Tag: patent eligibility

Professor David Taylor on Patent Eligibility and Investment

Post author By Joshua Grove
Post date February 4, 2021

The following post comes from Terence Yen, a 4E at Scalia Law and a Research Assistant at CPIP.

By Terence Yen

In his new paper, Patent Eligibility and Investment, Professor David Taylor of the SMU Dedman School of Law explores whether the Supreme Court’s recent patent eligibility cases have changed the behavior of venture capital and private equity investment firms. The paper comes from CPIP’s Thomas Edison Innovation Fellowship program, and it was published in the Cardozo Law Review. The tables referenced in this summary should be credited to his paper, and readers are encouraged to read the original publication for a deeper understanding of his survey results.

Prof. Taylor explains that, since 2010, the Supreme Court has come out with several decisions that have shaken up our understanding of patent eligibility. Not only do the new standards set forth by the Court lack administrability, but they have also created confusion and have far reaching consequences that have drawn concern and criticism from inventors, scientists, lawyers, judges, and industry groups. In fact, these new standards have required lower courts to make determinations of eligibility that the judges themselves recognize as flawed.

As Prof. Taylor explains, the crux of the issue lies in the Supreme Court’s new patentability standard, which requires an inventive application of a newly discovered law of nature, a natural phenomenon, or an abstract idea beyond the mere practical application of such a discovery, as had been previously required. The result is that a scientist cannot obtain a patent for merely making a new discovery (e.g., the cure to cancer) and disclosing how to apply that discovery to advance the state of the world (e.g., treating a patient using the cure). The inventor must additionally include a disclosure of how to apply the new discovery in a new way, creating a double novelty requirement.

Prof. Taylor points to Ariosa Diagnostics v. Sequenom to illustrate some of the issues with this new standard. In Ariosa, scientists discovered that a pregnant woman’s bloodstream included genetic material from her unborn baby. Upon making this discovery, they used known techniques to create methods to use the material to identify fetal characteristics. These new methods were a significant improvement on prior ones, which required the invasive and risky process of taking samples from the fetus or placenta.

The inventors obtained a patent, but the Federal Circuit was forced to invalidate it because the claimed method did not include any inventive concept transforming this natural phenomenon into a patent-eligible invention. In his concurring opinion, Judge Linn condemned the Supreme Court standard, as it required the court to find that an otherwise meritorious invention was ineligible to obtain the protection it deserved. He particularly criticized the second part of the standard, the requirement of an “inventive concept”, which discounts “seemingly without qualification” any conventional or obvious steps in the process.

Many people have criticized this new two-part test and the additional requirement of an “inventive concept.” Indeed, Prof. Taylor previously condemned this standard as reflecting “a lack of understanding of the relevant statutory provisions, precedent, and policies already undergirding the patent statute.” In this new paper, Prof. Taylor seeks to understand how this has impacted investment decisions, and he begins to compile the data largely missing from the existing literature that would start to shed light on the matter.

To gather the relevant data, Prof. Taylor conducted a survey of 475 venture capital and private equity investors from at least 422 different firms representing the various early stages of venture capital funding: early, seed, middle, growth, expansion, and late investors. In general, he asked two types of questions:

1. Whether the Supreme Court’s rulings on patent eligibility have impacted their decisions to invest in companies developing technology, and if so, how

Indirect questions related to the same issue, such as asking about any changes to decisions to invest in companies over the relevant time period, and whether those changes relate to any decreased availability of patent protection

The tables below indicate the different stages of venture capital funding represented by the surveyed firms, as well as the variety of represented industries. The total percentages come out to over 100%, because most firms focused on multiple investment stages and industry areas. It should be noted that the survey questions related only to U.S. patents and only to financing activities in the United States.

Table 1: Investment Stages of Respondents' Firms. Early stage, 59%. Seed stage, 45%. Middle Stage, 27%. Growth Stage, 22%. Expansion stage, 15%. Lat stage, 1%.

Table 2: Investment Industries of Respondents' Firms. Industry to percent. Software and the Internet, 70%. Medical Devices, 63%. Computer Electronics/Hardware, 61%. Biotechnology, 55%. Pharmaceutical, 54%. Communications, 53%. Energy, 49%. Semiconductors, 48%. Transportation, 47%. Construction, 42%.

The Findings

Overwhelmingly, investors reported that patent eligibility is an important consideration for their firms when deciding whether to invest in companies that are developing technology. In total, 74% agreed with this idea, while only 13% disagreed.

Table 7: Patent Eligibility Is an Important Consideration in Firm Decisions Whether to Invest in Companies Developing Technology. Response to percent. Strongly agree, 43%. Somewhat agree, 31%. Neither agree nor disagree, 13%. Somewhat disagree, 9%. Strongly disagree, 5%.

This led to the natural follow-up question: If the laws of patent eligibility make a patent unavailable for a certain technology, would the firm be less likely to invest in companies developing that technology? In response, 62% agreed that their firms would be less likely to invest given the unavailability of patents.

Table 8: Less Likely to Invest if Patent Eligibility Makes Patents Unavailable. Response to percent. Strongly agree, 23%. Somewhat agree, 39%. Neither agree nor disagree, 19%. Somewhat disagree, 13%. Strongly disagree, 7%.

The response changed slightly when the scenario was changed to one where the patent was merely more difficult to obtain. However, there was not a significant change from the response to the previous question, and respondents weighed in at 59% agreement.

