’s easier to explain why an invention in more traditional fields is an improvement in technology, one of the Alice safe harbors.

But when it comes to business methods, we see the killer statistics: prior to Alice, prosecutors overcame the non-final § 101 rejections generally about 62% of the time, leading to final rejection rates in the 23-46% range; thus prosecutors had more or less even odds of getting over the rejection. What is shocking is that after Alice, the final rejection rate soared into the 90% range. If you felt frustrated that your crafted (or crafty) arguments failed to impress the Examiner, get in line.

Now I’ve reviewed several hundred post-Alice rejections, and I’ve talked to a large number of prosecutors. What I’ve found is that majority of the non-final § 101 rejections were relatively formalistic, with little actual substantive analysis. Likewise, in a review of 87 office actions issued in November 2014 with § 101 rejections, Scott Alter and Richard Marsh found that 63 percent of those actions were “boilerplate” rejections. In my view, most prosecutors put forward at least a decent argument to show that the claims are not abstract, have at least one significant limitation, and do not preempt the abstract idea. Response arguments to § 101 rejections tend to run longer than response to prior art rejections, and I’ve seen many that resemble appeal briefs if not legal treatises, all to overcome a one paragraph rejection. They all presented at least enough of an argument to overcome the prima facie case for the rejection. And yet the final rejections keep coming—and often with little or no substantive rebuttal of the prosecutor’s arguments.

Outside of business methods, I found only two technology areas that had post-Alice rejection rates in excess of 30%: Amusement and Education devices in Tech Center 3700 (bottom row above) and molecular biology/bioinformatics/genetics in TC 1600 (not shown). This is a peculiar side effect of Alice. Historically, games and educational devices are classic fields of invention. There are thousands of patents on games, such as card games, board games, physical games, and the like. What is now hurting these applications are two aberrations in the law of patent eligibility: mental steps and methods of organizing human activity. The majority of § 101 rejections for games argue that the rules that define a game are simply ways of organizing human activity and can be performed by mental steps. Examiners typically cite the Federal Circuit’s Planet Bingo v. VKGS decision for the proposition that a game is an abstract idea and can be performed mentally. Only a small problem here: Planet Bingo is non-precedential and thus limited to its facts. In particular, the court did not hold that the game of bingo was an abstract idea. Instead, the alleged abstract idea was of “solving a tampering problem and also minimizing other security risks during bingo ticket purchases.” Thus, the case cannot be extended by examiners to argue that all games are abstract ideas.

As to methods of organizing human activity, it cannot be the case that all such methods are ineligible, since a vast array of such methods are in fact patented in fields such as farming, metalworking, sewing, manufacturing, tooling, conveying, and the like. This is just another example how simplistic rules of patent eligibility, taken out of context from one court opinion and repurposed generally, are at complete odds with the reality of invention.

Here is another view of the final rejection data on § 101, this time organized by the technology groups most negatively impacted by Alice (left side) and most positively impacted (right side).

Table10

The data here is organized by the percentage change in § 101 final rejection rates post-Alice. The group on the left is all of the technology areas that have had more than a 10% increase in final § 101 since Alice. Every other technology work group in the USPTO had less than 10% change in final rejection rates. On the right, we find the groups that seemed to benefit from Alice, in that the final rejection rates on § 101 declined. Most of these groups are in the computer area—and I’m sure that many of their applications have claims for purely software operations that could just as easily be argued to be mere data gathering, mental steps, or fundamental practices. And yet the examiners in these groups do not on average impose such blanket formulations on the claims, but appear overall to treat these inventions for what they are: real technology solving real world problems with real commercial applications.

To me, the data points to a clear conclusion. Contrary to what the USPTO’s Interim Guidance states as policy–that there is no per se exception for business methods–the behavior of examiners suggests that precisely such an exception is being applied in fact.

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Administrative Agency Antitrust Commercialization Economic Study FTC Innovation Inventors Legislation Patent Law Patent Licensing Patent Litigation Uncategorized

How Rhetorical Epithets Have Led the FTC Astray in its Study of Patent Licensing Firms

We’ve all heard the narrative about patent licensing firms, often referred to pejoratively as “patent trolls.” These patent owners, who choose to license their innovations rather than build them, are the supposed poster-children of a “broken” patent system. It’s as if commercializing one’s property, just like a landlord leases his land for another to use, is suddenly a bad thing. Nevertheless, the power of this “troll” rhetoric cannot be denied. Many provisions in 2011’s Leahy-Smith America Invents Act were aimed at starving out these “trolls,” and no less than five bills currently under consideration in the House and Senate seek to further deflate their sails.

