Tag: patent

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Economic Study Innovation

Creative Upstarts and Startups: How IP Creates Opportunities and Opens Doors

the word "inspiration" typed on a typewriterThis is the first in a series of posts summarizing CPIP’s 2016 Fall Conference, “Intellectual Property & Global Prosperity.“ The conference was held at Antonin Scalia Law School, George Mason University on October 6-7, 2016. Videos of the conference panels and keynote address, as well as other materials, are available on the conference website.

The opening panel of CPIP’s 2016 Fall Conference examined how intellectual property (IP) creates opportunities for startups and creative upstarts. Unfortunately, IP policy debates often refer to a misguided notion that intellectual property hinders innovation and creativity, especially among smaller businesses. The panelists, Prof. Deepak Hegde (NYU Stern School of Business), Brian Detwiler (Cobro Ventures, Inc.), Prof. Jerry Liu (University of San Francisco School of Law), and Antigone Peyton (Cloudigy Law, PLLC), illustrated how this notion ignores the fact that intellectual property provides incentives and security for startups and small businesses entering the market and enables returns on investments.

Prof. Deepak Hegde discussed a study he undertook to measure the extent that patents benefit startups. Patents provide incentives for innovation by affording the right to exclude others from making, selling, or otherwise using the patented invention. This incentive is ensured by increasing the cost of imitations, while facilitating licensing and access to venture capital by innovators. At the same time, there is a concern that patents are not as effective for smaller entrepreneurs because patents take too long to issue (three years on average), they are costly to obtain ($20,000 in patent application costs on average), and are expensive to enforce once infringed. The study, however, shows that timely patents do substantially benefit startups.

Hegde noted that measuring the causal effect of patent rights on startups is often an empirically challenging task due to the lack of complete data on issues like rejected patent applications, firm outcomes, and correlations between patenting and startup success. However, Hegde was able to show a positive causal relationship between approval of the first patent application and various measures of startup success such as persistent employment growth and higher sales.

For instance, Hegde found that approval of the first patent application by a medium-sized firm with eight employees leads to three more employees (on average) hired within the five years following approval. Likewise, a medium-sized firm with $4.3M in revenue has $2.3M higher sales over the five years following approval of its first patent. Moreover, approval of the first patent application leads to a 66.4% increase in the number of subsequent applications, a 48.4% growth in the number of approved patents, and a 68.5% increase in the number of total citations.

On the other hand, Hegde discovered that delays in the patent approval process reduce sales growth, with each year of delay reducing growth by 28.4% over the five years following approval. Delays also reduce the quality and quantity of subsequent innovations, with a 14% decrease in number of subsequent applications and a 8% reduction in number of total citations. Even more so, a five-year approval delay is comparable in effect to not granting a patent at all. Finally, Hegde showed that patent approvals causally increase the probability of venture capital funding by 57%, and thus, help to set startups on a growth path.

Brian Detwiler discussed the challenges startups face from a more practical point of view. Specifically, Detwiler focused on two startups that Cobro Ventures is currently managing. Measures of success differ among the two. For a health & fitness center, the issue is profitability, and for a tech startup, the concern is typically acquisition or an initial public offering. Because Cobro Ventures is a self-funded company, it does not encounter some of the funding challenges as other startups. It does, however, face the same intellectual property issues as others in the industry.

The critical issue for a startup in the fitness industry, Detwiler noted, is building a strong brand identity to distinguish itself from other companies in the crowded marketplace. CrossFit is one good example of how a strong brand makes a business successful: CrossFit generates its revenues solely from licensing its brand out to gyms and fitness centers, without operating any of its own.

Tech startups, continued Detwiler, are more invested in the value of their patents because patent due diligence is a major component of any tech acquisition. Bundles of patents and open continuations are what acquirers value the most. The former allows acquisition of all patents associated with a particular technology; the latter provides opportunities to expand claims to pending patents down the road. A patent by itself does not necessarily guarantee the merit of a particular technology, but it certainly shows that at least the Patent Office believes that the particular technology was unique in the marketplace at the time of issuance. Patents can also be used as weapons in protecting a company’s interests and as a bargaining chip in negotiations.