Table 9: Less Likely to Invest if Patent Eligibility Makes Patents More Difficult to Obtain. Response to percent. Strongly agree, 19%. Somewhat agree, 40%. Neither agree nor disagree, 18%. Somewhat disagree, 17%. Strongly disagree, 5%.

From the data collected, it appears that investors in the medical device, biotechnology, and pharmaceutical industries tend to value patentability slightly more than investors in the software space. Additionally, early-stage investors seemed to value patent eligibility slightly more than their late-stage counterparts, though there was not a statistically significant difference reported between the different stages of investment. Prof. Taylor theorizes here that a larger sample size might indicate a more obvious trend.

Prof. Taylor notes one interesting statistic: those who were familiar with the Supreme Court’s recent eligibility decisions tended to value patent eligibility higher than those who were not familiar with the cases. This may indicate that the more aware an investor is of the recent opinions, the more they value the impact of those opinions. Prof. Taylor makes sure to note, however, that the data do not preclude the possibility that the more one knows about a subject, the more importance one places on one’s own knowledge of the subject. Additionally, patent eligibility did not appear to be the primary focus for investors. When compared with various other factors typically considered by investment firms, patent eligibility was consistently relegated to a lesser role. It is significant to note that the present survey focused on the availability of patents based only on patent eligibility.

In general, investors indicated that the loss of patent protection would cause them to decrease their investments, though Prof. Taylor finds that this decreased investment would be more pronounced in some industries than others. As shown using weighted averages, the three industries with the greatest reported decrease would be the pharmaceutical, biotechnology, and medical device industries.

Next, Prof. Taylor explores the impact that the Supreme Court’s decisions have had on investment behaviors. The survey showed that 38% of investors were familiar with at least one of the patent-eligibility cases. About 40% of those knowledgeable investors indicated that the decisions had a negative effect on their firms’ existing investments, compared with 14% who indicated positive effects.

Table 21: Impact of Supreme Court's Eligibility Cases on Existing Investments. Response to percent. Very positive, 1%. Somewhat positive, 13%. No Impact, 46%. Somewhat negative, 33%. Very negative, 7%.

However, Prof. Taylor notes that these numbers represent only the static impact of the Supreme Court cases. Dynamic impact—meaning, the impact on future decision making—is likely the more important statistic. Interestingly, only one-third of investors indicated that the cases would impact their decisions on whether to invest in companies going forward, with no statistically significant difference based on industry or stage of funding.

Table 22: Have Any of the Supreme Court's Eligibility Cases Affected Firm Decisions Whether to Invest in Companies. Yes, 33%. No, 61%. Don't know, 6%.

With the numbers above representing investors with knowledge of the patent eligibility cases, it should be no surprise to learn that investors unfamiliar with the Supreme Court cases overwhelmingly responded that the decreased availability of patents had not impacted their firms’ changes in investment behavior.

Conclusion

While there were a wide variety of opinions from the many investors regarding the current state of patent eligibility, the general consensus was that the Supreme Court’s decisions have had a negative impact on patentability, leading to a potential decrease in a willingness to invest. This attitude was most prevalent in, but not limited to, the biotechnology and pharmaceutical industries.

As presented in his paper, Prof. Taylor’s survey provides the first empirical data on how the current state of patent eligibility has affected the attitude of investors. Like all surveys, however, it is susceptible to a certain degree of error caused by various unavoidable human characteristics. Even recognizing its limitations, this survey provides useful information that can be used to begin analyzing the question of whether the Supreme Court’s eligibility cases have impacted investment decision making, and it sheds light on an issue about which many experts in the field have become increasingly concerned.

Tags David Taylor, investment, patent eligibility, patentability, patents, Richard Linn, Supreme Court, technology, Terence Yen, Thomas Edison Innovation Fellowship

Patent Law Patent Theory

Rethinking § 101: Professor Talha Syed Takes a Different Look at Subject Matter Eligibility

Post author By Joshua Grove
Post date November 19, 2020

The following post comes from Colin Kreutzer, a 2E at Scalia Law and a Research Assistant at CPIP.

shelves full of books By Colin Kreutzer

When most people think of patentability requirements, they think of whether an invention has been “done before.” Novelty and non-obviousness under 35 U.S.C. §§ 102 and 103 are certainly key hurdles to obtaining a patent. But courts are often tied up over the more fundamental issues presented in § 101. That provision addresses patent eligibility itself—whether an idea, new or not, falls within some class of inventions that qualify for patent protection.

Section 101 of the Patent Act of 1952 says that a patent may be issued to “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter.” It seems fairly straightforward. But the common law decisions, both pre- and post-1952, are riddled with exceptions and questions that the statute hasn’t resolved on its own. How do we treat intangible notions, such as scientific principles or other abstract ideas? Is a business method a patentable process? What property rights can be granted to an inventor who discovers a fundamental law of nature? And should we treat the realm of pure mathematics as being fundamental to nature itself? As we move deeper into the information age, these questions aren’t getting any simpler.