Another example of the powerful appeal of the “patent troll” rhetoric is that the agencies charged with enforcing antitrust law have also been convinced that there is something amiss with the commercial licensing of patented innovation in the marketplace. This has been a key feature of the deployment of patented inventions in America’s innovation economy since the early nineteenth century, as scholars have shown. Last year, the Federal Trade Commission (FTC) instigated its own investigative study of what it calls “patent assertion entities” (PAEs), which is merely a more formal and neutral-sounding synonym for the popularized “patent troll” epithet.

In a new paper published in the George Mason Law Review, Sticks and Stones: How the FTC’s Name-Calling Misses the Complexity of Licensing-Based Business Models, CPIP Senior Scholar Kristen Osenga takes a closer look at the FTC’s ongoing study of PAEs and finds that it is destined to fail for two simple, yet inescapably obvious, reasons.

The first is the basic definitional problem of the FTC’s characterization of PAEs, which puts all patent licensing firms in the same boat. Failing to take a more nuanced approach, Osenga warns, “fires up the rhetoric but obscures thoughtful discussion and debate about the issue.” Building upon her previous work, she explains:

[T]he real problem is that patent licensing firms are treated as a homogenous category, with no attention paid to the wide range of business models that exist under the patent licensing firm umbrella. The categorical determination of patent licensing firms as “problems” imputes to a large, diverse group of firms the negative actions and qualities of a small number of bad actors.

Since not all “trolls” are alike, Osenga cautions, it’s “naïve and inaccurate” to lump them all together. And when the FTC makes this mistake, it leads to a situation “where words actually can hurt, much more so than sticks and stones.” The FTC’s study is explicitly “premised on a one-size-fits-all conception of patent licensing firms.” Rather than shedding much-needed light on the complex innovation ecosystem, the study promises to squander the opportunity by failing to recognize that not all “trolls” are the same.

Osenga notes that the FTC is uniquely situated to obtain nonpublic information about how these patent licensing firms operate using its investigative power under Section 6(b) of the FTC Act. Unfortunately, however, the study is premised on the faulty notion that the only upside of patenting licensing firms is to “compensate inventors.” But this focus on patents-as-incentives misses the forest for the trees, Osenga urges, as it fails to account for the larger patent-commercialization network:

[T]here are many steps between invention and the introduction of an actual product to the market and consumers. These steps include transforming an idea in to a marketable embodiment, developing facilities to produce the marketable embodiment, creating distribution channels to bring the embodiment to the consumer, and making the consumer aware of the new product. Each of these steps requires its own additional resources in the form of both capital and labor.

The FTC study, like many patent skeptics, fails to consider the benefits of the division of labor that patent licensing firms represent. Not every inventor is willing or able to bring an invention to the marketplace. Osenga’s point is that patent licensing does more than simply compensate inventors for their troubles; it creates liquid markets and solves problems of asymmetrical actors and information. These exchanges increase innovation and competition by playing the role of match-maker and market-maker, and they place valuable patents into the hands of those who are better positioned to exploit their worth.

Osenga points out that there are indeed possible negative effects with patent licensing firms. For example, they sometimes engage in ex post licensing, waiting to offer licenses until after the would-be licensee has already adopted the technology. These firms can be better positioned litigation-wise since their potential exposure is typically less than that of the infringers they sue. Finally, patent aggregators tend to have greater market power, and it can be difficult to judge the quality of any given patent that’s asserted when they offer to license their entire portfolio.

As with all things, Osenga stresses, there’s both good and bad. The problem is figuring out which is greater. The FTC could conduct a study that reveals a “detailed understanding of the complex world of patent licensing firms,” she laments, but that’s not what the FTC is doing:

[T]he configuration of the study is slanted in such a way that only part of the story will be uncovered. Worse still, the study has been shaped in a way that will simply add fuel to the anti-“patent troll” fire without providing any data that would explain the best way to fix the real problems in the patent field today.

This leads to the second problem with the FTC study, which follows as a necessary, logical consequence from the first definitional problem: There are serious methodological problems with the study that will undermine any possible empirical conclusions that the FTC may wish to draw.

Osenga says that the FTC’s study is simply not asking the right questions. Painting a complete picture of complex licensing schemes requires more than just counting the number of patents a firm has and adding up the attempts to negotiate license deals. To really get to the bottom of things, she contends, the FTC should be asking why patentees sell their patents to licensing firms and why licensing firms buy them from patentees. Better still, ask them why they decided to become patent licensing firms in the first place.