Detwiler stated that trademark registration is equally accessible to startups and big corporations because it is inexpensive (the filing fee is about $300 per class of goods/services), easy to file (only 10 minutes), and fast (around 3-4 months). With patents, the biggest challenge is getting a notice of allowance. There is a common misconception that all patent applications have the same value. This may be true for big corporations that file thousands of patent applications each year. But for startups, which usually have only two or three applications that they depend on, each such application is incredibly important, and if rejected, causes a lot of frustration.

Even though startups have more executive involvement in the patent approval process and are more willing to accept reasonably narrow claims at the outset, Detwiler said the patent examination process is still too lengthy. To get the best of it, he suggested that applicants explain in plain terms what they want to protect, examiners explain in plain terms what they found in their prior art searches, and both sides explore how to capture the claimed invention.

Prof. Jerry Liu talked about the study he undertook on market incentives and intrinsic motivations in the creative industries, particularly in the Chinese music industry. He focused his study on how online piracy affects the music industry and how real-world artists respond to copyright incentives. According to Liu, the Chinese music industry is significantly underdeveloped as compared to the United States. While the overall Chinese economy is fast approaching the size of the U.S. economy, the Chinese music industry represents only 1.5 % of the U.S. music industry.

Liu found that this outcome has little to do with the overall economic environment in China. Even though the music industry experienced a substantial decline since 2005, the economy as a whole enjoyed about 10% of annual growth. Nor is this a consequence of the infamous censorship system in China. Unlike the music industry, the book industry in China has demonstrated growth by 129% for the last decade. The likely reason for this difference is that the piracy rate in the music market is much higher than it is in the book market.

Empirical data collected by Liu establishes the correlation between online piracy and the Chinese music industry downturn. Online piracy surged in 2005, the very same year when music production started to decline significantly. As a result of such widespread piracy, music products have become undervalued among consumers. Only 25.4% of Chinese consumers are willing to pay for music, and only 5.9% actually pay for music. Online piracy has also caused a significant imbalance in the development of the digital music market. Notably, the Chinese government itself recently recognized that uncontrolled piracy has devastated the digital music marketplace.

In China, Liu said that online music services, including downloads and streaming, account only for 1% of the total digital market, while mobile sales (e.g., ringtones) hold 99% market share. But only 32.6% of music consumers are accessing music on their mobile devices, while 96.8% of users access music online. This shows that Chinese consumers pay the least for the most popular channel of music consumption. Additionally, online piracy affects business models in the music industry. For instance, record labels have moved away from their traditional role as investors. They are now working with new artists either on a self-funded basis (labels only provide services and artists bear all the risks of investment) or under so-called “360-degree deals” (labels sign artists for long-term contracts and retain more control over their careers and even their personal lives).

Finally, Liu highlighted the paradox of intrinsic motivations: 92% of the surveyed artists named emotional benefits as their incentive to create, and 97% of those artists also recognized the importance of economic benefits for creation. Importantly, many artists started their career in music not because of the money, but many of them also gave it up because of the money. In this way, copyright protection may provide a powerful incentive for artists to create in that it preserves their artistic freedom while ensuring a decent level of living and a fair return of production costs.

Antigone Peyton talked about strategies for tech companies to protect their assets. In this regard, she noted the importance of contracts at the early stages of the product development cycle. From the copyright prospective, contracts help to establish whether hired developers are employees or independent contractors and to ensure that their rights are assigned to the company. Without a written, explicit assignment of a copyright, a company may get in trouble down the road. For instance, when registering its work with the Copyright Office, enforcing its rights, or selling its assets to a third party.

Peyton stressed that companies working with the government need to understand what intellectual property rights they are giving away and to avoid assigning away all of their rights. Government contracts often include IP provisions that provide the government with a fully-paid license and allow it to bring in another contractor to continue the job. Another important aspect involves privacy policies, especially in the cyber security area. Companies that innovate in this sector usually bring people and know-how to the table, but not necessarily anything that is patentable. To protect its know-how, such a company should consider signing non-compete agreements with the people working with the company.