In a new paper from CPIP’s Thomas Edison Innovation Fellowship program entitled Owning Knowledge: A Unified Theory of Patent Eligibility, Professor Talha Syed of Berkeley Law argues that the confusion surrounding this issue is two-fold. First, it results from our failure to develop a functionality doctrine that can clearly distinguish technological applications of knowledge from other forms of knowledge. Second, he offers a root cause of this failure. There is a distracting preoccupation in patent law with “physicalism,” that is, the notion that a patent is awarded for a thing (tangible or not) rather than for knowledge of that thing.

In order to move forward, Prof. Syed states that we must first unwind the physicalist assumptions that are tangled up in our § 101 analyses. Only then can we develop a functionality doctrine free of those encumbrances. As he puts it, “[r]econstructing eligibility doctrine requires, then, extricating incipient functionality concerns from the physicalist thicket, developing their independent basis, and properly following through on their doctrinal implications.”

On its face, when someone proposes that we fundamentally rethink a subject, it sounds as if they are calling for some kind of seismic shift. But Prof. Syed argues that his proposal merely provides a clearer perspective on a subject that has long needed clarity. Rather than requiring any major statutory reforms or total abandonment of our jurisprudence, he says that the “dephysicalization” of patent eligibility serves to better integrate our existing statutory and common law frameworks.

How We Got Here

The questions mentioned above are not new. To understand the current state of things, Prof. Syed first details some of the cases that led us here, beginning with Neilson v. Harford, Le Roy v. Tatham, Boulton & Watt v. Bull, among others.

Neilson is instructive. It was an 1841 English case that dealt with an improvement to an industrial process. The applicant’s invention involved pre-heating air before it was injected it into an iron furnace. The Court of Exchequer expressed some doubts as to whether this intangible aspect of an industrial process was truly patentable. In the end, it only granted a patent because the inventive principle—that the pre-heated air provides better ignition efficiency than cold air—was embodied in a physical machine designed for that purpose. The patentee “does not merely claim a principle, but a machine embodying a principle.”

Neilson and the others influenced a number of cases in the 20th century American courts. Prof. Syed points to three variants of the general rationale. While a principle on its own is not patent eligible, it becomes so: (1) in an embodied application of the principle, (2) if it is delimited to a specific zone of industry, or (3) in an “inventive” mode of application.

These variants illustrate a schism already appearing by the end of the 19th century as to why an “abstract” idea may be unpatentable. If “abstract” is taken in the dephysicalized sense, then the problem may only be cured by applying the idea in some physical form. Alternatively, it could be abstract in the sense that it is a pure unapplied principle. In this case, patent eligibility may not require a tangible form, but instead some delimitation to a specific industrial zone of applicability. Prof. Syed attributes what came next at least partly on a failure to recognize and fully develop these distinctions.

Principles, in the abstract, were but one concern. The eligibility problem was compounded by similar questions about patent rights over natural phenomena. In the 1948 case of Funk Brothers Seed Co. v. Kalo Inoculant Co., the Supreme Court considered whether a set of naturally occurring bacterial strains—unmodified except by their selective combination—was a patentable invention. They answered “no.” Citing Le Roy, the Funk Bros. Court ruled that “patents cannot issue for the discovery of the phenomena of nature. . . . The qualities of these bacteria, like the heat of the sun, . . . are part of the storehouse of knowledge of all men.” Therefore, an invention based on a natural phenomenon must do more than rely upon “the handiwork of nature” in order to become patentable.

Then the waters got even muddier. At the crossroads of abstract principles and natural phenomena lies the fundamental concept of mathematics itself. In Gottschalk v. Benson, the Court addressed an algorithm for converting signals from one numerical form into a computer-friendly binary form. In Parker v. Flook, it was an algorithm for updating threshold alarm limits while monitoring certain chemical processes. In both cases, the Court held that the claimed invention was not a patentable process, but merely a mathematical formula which belonged to the “basic tools of scientific and technological work.”

However, both cases offered a different manner of distinguishing these abstract concepts from patentable inventions. Benson mentioned, but did not require, that an eligible process should transform a particular article or require a particular machine (much later, the Federal Circuit imposed the “machine-or-transformation test” as the sole test for eligibility, only to have it demoted to “useful tool” by the Supreme Court). Flook, on the other hand, looked for some “inventive” aspect that went beyond the algorithm itself.

The whole story is too convoluted to do it justice here. The strength of these various eligibility bars has fluctuated over the years. But through these cases and more, we arrived at the modern two-part test under Mayo Collab. Svcs v. Prometheus Labs, Ass’n for Molecular Pathology, Inc. v. Myriad Genetics, and Alice Corp. v. CLS Bank.

Quoting Alice, Prof. Syed lays out the test as:

(1) Step 1: First, we ask “whether the claims at issue are directed to” a law of nature, natural phenomenon, or abstract idea.(2) Step 2: If so, “we then ask, ‘what else is there in the claims before us,’” considering “the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.” Step two of this analysis is “a search for an ‘inventive concept.’”

Critique of the Modern Test, and a New Proposal

Prof. Syed cites a fundamental disconnect in this test between its “why” and “how,” that is, why an invention is ineligible at all (claiming “basic building blocks” of scientific and technological work) and how it may become eligible (by containing an “inventive concept in application”). He asks, “[i]f the reason certain spaces of knowledge are ineligible is because they are ‘basic,’ then why doesn’t delimiting the claims to a zone of ‘application’ suffice for eligibility?”