This insight is powerful stuff. It’s not enough to simply ask these firms what they’re doing; to really understand them, the FTC must ask them why they’re doing it. And the results are likely to be varied:

Some, of course, begin with this business model in mind. Others invent new technology but are unable to successfully commercialize it themselves, despite making efforts to do so. Still others exist as practicing entities for years or decades before something changes—supply change issues, rampant infringement by competitors, and regulatory initiatives—and they are no longer able to exist as a viable practicing entity.

Similarly, the FTC could ask them what kind of firms they are, and these answers are also likely to be diverse. Osenga’s point is that the FTC’s questions aren’t designed to showcase the vast differences between the various types of patent licensing firms. If the FTC wants to get to the bottom of how these firms affect innovation and competition, the first step should be to realize that they’re not all the same. The FTC’s study is as clumsy as those who refer to all such firms as “patent trolls,” and the lack of nuance going in will unfortunately produce a study that lacks nuance coming out.

In the end, Osenga agrees that deterring abusive behavior is a good thing, and she worries about innovation and competition. However, unlike many in patent policy debates, she is also concerned that the rhetoric is having an undue influence on policymakers. Throwing all patent licensing firms under the “patent troll” bus will not get us the narrowly-tailored reforms that we need. Sadly, the FTC’s approach with its ongoing study appears to have swallowed this rhetoric wholesale, and it seems unlikely that the results will be anything but more fuel for the “patent troll” pyre.

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Administrative Agency Biotech High Tech Industry Innovation Intellectual Property Theory Inventors Legislation Patent Law Patent Litigation Patent Theory Software Patent Statistics Supreme Court Uncategorized

The One Year Anniversary: The Aftermath of #AliceStorm

The following post, by Robert R. Sachs, first appeared on the Bilski Blog, and it is reposted here with permission.

It’s been one year since the Supreme Court’s decision in Alice Corp. v. CLS Bank. On its face the opinion was relatively conservative, cautioning courts to “tread carefully” before invalidating patents, and emphasizing that the primary concern was to avoid preemption of “fundamental building blocks” of human ingenuity. The Court specifically avoided any suggestion that software or business methods were presumptively invalid. But those concerns seem to have gone unheeded. The Court’s attempt to side step the tricky problem of defining the boundary of an exception to patent eligibility—”we need not labor to delimit the precise contours of the ‘abstract ideas category in this case'”—has turned into the very mechanism that is quickly “swallow[ing] all of patent law.” The federal courts, the Patent Trial and Appeal Board, and the USPTO are using the very lack of a definition to liberally expand the contours of abstract ideas to cover everything from computer animation to database architecture to digital photograph management and even to safety systems for automobiles.

Let’s look at the numbers to present an accurate picture of the implications of the Supreme Court’s decision. My analysis is a data-driven attempt to assess the implications of Alice one year out. It is with an understanding of how the Supreme Court’s decision is actually playing out in the theater of innovation that we can better project and position ourselves for what the future holds.

Alice at Court

Table 0 Fed Courts

As of June 19, 2015 there have been 106 Federal Circuit and district court decisions on § 101 grounds, with 76 decisions invalidating the patents at issue in whole or in part. In terms of patents and claims, 65% of challenged patents have been found invalid, along with 76.2% of the challenged claims.

The success rate of motions on the pleadings (including motions to dismiss and judgments on the pleadings) is extremely impressive: 67% of defense motions granted, invalidating 54% of asserted patents. There has never been a Supreme Court ruling that the presumption of validity does not apply to § 101—only the Court’s use of the originally metaphorical notion that eligibility is a “threshold” condition. Given that, and the general rule that to survive a motion to dismiss the patentee (historically) need only show that there was a plausible basis that the complaint states a cause of action— there is a plausible basis that the patent claim is not directed to an abstract idea, law of nature, or natural phenomena. One would be forgiven for thinking, as did former Chief Judge Rader in Ultramercial, LLC v. Hulu, LLC that a “Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule.” Apparently the rules change in the middle of the game.