The barriers to entry for starting up a company in the software industry are small, said Peyton. But that means there are a lot of such companies out there trying to compete with each other for market space. To this end, companies need to think carefully about brand development and brand recognition, as well as how to protect their markets from competitors.

Peyton noted that if a company believes it has patentable subject matter, it should consider filing a patent application early on. However, patenting is the most expensive IP regime and usually requires the help of a patent professional (even with provisional applications). Patents are particularly critical in the biotech, chemical, and pharma industries that are money-intensive endeavors, which largely depend on attracting venture capital investment as early as possible. Generally, tech companies do not need to choose between copyrights and patents, and they may pursue both options to protect their software. But investing in copyrights and brand development is a relatively inexpensive way to start out and build an IP portfolio. Depending on the technology used, trade secret protection may also be an option for tech startups.

Together, the four panelists highlighted how intellectual property has a critical value for startups and small companies in the creative and innovative industries. Not only does IP ignite their businesses, but it also brings opportunities for future growth through sales, licensing, or acquisition. A strong IP portfolio is an invaluable asset, and building it early allows companies to open more doors.

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Innovation Inventors Uncategorized

New CPIP Report: The Global Patent Pendency Problem

dictionary entry for the word "innovate"Why are some of the biggest fights about patent policy almost pointless in some places? Because in many countries, including some of the world’s most important emerging economies, it takes so long to get patents that the rights have little meaning.

The Center for the Protection of Intellectual Property (CPIP) released a report today entitled The Long Wait for Innovation: The Global Patent Pendency Problem. For the first time, this report documents a growing global problem of patent backlogs, which has long been the subject of anecdotal complaints.

In many countries, processing times are eating up much of the 20 year lifespan of patents. Patent offices are failing to keep up with the growth of the innovation economy and the resulting growth in patent applications. It’s a basic governance problem that threatens to undermine the global patent system.

Some of the report’s more surprising findings:

  • It now takes over 14 years on average to get a patent for mobile technology in Brazil. That goes back to days of flip-phones and the infancy of 3G!
  • In Thailand, it takes more than 16 years on average to get a life sciences patent. In fact, Thailand regularly issues patents with mere months or weeks of life left before expiration.

The news isn’t all bad. Japan has become much faster at examining patents in recent years. The U.S. still does a pretty good job — but it’s not the fastest. Interestingly, new leaders in global innovation are emerging, as Korea and China both now examine patents more promptly than the US.

Here are some further details from the new report.

Figure 1 below shows the average granted application age for selected countries 2008-2015 (in years).

patent-pendency-figure-1: Korea 2.8; China 2.9; USA 3.5; Australia 3.6; Egypt 3.8; Japan 5.3; EPO 5.5; India 6.3; Argentina 6.4; Thailand 10.0; Brazil 10.1

Also, our study finds that with regard to specific industries:

  • The issue of lengthy pendency times for patent applications is not confined to cutting edge industries.
  • Lengthy pendency is an issue for both the high tech and life sciences industries.
  • In many industries, some countries’ average wait times render patents largely futile.

Figure 2: Average age of granted life sciences patents 2011-2015 (in years).

patent-pendency-figure-2: China a little above 3; Korea a little farther above 3; USA and Australia around 4; Japan and Argentina closely under 6; Egypt just under 6; EPO slightly beyond 6; India about 7; Brazil just under 12; Thailand around 13

Figure 3: Average age of granted mobile technology patents 2011-2015 (in years).

patent-pendency-figure-3: Australia at 3; USA and Korea about 4; Egypt and China slightly beyond 4; Japan about 4.5; EPO a bit beyond 6; India about 7; Argentina about 8; Thailand just under 12; Brazil around 13.5

The Long Wait for Innovation: The Global Patent Pendency Problem

To read the report, please click here.