Prof. Syed says that at each stage of our § 101 development, courts have touched on proper functionality issues only to leave them obscured by physicalist notions. He moves to recast the three exceptions as “laws of nature, products of nature, and abstract formulas.” More importantly, he insists that when discussing eligible categories or their exceptions, we preface them with the phrase “knowledge of.” So, knowledge of a law of nature can include discovered knowledge of some natural process. To analyze whether that knowledge should be patent-eligible, we should focus on the functional application of that knowledge. The inventor must go from “knowing that” to “knowing how.”

Prof. Syed uses Neilson as an example to distinguish between understanding (having basic knowledge) and intervening (having applied knowledge). A claim to “[k]nowledge of the principle that heated air promotes ignition better than cold” is not patent eligible. But why? Not because it is an abstract idea, but because it claims the sheer knowledge that some process exists rather than knowledge of how to do something with it. This may not seem like a huge difference from the analysis we have now in the Alice/Mayo test. It isn’t. But it might arguably be a clearer way of looking at things.

Prof. Syed’s version of the Alice framework would ask, at step one, whether the claim seeks to cover knowledge of a law of nature, product of nature, or abstract formula. If so, then step two asks whether the claim delimits the ambit of its coverage to a zone of practical application. Finally, he urges (as others have) that the § 101 analysis be kept separate from analyses of substantive issues under §§ 102 and 103: “claims should be truly evaluated ‘as a whole’ so that, for instance, a claim whose delimited application is obvious, but which also involves a nonobvious basic contribution, should pass matter under § 103 just as easily as one whose delimited application is itself nonobvious.”

Conclusion: Reconstructing § 101

Taking these considerations, Prof. Syed reconstructs § 101 into three patentability requirements for “inventions” or “discoveries” in the “useful arts”:

(1) Such “inventions” or “discoveries” must be conceived in a thoroughly dephysicalized way, as spaces of “knowledge of” a “process, machine, manufacture, or composition of matter.”(2) Such spaces of knowledge must be spaces of “useful”—i.e., applied or functional—knowledge.

(3) Finally, such candidate functional spaces of knowledge still need to satisfy the substantive requirements laid out in the rest of the statute to qualify for protection.

Prof. Syed further recasts the statutory categories of subject matter eligibility. Where the “process, machine, manufacture, or composition of matter” comprises one intangible process category and three tangible product categories, his version is the opposite. There are three distinct process categories and one category for knowledge of physical things:

(1) “Knowledge of” a way of doing something (so-called “functional” claims)(2) “Knowledge of” some thing, its structure, and at least one property (“product” claims)

(3) “Knowledge of” a way of making something (method-of-making process patents)

(4) “Knowledge of” a way of using something (method-of-use process patents)

This reconstruction reflects the two fundamental concepts of Prof. Syed’s paper—physicalism and functionality. In order to see the latter clearly, one must abandon the former. But Prof. Syed says that’s easier said than done: “What gives physicalism its lasting power in patents—what makes the spell linger—is, in fact, precisely functionality: it is precisely because patents properly obtain only in spaces of functional knowledge, or knowing how to do something, that it becomes easy to forget that they nevertheless still only obtain in spaces of functional knowledge, or knowing how to do something.” That could help explain why courts have long struggled with this deceptively complicated subject.

To read the paper, please click here.

Tags patent eligibility, patentability, Section 101, Supreme Court, Talha Syed

CPIP Roundup

CPIP Roundup – August 31, 2020

Post author By Joshua Grove
Post date August 31, 2020

Greetings from CPIP Executive Director Sean O’Connor

Sean O'Connor

August has seen the beginning of a highly unusual school year, but I hope everyone is continuing to stay safe. And, since even a pandemic can’t keep the world from having a busy back-to-school month, I’ll keep this month’s note short.

First, we’re gearing up for The Evolving Music Ecosystem conference on September 9-11, 2020. The conference will be held via Zoom and feature a keynote address by singer, songwriter, and author Rosanne Cash. Registration is still open, and we hope you’ll join us!

Second, I’d like to welcome University of Missouri-Kansas City School of Law Professor Chris Holman as CPIP’s new Senior Fellow for Life Sciences. He will be taking over the role from Professor Erika Lietzan of University of Missouri School of Law, who has been supporting CPIP in that capacity for the past year. (Clearly, we have an affinity for the Show-Me State!) We’re excited to have him join us, and by way of an introduction, we encourage you to check out his recent guest column for The Phoenix advocating for protection of new uses for old medicines.

Third, we are finalizing the schedule for our Eighth Annual Fall Conference, to be held via Zoom on October 7-8, 2020. This year’s theme is 5G at the Nexus of IP, Antitrust, and Technology Leadership.

In other news, CPIP Senior Fellow for Innovation Policy Jonathan Barnett is now blogging at Truth on the Market, a platform for academics and economists to discuss various aspects of business law. You can read his inaugural post here. CPIP Senior Scholar Erika Lietzan has been appointed a Public Member at the Administrative Conference of the United States (ACUS), which focuses on improving the administrative process. CPIP Director of Copyright Research and Policy Sandra Aistars spoke this past month on a copyright licensing panel hosted by Artomatic with the goal of informing visual artists about essential aspects of copyright law. It has also been a busy month for CPIP Senior Scholars Kristen Osenga and Mark Schultz—I encourage you to keep reading below to keep up with their recent news!