Turning specifically to the Federal Circuit, the numbers are stark:

Table 00Fed Circuit

Of the 13 decisions, 11 are in software or e-commerce and only two are in biotech. The one case where the court held in favor of the patentee, DDR Holdings, LLC v. Hotels.com, L.P. appeared to offer a narrow avenue for patentees to avoid invalidation. However, only nine district court opinions have relied upon DDR to find patent eligibility, with over 30 court opinions distinguishing DDR as inapplicable. Even more interesting is the fact that in DDR the Federal Circuit essentially held that creating a website that copies the look and feel of another website is patent eligible. In the Silicon Valley, that’s called phishing, and it’s not a technology in which most reputable companies invest.

Alice at the Office

The impact of Alice is similarly impacting practitioners before the USPTO. In December, 2014 the Office issued its Interim Guidance on Patent Subject Matter Eligibility, providing guidance to patent examiners as to how to apply the Alice, Mayo, and Myriad decisions along with various Federal Circuit decisions, to claims during prosecution. Importantly, the Guidance noted that “the Supreme Court did not create a per se excluded category of subject matter, such as software or business methods, nor did it impose any special requirements for eligibility of software or business methods,” and it reminded examiners that “Courts tread carefully in scrutinizing such claims because at some level all inventions embody, use, reflect, rest upon, or apply a law of nature, natural phenomenon, or abstract idea.” Alas, most patent examiners are acting as if the patent applications before them are the exceptions to these cautionary instructions.

With the assistance of Patent Advisor, I compiled a dataset of almost 300,000 office actions and notice of allowances sampled in two week periods during 2013, 2013, 2014 and early 2015, and all actions during March, April and May 2015, across all technology centers:

Table0 Number of Apps

About 100,000 actions were notices of allowances, leaving about 200,000 office actions. Each office action was coded as to whether it included rejections under §§ 101, 102 and 103. For each office action the art unit and examiner was identified as well, and the status of the application (abandoned, pending or patented) as of the date that the data was obtained. I then analyzed the data for office actions rejections based on § 101, allowance rates, and examiner rejection rates. Here’s what I found.

Percent of all Actions with § 101 Rejections

Table2

Here, we have the percentage of all actions in each period that received a § 101 rejection, considering both rejections issued and notices of allowances. The black line separates pre-Alice from post-Alice data. For example, in TC 1600, the biotech area, in January, 2012 6.81% of all actions issued (counting both office actions and notices of allowances) were office actions with § 101 rejections; by May 2015 that percentage almost doubled to 11.86% of actions.

Overall, data shows that in 2012 subject matter rejections were mainly in the computer related Tech Centers (2100, 2400) and began declining thereafter, while escalating in biotechnology (1600) and so-called “business methods” Tech Center, TC 3600, following Mayo and Alice. Other technology centers such as semiconductors and mechanical engineering had essentially low and constant rejection rates. But that’s not because there are no software patents in these technology centers: you find plenty of software patents in these groups. Rather, my view is that it is because examiners in these groups treat software patents as they do any other technology.

The rejection rates in Tech Center 3600 in the 30-40% range are higher than any other group, but they also mask what’s really going on, since TC 3600 covers more than business methods. Tech Center 3600 has nine work groups:

Percent of all Actions with § 101 Rejections in TC 3600 Work Groups

Table3 Ecomm Rej

In TC 3600 most of the work groups handle good old-fashioned machines and processes, such as transportation (3610), structures like chairs and ladders (3630), airplanes, agriculture, and weapons (3640), wells and earth moving equipment (3670), etc. Three work groups handle e-commerce applications: specifically, 3620, 3680 and 3690. Here we see that these groups have significantly higher § 101 rejections than the rest of TC 3600. But let’s drill down further.

Each of work groups 3620, 3680 and 3690 have between five and 10 individual art units that handle specific types of e-commerce technologies, but they are not all under the same work group. For example business related cryptography is handed by both art units 3621 and 3685; healthcare and insurance is handled by art units 3626 and 3686; operations research is handled in 3623, 3624, 3682 and 3684. If we consolidate the data according to technology type and then look at rates of § 101 rejections we get the following:

Percent of all Actions with § 101 Rejections in E-Commerce Art Units by Technology Type

Table3 Ecomm Rej

What’s going on? After Bilski in 2010, the § 101 rejections were running between 17% and 50%. Not great but tolerable since these were mostly formal and were overcome with amendments adding hardware elements (“processor,” “memory”) to method claims or inserting “non-transitory” into Beauregard claims.