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Innovation Legislation Patent Law Patent Litigation Uncategorized

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

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

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

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

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

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

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

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

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

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

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

  • Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”[4] As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized.[5]
  • Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered).[6] Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.[7]
  • Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware.[8] These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.[9]
  • The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum.[10] Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.[11]
  • The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.[12] Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.
  • The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Adam Mossoff and Kevin Madigan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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Innovation Inventors Patent Law Statistics Uncategorized

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

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

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

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

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

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

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

Public Disclosure of Patent Applications

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

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

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

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

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

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

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

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

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

Publication Information: Box One: Request Early Publication (Fee required at time of Request 37 CFR 1.219). Box Two: Request Not to Publish. I hereby request that the attached application not be published under 25 U.S.C. 122(b) and certify that the invention disclosed in the attached application has not and will not be the subject of an application filed in another country, or under a multilateral international agreement, that requires publication at eighteen months after filing.

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

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

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

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

Publication Information: Box One: Request Early Publication (Fee required at time of Request 37 CFR 1.219). Box Two (which is selected here): Request Not to Publish. I hereby request that the attached application not be published under 25 U.S.C. 122(b) and certify that the invention disclosed in the attached application has not and will not be the subject of an application filed in another country, or under a multilateral international agreement, that requires publication at eighteen months after filing.

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

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

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

2014 Top-Ten patent Recipients. X-axis: IBM, Samsung, Canon, Sony, Microsoft, Google, Toshiba, Qualcomm, LG, Panasonic. Y-axis: 0 through 8000, at increments of 1000.

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

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

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

The following chart shows these results:

2014 Nonpublication Rates of Top-Ten Patent Recipients. X-axis: IBM, Samsung, Canon, Sony, Microsoft, Google, Toshiba, Qualcomm, LG, Panasonic. Y-axis: 0% through 90%, increments of 10%. Google goes to about 80%, Qualcomm shows about 1-2&, and the others show nothing.

SOURCE: USPTO Public PAIR Database

Conclusion

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

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

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

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Economic Study Innovation Inventors Patent Law Patent Licensing Uncategorized

How Strong Patents Make Wealthy Nations

By Devlin Hartline & Kevin Madigan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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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Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

#AliceStorm: When It Rains, It Pours…

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

Last year I christened the post-Alice impact on patents #Alicestorm, riffing on the hashtag #hellastorm used to refer to the Pineapple Express storms the drenched the Bay Area in December 2014. This year we have El Niño bringing day after day of rain, and so too we have Alice decisions coming down in sheets. Here is a comparison of number of decisions per month since Alice.

Table 1 Quarterly Numbers

On average, we’re seeing about eleven Section 101 decisions per month in the federal courts. The overall success rate has been holding in the low 70% range, currently 72.1% (down from 73% in October). Similarly, motions on the pleadings continue with an equally strong success rate of 71.7% (down from 71.9%):

Table 2 Summary

The number of patents invalidated has increased dramatically from 354 as of October 2015 to over 400, while the number of invalidated claims is now over 12,000. The courts routinely invalidate all of the claims of a patent based on a single “representative” claim, including all dependent claims regardless of their level of specificity. This seems entirely contrary to the notion that dependent claims necessarily narrow the broad and presumably abstract independent claims, and likely provide at least some features that are “significantly more” then than the abstract idea, as well as recitations that are non-generic technology that provides some “improvement” over the art. Is it really possible that so many thousands of dependent claims had no merit? If dependent claims are hedges against invalidity under Section 103, why do they have so little bearing under Section 101?

PTAB continues to be the points leader on the board, with the institution rate on Section 101 based Covered Business Method petitions climbing to 84.8% (up from 83.7%) and an unbroken string of 38 final decisions on Section 101 finding the challenged patent ineligible.

The motion analysis remains consistent with what we’ve seen before:

Motions

The most active courts and judges, by number of Section 101 decisions, are in Delaware with 35 decisions (Andrews, Robinson, Stark, Sleet, Burke) and Texas with 29 (Gilstrap, Payne, Mitchell, Schroeder).

Judges

The number of new patent cases filed climbed in 2015, including a large filing spike at the end of November, 2015 due to the elimination of Form 18, which required only the basic allegation that the plaintiff owned the patent and that the defendant infringed, without any substantive allegations. As a result, we expect to see the continued stream of Section 101 motions and ineligibility outcomes.

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Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

#AliceStorm for Halloween: Was it a Trick or a Treat?