Registration Closing Soon for Evolving Music Ecosystem Conference with Rosanne Cash on September 9-11

Rosanne Cash

Please join us for The Evolving Music Ecosystem conference, which will be held online from Antonin Scalia Law School in Arlington, Virginia, on September 9-11, 2020. The event features three days of panel presentations by leading experts and a keynote address by Grammy-winning singer, songwriter, and author Rosanne Cash.

This unique conference continues a dialogue on the music ecosystem begun by CPIP Executive Director Sean O’Connor while at the University of Washington School of Law in Seattle. In its inaugural year in the D.C. area, the conference aims to bring together musicians, music fans, lawyers, artist advocates, business leaders, government policymakers, and anyone interested in supporting thriving music ecosystems in the U.S. and beyond.

For more information, and to register, please click here.

Spotlight on Scholarship

a pair of glasses, an apple, and a stack of books

Kristen Osenga, Patent-Eligible Subject Matter… Still Wielding the Wrong Weapon–12 Years Later, 60 IDEA: L. Rev. Franklin Pierce Center for Intell. Prop. 104 (2020)

CPIP Senior Scholar Kristen Osenga has published a new paper on patent-eligible subject matter at IDEA entitled Patent-Eligible Subject Matter… Still Wielding the Wrong Weapon–12 Years Later. The paper looks at changes to patent eligibility that have developed since Prof. Osenga published an article on the same subject in 2007. At the time, she concluded that the Patent Office was using the “elephant gun” of new guidelines on the “ants” of patent eligibility. In the new paper, Prof. Osenga traverses the Supreme Court’s subsequent Section 101 decisions that drove the courts and Patent Office to continue wielding an “outsized elephant gun” when it comes to patent eligibility. However, she does note that recent activities at the Patent Office and Congress offer some hope that things may be changing for the better.

Mark F. Schultz, The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies (USIJ July 2020)

Venture capitalists pouring money into a small startup has become a sort of new American Dream for many innovators. The success stories of big American companies starting with nothing more than an idea have pervaded their way into pop culture, inspiring TV shows, movies, and the like. However, CPIP Senior Scholar Mark Schultz has released a new report for USIJ entitled The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies showing that this dream may be harder to attain today due to recent shifts that have weakened the patent system and driven away venture capital investment. Our blog post summarizing the report is available here, and you can read the summary at IPWatchdog here.

Activities, News, & Events

a lit lightbulb hanging next to unlit bulbs

On August 5, 2020, CPIP Director of Copyright Research and Policy Sandra Aistars joined Jaylen Johnson, Attorney Advisor at the U.S. Copyright Office, and Kim Tignor, Executive Director at the Institute for Intellectual Property & Social Justice (IIPSJ), for a virtual panel presentation on copyright protection for visual artists that was hosted by Artomatic. The panel focused on explaining key concepts of copyright law pertinent to visual artists and sharing resources that they can use to learn more about the basics of copyright protection. It also touched on common pitfalls among visual artists when it comes to protecting their creative works, including those that befall joint authors, and common misconceptions about fair use. Our blog post summarizing the event is available here.

On August 25, 2020, CPIP Senior Fellow for Innovation Policy Jonathan Barnett published a new essay at Truth on the Market entitled Will Montesquieu Rescue Antitrust? In the post, Prof. Barnett examines recent pressure on state and federal regulators to use antitrust laws against firms that have established market dominance, and he praises the genius of the eighteenth-century philosopher Montesquieu for developing the theory of separation of powers that allows the judiciary to police overly zealous antitrust prosecutors today. Traversing recent—and failed—antitrust enforcement actions, including AT&T’s acquisition of Time-Warner, Sabre’s acquisition of Farelogix, and FTC v. Qualcomm, Prof. Barnett explains how the judicial branch has become an important counterbalance to prosecutorial antitrust overreach that betrays the fundamental objective of promoting the public interest in deterring anticompetitive business practices.

On August 25, 2020, CPIP Senior Scholar Kristen Osenga published an op-ed in the Washington Times entitled If We Want Innovation, Companies Must Be Able To Rely on Patent Law To Protect Their Investments. The op-ed explains the importance of effective patent protection for innovative companies to develop and commercialize their new technologies. In particular, Prof. Osenga praises the recent antitrust victory of Qualcomm over the FTC in the Ninth Circuit, noting that a “race that results in innovation that other companies, and the public, dearly desires is exactly the point of competition.” Prof. Osenga also authored a recent op-ed for the Richmond Times-Dispatch, With Biomedical Research, Taxpayers Are Getting a Great Deal, explaining how the critics are wrong to argue that the government should take control of important biomedical inventions like remdesivir. She was also quoted in a recent article at Bloomberg Law entitled Court Split Over Driveshaft Patent Muddies Eligibility Question about the Federal Circuit’s recent 6-6 split on whether to review an important patent-eligibility case en banc.

Patent Law

Mark Schultz: Weaker Patent Protection Leads to Less Venture Capital Investment

Post author By Joshua Grove
Post date August 25, 2020

The following post comes from David Ward, a 2L at Scalia Law and a Research Assistant at CPIP.

a lit lightbulb shattering By David Ward

Venture capitalists pouring money into a small startup has become a sort of new American Dream for many innovators. The success stories of big American companies starting with nothing more than an idea have pervaded their way into pop culture, inspiring TV shows, movies, and the like. However, CPIP Senior Scholar Mark Schultz has released a new report for USIJ entitled The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies showing that this dream may be harder to attain today due to recent shifts that have weakened the patent system and driven away venture capital investment.