But after Alice, everything changed and § 101 rejections started issuing like paper money in a hyperinflation economy. If your perception as a patent prosecutor was that the every application was getting rejected under § 101, this explains your pain. Here’s another view of this data, in terms of actual number of § 101 rejections per sample period:

Number of Office Actions with § 101 Rejections in E-Commerce Art Units by Technology Type

Table4 Ecomm Rej Nos

Notice here that the number of office actions in March, 2015 fell dramatically, and then in April the flood gates opened and hundreds of actions issued with § 101 rejections. This is consistent with the Office’s statements in January 2015 that it was training examiners in view of the 2014 Interim Guidance, so office actions were being held until the training was completed. Apparently, the training skipped the part about no per se exclusions of business methods.

Now let’s consider notice of allowance rates. First with respect to all Tech Centers.

Percent of Actions that Are Notices of Allowance

Table5 All TCs NOA

This data reflects, of all the actions that were issued in a given period, the percentage that were notices of allowances. (Note here that contrary to the preceding tables, red cells are low percentage, and green cells are high since notices of allowance are good things, not bad things). The numbers look good, with a general increasing trend over time.

Now consider what’s happening in TC 3600’s business methods art units.

Percent of Actions that Are Notices of Allowance in Business Methods

Table6 NOAs in Ecomm

Now the picture is quite different. The rate of NOAs drops dramatically after Alice, especially in finance and banking and operations research. If it seemed that you were no longer getting a NOAs, this is why. The zero percent rate in March, 2015 is a result of the Office holding up actions and NOAs in view of the Interim Guidance training, as mentioned above.

Patents issued in the business methods art units typically are classified in Class 705 for “Data Processing.” I identified all patents with a primary classification in Class 705 since January, 2011, on a month by month basis, to identify year over year trends. Again the black line separates pre-Alice from post-Alice data.

Table7 Class 705 Patents

This table shows a precipitous decline in the number of business method patents issued following Alice, especially year over year. The lag between the June, 2014 Alice decision and the drop off in October 2014 is an artifact of the delay between allowance and issuance, as well as the USPTO’s unprecedented decision to withdraw an unknown number of applications for which the issue fee had already been paid, and issue § 101 rejections. It’s an interesting artifact, as well, that the number of Class 705 patents issued peaked in the month after Alice: you have to remember that these patents were allowed at least three months, and as much as a year, before the Alice decision; it just took a long time to actually get printed as a patent.

Next, we’ll consider abandonment rates, on a comparative basis, looking at the percentages of applications that were ultimately abandoned in relationship to whether or not they received a § 101 rejection. We’ll compare the data from January 2012 to July 2014. Again, consider the entire patent corps:

Percent of Abandoned Applications with Prior § 101 Rejection

Table8 Abandon all TCs

Here we see that of the applications that were abandoned during the respective sample periods, the vast majority did not have a prior § 101 rejection. Only in TC 3600 did the majority shift after Alice with 51.83% applications that received § 101 rejections in July 2014 being subsequently abandoned by May 31, 2015. Again, let’s drill down into the business method art units in TC 3600:

Percent of Abandoned Applications with Prior § 101 Rejection

Table9 Ecomm Abandon

First, prior to Alice, abandonments in the business method units appeared to result more frequently from other than § 101 rejections, typically prior art rejections. This is shown by the fact that the Jan. 2012 “No” column (no prior 101 rejection) is greater than the Jan. 2012 “Yes” column. Then after Alice, there is a huge shift with the vast majority of applications that were abandoned having § 101 rejections, as shown by the July, 2014 “Yes” column. The vast majority of abandonments, upwards of 90%, followed a 101 rejection. That’s applicants essentially giving up over what only a few years ago was a relatively minor hurdle. That’s what happens when you change the rules in the middle of the game. Second, there is also significant differential behavior in the business method areas as compared to the rest of the technology centers after Alice.

Here’s my personal favorite.

Rates of Examiner § 101 Rejections in TC 3600

Table12 Examiner Rates

This table shows the numbers of examiners in the business method art units with respect to the percentage of applications in which they issued § 101 rejections after Alice. The first row shows that during the sampled periods since Alice, 58 business methods examiners issued § 101 rejections in 100% of their applications, for a total of 443 applications. Twenty examiners issued § 101 rejections for between 90% and 99% of their cases, covering 370 applications. In short, 199 examiners issued § 101 rejections more than 70% of the time, covering 3,304 applications or about 70.6% of all applications. This is not “treading carefully.”

We find similar, though less dramatic, trends and variations in TC 1600 which handles biotechnology, pharma, and chemistry.