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

Alice has been busy the last two months, continuing to haunt the federal courts and the Knox and Randolph buildings at the USPTO. Here are the latest #AliceStorm numbers through the end of October 2015:

There have been 34 district court decisions in the past two months, but the percentage of invalidity decision is holding constant at 70.5%. The number of patent claims invalidated is now over 11,000, but also holding steady at around 71%.

There have been no new Federal Circuit Section 101 decisions, but we’re going to see a flurry of activity in the next couple of months, as the court has recently heard oral argument in a number of patent eligibility cases, and more are on calendar for November.

Motions on the pleadings have soared, with 23 in the past two months alone, and the success rate is up a tick from 70.1% to 71.4%.

PTAB is a bit mixed: the CBM institution rate is down from 86.2% 83.7%, but the final decision rate is still 100%, with 6 decisions in the past two months invalidating the patents in suit.

Turning to the motion analysis, the motions on the pleadings are the second scariest thing to a patent holder after the specter of attorney fees under Octane Fitness:

The Delaware district court continues as the graveyard of business methods and software patents, with 31 eligibility decisions, up from 19 just two months ago, and their invalidity rate is up from 86.4% to 90.3%.

Jumping into second place is the Eastern District of Texas, with 23 decisions total (up from 16). Contrary to the rest of the rest of the bench, their invalidity rate is 34.8%. The Northern District of California edged up from 75% to 78.9% invalidity, and C.D. Cal is up almost 2%.

And finally, here is the run down on the all district court judges with two or more Section 101 decisions.

With today’s blog, I’m introducing some entirely new types of data, looking at the characteristics of the patents that have been subject to Section 101 motions.

As expected, business method patents are the most heavily litigated and invalidated (click to see full size):

The distribution of patents in terms of earlier priority dates shows a very large fraction of the invalidated patents were first filed in 2000:

Now compare that to the distribution of patent classes with respect to priority year as well:

Here too we see a very large number of the business method patents filed in 2000. I’ve coded all of the software related technologies as blue to group them visually.

Why the cluster around 2000? State Street Bank, which held that there was no rule against business method patents, was decided in mid-1998. As those of us who were practicing them remember, it took about two years before the impact of the decision was widespread. This was also the time of the Dotcom bubble when it seemed that just about everyone was starting up a business on Internet. Those two factors resulted in a surge of patent filings.

Of all the patents that have been thus challenged under Alice, only two have post-Bilski priority dates:

  • 8447263, Emergency call analysis system, filed in 2011, and litigated in Boar’s Head Corp. v. DirectApps, Inc., 2015 U.S. Dist. LEXIS 98502 (E.D. Cal., 7/28/2015). The court granted DirectApps motion to dismiss, finding the patent invalid.
  • 8938510, On-demand mailbox synchronization and migration system, filed in 2010, and litigated in BitTitan, Inc. v. SkyKick, Inc., 2015 U.S. Dist. LEXIS 114082 (W.D. Wash, 8/27/2015). BitTran’s motion for preliminary injunction was denied in part because of SkyKick successfully argued that BitTrans was not likely to succeed on the merits due to Alice problems.
  • 8,604,943; 9,070,295; 9,082,097; 9,082,098 and 9,087,313, all of which claim priority to March, 2012, and were invalidated just last week in MacroPoint LLC v. FourKites Inc., Case. No. 1:15-cv-01002 (N.D. Ohio, Nov. 5, 2015). The court invalided all 94 claims in these patents, as being directed to the abstract idea of “tracking freight.” While the last four patents were issued in June and July, 2015, none of them overcome an Alice rejection, and the court noted that “Nothing in the Reasons for Allowance dictate a finding that these concepts are inventive on the issue of patent-eligible subject matter.”

Over time we’ll see more post-Bilski patents being litigated, and then eventually a true test: a business method patent granted after Alice that overcame an Alice rejection. By my count, there are about 80 such patents thus far, and about another 90 that have been allowed. It will not be too long then before one of these patents is challenged under Section 101.

In my next column, I’ll review some very disturbing decisions by coming out of the Delaware district courts.

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Copyright History of Intellectual Property Innovation Inventors Trade Secrets Trademarks Uncategorized

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.