Background

There has been an ongoing debate in the past two decades about whether patents should be stronger or weaker. Proponents of stronger and more effective patents have made the case that they are more valuable, incentivizing investors and innovators to fund and create valuable innovations. On the flip side, critics of the patent system have stated that stronger patents inhibit innovation since they create a web of restrictions and licenses, inhibiting access to important innovations.

This ongoing debate has resulted in several landmark changes to our patent laws and rules in recent years. Prof. Schultz points out several key changes:

Injunctions are harder to obtain.
The U.S. adopted a first to file system.
The America Invents Act created an opportunity for any third party to challenge patents.
The U.S. Supreme Court narrowed patent eligibility, making it harder to get and keep patents. This was done in the cases Bilski, Mayo, Myriad, and Alice.

These changes have weakened patents by making them easier to challenge, less accessible for smaller companies, and harder to obtain overall. However, with all these changes, there is now data to explore whether weaker patents really do allow for more innovation as patent critics have contended.

Weak Patents Don’t Attract Funding

The short answer is the data doesn’t support the patent critics’ contention that weaker patents clear the way for more innovation because investors no longer see many patent-intensive industries as a good investment. From 2004 to 2017, the share of funding received in patent-intensive industries dropped from over 50% to about 28%. Prof. Schultz is cognizant of the fact that correlation is not causation, but there is an ever-growing pile of evidence that points to one simple explanation: weaker patents result in less funding for innovation.

Patents and intellectual property are critical to venture capitalists (VCs) who want more certainty of a return on their investments. Pending patents that have a lower chance of being granted or patents that could be challenged at any moment create uncertainty for both the patents’ validity and the future costs of litigation. Hence, the weaker patent laws of recent years have led to a decrease in funding for many patent-heavy sectors.

Prof. Schultz’s report doesn’t just rely on the data to reach this conclusion. It also includes several case studies, surveys, and interviews with innovators and investors alike. Perhaps the most telling is a survey by Prof. David Taylor of SMU Law investigating how recent patent cases changed VC and private equity behavior. Of the 475 investors surveyed, 74% said that patent eligibility is an important consideration in firms’ investment decisions, and 62% said that their firms were less likely to invest if patent eligibility changes make patents unavailable. Almost one-third of investors who knew about recent court decisions said it had affected investment decisions away from biotech, medical devices, and pharmaceuticals.

The data again backs this up, as Prof. Schultz’s report shows that those industries have seen some of the biggest loses in VC funding since 2004. In a world where biotech, medical devices, and pharmaceuticals could quite literally be the most important sectors needing innovation and funding to tackle the COVID-19 pandemic, this is less than ideal. Typically, medical treatments cost hundreds of millions of dollars and have a 10-year road ahead of them. The prospect of reaching the end of the road without being able to protect the investment with a strong and effective patent has spooked many investors to other sectors. As a result, there has been less innovation in live-saving treatments, and more of a focus on safer, quality-of-life investments.

Looking Ahead

There is some trend in the positive direction, however. Prof. Schultz notes that USPTO Director Andrei Iancu has demonstrated strong support for the role of patents in the economy with several policy changes aimed at strengthening patent protection. It is also of note that many policymakers are realizing the changes have gone too far, and there are now several pending legislative proposals aimed at fixing these issues. These realizations, coupled with Prof. Schultz’s quantitative and qualitative data, paint a clear picture that all but proves a single point: strong patents promote innovation more than weaker patents. In the words of Prof. Schultz: “Society needs its most successful people working on its most compelling problems. The patent system should support such work.”

To read the report, please click here.

Tags Alice, Andrei Iancu, Bilski, biotech, David Taylor, David Ward, investment, Mark Schultz, Mayo, medical devices, Myriad, patent eligibility, venture capital

Patents Supreme Court

CPIP Scholars Ask Federal Circuit to Fix Patent Eligibility Doctrine in Cleveland Clinic Appeal

Post author By Joshua Grove
Post date March 5, 2018

files labeled as "patents" Last week, a group of CPIP scholars filed an amicus brief in Cleveland Clinic Foundation v. True Health Diagnostics, a case currently on appeal to the U.S. Court of Appeals for the Federal Circuit. The patents at issue cover diagnostic tests used to assess a person’s risk of developing cardiovascular disease. The U.S. Patent & Trademark Office initially found the claims to be unpatentable subject matter under Section 101; however, the claims were eventually allowed as new and unconventional applications of known laboratory techniques. Nevertheless, the district court held the claims unpatentable under Section 101, reasoning that they were ineligible under the Alice-Mayo test.

The amicus brief filed last week, written by CPIP’s David Lund and Adam Mossoff, points out that the diagnostic methods at issue are the very sort of innovations the patent system is meant to encourage. Moreover, given the factual conclusions that must be made in order to determine whether the claims are directed to a natural law or whether the laboratory techniques are routine and conventional, they argue that the procedural posture of the case—a motion to dismiss—precludes proper application of the Alice-Mayo test. They note that misapplication of the patent eligibility test continues to lead courts to reject patent protection for many meritorious inventions—as demonstrated in this very case. The amici urge the Federal Circuit to bring clarity and predictability to Section 101 doctrine by rejecting the district court’s conclusory assertions that were made without proper factual support.