Percent of all Actions with § 101 Rejections in TC 1600 Work Groups

Table10 1600 101 Rej Rate

The red line separate pre-Mayo/Myriad data from post-Mayo/Myriad, and the increase in the post-period is significant. Here too, the various work groups mask the more significant rejection rates in specific technology areas, with the rejection rate in microbiology first jumping up to 34.6% post-Mayo and steadily climbing to the current 53.2%.

Percent of all Actions with § 101 Rejections in TC 1600 by Technology

Table11 1600 Tech Type Rej

This table breaks down the work groups into technology types, and then these are sorting average rejection rate over the past four months. Following Alice, we see a significant increase in eligibility rejections in bioinformatics related applications–inventions that rely on analysis and identification of biological and genetic information, and which are frequently used in diagnostics and drug discovery. This is especially disconcerting because bioinformatics is critical to the development of new diagnostics, therapies and drugs.

Note as well the enormous spike in rejections for plant related applications from 0% between July 2015 and April 2015, to 50% in May 2015. This is likely a result again of the USPTO’s Interim Guidance which essentially instructed examiners to reject any claim that included any form of a natural product.

At least pesticides and herbicides are safe from Alice, since we definitely need more of those. The irony is that the more pesticides and herbicides that come to market, the more we need bioinformatics inventions to identify and treat conditions potentially resulting from these products.

Alice at the Board

The Patent Trial and Appeal Board has been even more hostile to software and business methods patents under the Covered Business Method review program:

Total Petitions

Petitions Granted

Percent Invalid

PTAB CBM Institution on § 101

72

64

89%

PTAB Final Decisions on § 101

27

27

100%

Covered Business Method review is available for patents that claim “a method, apparatus, or operation used in the practice, administration, or management of a financial product or service.” The Board takes a very broad view of what constitutes a financial product or service: if the patent specification happens to mention that the invention may be used in a financial context such as banking, finance, shopping or the like, then that’s sufficient. The Board has found CBM standing in 91% of petitions, and instituted trial in 89% of petitions asserting § 101 invalidity. Once a CBM trial has been instituted, the odds are heavily in the petitioner’s favor: of the 27 final CBM decisions addressing § 101, the Board has found for the petitioner 100% of the time.

Finally, we look at the Board’s activity in handling ex parte appeals from § 101 rejections for the period of March 1, 2015 to May 30, 2015:

  • 32 Ex Parte Decisions on § 101, with 15 in TC 3600.
  • 28 Affirmances overall, 13 in TC 3600
  • Two Reversals on § 101, both in TC 3600
  • Four New Grounds of Rejection for § 101

Following suit with how the Board is handling CBMs, they are also heavily supporting examiners in affirming § 101 rejections. More disconcerting is the trend of new grounds of rejection under § 101. While only four were issued in this period, there have been several dozen since Alice. In this situation, the applicant has appealed, for example, a § 103 rejection. The Board can reverse the examiner on that rejection, but then sua sponte reject all of the claims under § 101. What are the odds that the examiner will ever allow the case? Close to zero. What are the odds that an appeal back to the Board on the examiner’s next § 101 rejection will be reversed? If the Board’s 100% rate of affirming its CBM institution decisions on § 101 is any indication, then you know the answer.

Conclusions

Looking at the overall context of the Alice decision, it’s my view that Supreme Court did not intend this landslide effect. While they were certainly aware of the concerns over patent trolls and bad patents, they framed their decision not as a broadside against these perceived evils, but as simple extension of Bilski and the question of whether computer implementation of an abstract idea imparts eligibility. At oral argument, the members of the Court specifically asked if they needed to rule on the eligibility of software and they were told by CLS and the Solicitor General that they did not. To the extent that there is broad language in that opinion, it is the cautionary instructions to the courts to avoid disemboweling the patent law from the inside, and the emphasis on preemption of fundamental ideas—not just any ideas—as the core concern of the exclusionary rule. The evidence above shows that these guideposts have been rushed past quite quickly on the way to some goal other than the preservation of intellectual property rights.

If the present trends hold, and I see no reason to suggest that they will not, we will continue to see the zone of patent eligibility curtailed in software (not to mention bio-technology after Mayo and Myriad). Indeed, the more advanced the software technology—the more it takes over the cognitive work once done exclusively by humans, the more seamless it becomes in the fabric of our daily lives—the less patent eligible it is deemed to be by the courts and the USPTO. What technologies will not be funded, what discoveries will not be made, what products will never come to market we do not know. What we do know is this: there is only one law that governs human affairs and that is the law of unintended consequences.