The Summary of Argument from the amicus brief is copied below:

SUMMARY OF ARGUMENT

The district court’s decision in The Cleveland Clinic Foundation v. True Health Diagnostics, LLC, No. 17-cv-198, 2017 WL 3381976 (E.D. Va. Aug. 4, 2017), represents an improper application of 35 U.S.C. § 101. The parties address the relevant innovation covered by Cleveland Clinic’s patents, as well as the application of the Supreme Court’s and the Court of Appeals for the Federal Circuit’s § 101 jurisprudence; accordingly, amici offer additional insight concerning the legal and policy problems with the trial court’s decision: innovation in improving the assessment of a patient’s risk of developing cardiovascular disease is an invention that the patent system is designed to promote, and thus it should be eligible for patent protection. Barring a properly reasoned, factually-based determination that either a claimed method-of-treatment invention covers a law of nature or, under step two of the Alice-Mayo test, that it would be considered routine or ordinary by a person having skill in the art, a district court should not find claims to be ineligible subject matter under § 101 on a motion to dismiss. See Berkheimer v. HP Inc., __ F.3d at ___, No. 2017-1437 (Fed. Cir. 2018). The district court’s decision in this case conflicts with the Patent Act as an integrated statutory framework for promoting and securing innovation in the life sciences, as construed by both the Supreme Court and this court.

The Supreme Court has recognized that the plain meaning of the language of § 101 indicates that the scope of patentable subject matter is broad. See Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980). This is why the Supreme Court consistently has held that “[t]he § 101 patent-eligibility inquiry is only a threshold test.” Bilski v. Kappos, 561 U.S. 593, 602 (2010). Accordingly, this “threshold test” is necessarily followed by the more exacting statutory requirements of assessing a claim as a whole according to the standard of a person having skill in the art as to whether it is novel, nonobvious, and fully disclosed as required by the quid pro quo offered to inventors by the patent system. Id.

Unfortunately, courts have been focusing on out-of-context statements in the Supreme Court’s recent § 101 cases that have led those courts to inexorably apply the two-step “Alice-Mayo test” in an unbalanced and legally improper manner. See Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014); Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012). Courts are dissecting claims into particular elements and then construing these elements in highly generalized terms with no evidentiary support. Thus, as happened in this case, a district court all too often merely asserts a conclusory finding that the claim— actually, specific elements dissected out of the claim as a whole—covers ineligible laws of nature or abstract ideas.

This has led lower courts to create an unduly stringent and restrictive patent eligibility test under the Alice-Mayo test, as evidenced by the district court’s decision in this case. This contradicts the Supreme Court’s decisions in Chakrabarty and Bilski that § 101 is only a threshold inquiry identifying broad statutory categories of patent-eligible inventions. This improper application of the Alice-Mayo test inevitably leads to § 101 rejections of patentable method inventions, as the district court in this case rejected an innovative invention in the bio-pharmaceutical sector that the patent system is designed to promote.

Furthermore, the improper treatment of the § 101 inquiry as a pure question of law requiring no evidentiary findings whatsoever, especially when the parties expressly dispute as to what a person having skill in the art would consider routine or ordinary, conflicts with the Supreme Court’s and this Court’s decisions that the application of the patentability requirements in the Patent Act present questions of law with underlying questions of fact. See Teva Pharm. USA Inc. v. Sandoz, Inc., 135 S.Ct. 831, 838 (2015) (claim construction); KSR v. Teleflex, 550 U.S. 398 (2007) (nonobviousness under § 103); Berkheimer, __ F.3d at ___, No. 2017-1437 (Fed. Cir. 2018) (patentable subject matter under § 101); Akzo Nobel Coatings, Inc. v. Dow Chem. Co., 811 F.3d 1334, 1343 (Fed. Cir. 2016) (indefiniteness under § 112); Alcon Research Ltd. v. Barr Labs., Inc., 745 F.3d 1180, 1188 (Fed. Cir. 2014) (enablement under § 112). This has sowed indeterminacy in patent eligibility doctrine, as inventors and companies in the innovation industries are left with little predictability concerning when or how courts will dissect claims and make conclusory assertions that they are patent ineligible under § 101.

To read the amicus brief, please click here.

Tags Adam Mossoff, Alice, Cleveland Clinic, David Lund, Mayo, patent eligibility, Section 101

Innovation Patent Law

U.S. Innovation Economy Falls Even Further in Latest GIPC Patent Rankings

Post author By Joshua Grove
Post date February 8, 2018

hand under a lightbulb drawn on a chalkboard The Global Innovation Policy Center (GIPC) at the U.S. Chamber of Commerce has just released the sixth edition of its International IP Index. Unfortunately, the report finds that the United States is now tied for 12th place in its patent rankings. This is down from 10th place last year, and it’s down from 1st place just two years ago. The recent downward trend of the U.S. innovation economy is rather alarming, and it is further evidence that the U.S. is quickly abandoning its gold standard patent system.

GIPC notes that the U.S. patent system has faltered due to two key indicators: patentability requirements and patent opposition. As to the former, the report cites the Supreme Court’s recent Section 101 jurisprudence, which has created much uncertainty for innovators about what even constitutes a patent-eligible invention. These findings comport with the newly-published paper by CPIP’s Adam Mossoff & Kevin Madigan highlighting the Court’s troublesome approach to patent eligibility and its profound effect on our innovation economy. As to patent opposition, GIPC cites the ease of challenging patents that have already been issued through mechanisms such as inter partes review (IPR). Indeed, several CPIP scholars authored a recent white paper detailing how these IPR proceedings have become an existential threat to the very patent system they were meant to promote.

To read GIPC’s International IP Index, please click here.

Tags Adam Mossoff, GIPC, inter partes review, International IP Index, IPR, Kevin Madigan, patent eligibility, U.S. Chamber of Commerce

Innovation Patent Law

CPIP Scholars File Amicus Brief Urging Supreme Court to Fix Section 101

Post author By Joshua Grove
Post date December 6, 2017

dictionary entry for the word "innovate" On December 4, 2017, CPIP Founder Adam Mossoff and CPIP John F. Witherspoon Legal Fellow David Lund filed an amicus brief urging the Supreme Court to grant certiorari in RecogniCorp. v. Nintendo. The amicus brief was joined by several law professors, including Richard Epstein and Michael Risch, as well as CPIP Senior Scholars Chris Holman, Kristen Osenga, Mark Schultz, and Ted Sichelman. Bob Sachs of Robert R. Sachs P.C. served as counsel of record.

The technology at issue involves a method of encoding and decoding composite facial images on a computer. The invention solved the problem of decreased image quality when such images are transmitted digitally. RecogniCorp sued Nintendo for patent infringement, and Nintendo challenged the eligibility of the patent under Section 101. Applying the Mayo-Alice framework, the district court held that invention was ineligible subject matter because it was directed to an abstract idea and lacked an inventive concept. Agreeing with that analysis, the Federal Circuit affirmed.

The amici argue that the Supreme Court should grant certiorari in this case in order to correct the continued misapplication of the Mayo-Alice test by the Federal Circuit, the district courts, and the Patent & Trademark Office. By breaking down claims into individual elements and then generalizing them in broad terms, the lower courts and the PTO are failing to properly consider the claimed invention as a whole.

The Summary of Argument is copied below:

SUMMARY OF ARGUMENT

This Court has repeatedly reminded the Court of Appeals for the Federal Circuit, district courts, and the United States Patent & Trademark Office (“PTO”) that § 101 of the Patent Act is a key requirement in assessing the validity of both patent applications and issued patents. In doing so, this Court set forth a two-part test for assessing whether an invention is patentable subject matter (the “Mayo-Alice test”). See Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014); Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). These cases build upon prior cases such as Diamond v. Diehr, 450 U.S. 175 (1981), which held that a software-based method for operating a rubber mold is patent eligible under § 101.

Unfortunately, the lower courts and the PTO have misunderstood how to apply the Mayo-Alice test. Specifically, the lower courts and the PTO have adopted an indeterminate and overly restrictive approach, invalidating legitimate patented innovation under § 101 with little predictability for inventors or patent attorneys. This frustrates the constitutional function of the patent system in promoting the “Progress of . . . useful Arts.” U.S. Const. art. 1, § 8, cl. 8.

This case exemplifies both of these fundamental problems—indeterminacy and over-restrictiveness—because the lower courts held that a claim is patent ineligible as an “abstract idea” merely because the process was implemented through the use of computer software. These problems undermine inventors’ ability to use the patent system to protect computer-mediated processes that are exactly the kind of innovation that the patent system is designed to promote.

Petitioner details the substantial confusion in the application of the Mayo-Alice test in this case, as well as at the PTO and in the lower courts. Amici here identify a further key insight: when lower courts and the PTO apply the Mayo-Alice test to only individualized elements of a claim, generalizing these elements into a broad, categorical description and not evaluating the claimed invention as a whole, they are using a methodological approach that conflicts with this Court’s existing precedents on determining patent eligibility under § 101.

In this case, the Federal Circuit held that a software-based method of producing images of faces on a computer screen is an “abstract idea.” RecogniCorp, LLC v Nintendo Co., 855 F.3d 1322, 1327 (Fed. Cir. 2017). It reached this conclusion by dissecting the claim into its separate elements and ignoring other key elements, ultimately finding the claimed invention is ineligible under § 101. By reducing the claim to “encoding and decoding data,” the court ignored the invention as a whole that improves the way computers generate digital representations of faces for display.

This Court can easily remedy this problem by (1) recognizing the role of the patent system in protecting computer-implemented innovation, a key driver of modern technological progress, and (2) providing further instructions to lower courts and to the PTO that they should apply the Mayo-Alice test only to the claimed invention as a whole. This is a predicate legal requirement in assessing novelty under § 102 and in assessing nonobviousness under § 103 of the Patent Act. It is also a fundamental legal requirement for asserting patents for both literal and equivalents infringement under § 271. In all of these other patent doctrines, this Court has maintained the basic requirement of assessing patentability or limiting assertion of patents to the claimed invention as a whole, as this avoids the same policy problems of indeterminacy and over-restrictiveness (or over-inclusiveness, depending on the perspective) in these other patent doctrines. Thus, this Court should grant the petition for certiorari, reverse the Federal Circuit, and provide further instructions for applying the Mayo-Alice test only to the “claimed invention as a whole.”

To read the amicus brief, please click here.

Tags Adam Mossoff, Alice, David Lund, Federal Circuit, Mayo, patent eligibility, Section 101

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