Tag: patentability

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

Biotech Patents Pharma

“No Combination Drug Patents Act” Stalls, but Threats to Innovation Remain

Post author By Joshua Grove
Post date June 27, 2019

superimposed images from a chemistry lab By Kevin Madigan & Sean O’Connor

This week, the Senate Judiciary Committee was to mark up a bill limiting patent eligibility for combination drug patents—new forms, uses, and administrations of FDA approved medicines. While the impetus was to curb so-called “evergreening” of drug patents, the effect would have been to stifle life-saving therapeutic innovations. Though the “No Combination Drug Patents Act”—reportedly to be introduced by Senator Lindsey Graham (R-SC)—was wisely withdrawn at the last minute, it’s likely not the last time that such a misconceived legislative effort will be introduced.

An Exaggerated Response to a Disputed Theory

The bill would have established a presumption of obviousness for drug or biologic patent applications whose invention was a new: dosing regimen, method of delivery, method of treatment, or formulation. While there was a rebuttal provision where the claim covered a new treatment for a new indication or “increase[d] . . . efficacy,” the latter was almost certain to introduce years of uncertainty and litigation. Further, the bill would have covered a broader class than true combination drug patents, in which one active ingredient is combined with another or with a non-drug.

Like many recent legislative efforts, the amendment sought to address a perceived lack of affordability of prescription drugs. After praising the America Invents Act of 2011 and subsequent Supreme Court rulings for strengthening the US patent system, the bill claimed that rising drug prices have outpaced “spending on research and development with respect to those drugs.” In addition to applauding Supreme Court decisions that have injected unquestionable uncertainty into patentable subject matter standards, the amendment went on to blame high drug prices on continually overstated issues related to advanced drug patents.

According to critics, combination drug patents have granted drug makers unearned and extended protection over existing drugs or biological products. But, quite simply, when properly issued by the USPTO under existing patentability standards, these are new patents for new products or processes.

Combination patents have been maligned as anticompetitive, resulting in a “thicket” of patents that impedes innovation through transaction costs and other inefficiencies. Unfortunately, notwithstanding a lack of empirical evidence validating the harm of follow-on innovation patents, patent thicket rhetoric is now being echoed by the media, the academy, courts, and policy makers in a fraught attempt to fix drug pricing.

Reports (see here, here, here, and here) from leading antitrust experts and intellectual property scholars have detailed the value of incremental innovation and challenged the notion that patent thickets are a true threat to competition and innovation. These studies have exposed patent thicket claims—much like the “troll” narrative that for years infected patent law debates—as an empty strawman theory, the repetition of which has led to undue confidence in its accuracy. The reality is that what critics point to as problematic cases of combination patents are in fact infrequent outliers, strategically highlighted to discount evidence of the value of new and innovative drug uses and administrations.

A similar claim by those promoting the patent thicket narrative is that combination patents extend exclusivity on a drug for years beyond an initial patent term, thereby blocking generic entry in the market. But if an underlying drug has gone off patent, no follow-on or combination patent will prevent a generic drug company from producing the underlying formulation—it’s only the new formulation, use, or administration that is protected.

Vague, Yet Oddly Familiar Standards

The language of the Graham amendment asserted that because “numerous” combination patents “contain obvious product developments,” a restructuring of 35 USC 103 is necessary to combat patent thickets and achieve optimal drug pricing. Suggesting that 103 obvious standards for advanced drug development should include a presumption that the covered claimed invention and the prior art to which it relates would have been obvious, the legislation would have undermined a unitary system of patent law in favor of different standards for different fields of technology. It was a bold proposal, and it’s one that ignored the proven value of new drug formulations and methods of treatment.

While the amendment provided for a rebuttal to the presumption of obviousness, the language was ambiguous and likely to render the patent system even more unreliable than it already is. The proposed statute said that an applicant may rebut the presumption of obviousness if the covered claimed invention “results in a statistically significant increase in the efficacy of the drug or biological product that the covered claimed invention contains or uses.” It is unclear what would qualify as “statistically significant,” and proving this vague standard would be nearly impossible.

In order to show a “statistically significant increase in efficacy,” long and costly head-to-head clinical trials would be necessary. To be clear, this is not a standard required by the FDA for new drug approval, let alone patentability.

As if that wasn’t enough reason to reject the Graham amendment, the language was alarmingly similar to that of an Indian patent law statute that has been recognized by the US Trade Representative as a “major obstacle to innovators.” In 2005, in order to comply with the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, India adopted for the first time patent protection for pharmaceuticals. Despite its recognition of IP rights in pharmaceuticals, India’s Act contains a troubling ambiguity in its Section 3(d), which requires an “enhanced efficacy” for known drugs in addition to the standard novelty, inventive step, and industrial applicability requirements.

India’s Section 3(d) has been invoked to reject patent protection for life-saving drug innovations, including Novartis’ landmark leukemia drug, Gleevec. Drug companies, government agencies, and policy makers have all recognized the threat to innovation that India’s patent law poses. In 2013, not long after the Novartis ruling, a bipartisan group of 40 Senators signed a letter to then Secretary of State John Kerry urging the state department to take action against India’s “deteriorating IP environment,” citing its willingness to “break or revoke patents for nearly a dozen lifesaving medications.”

Despite the widespread condemnation of India’s Section 3(d), the Graham amendment proposed adopting similarly indefinable standards to US patent law. While the language differed slightly—replacing “enhanced efficacy” with “increase in the efficacy”—it was no clearer, and implementation of this type of standard would only cause more confusion.

Protecting and Incentivizing Medical Innovation

Like most forms of innovation, the development of medicines and therapeutics is a process by which one builds and improves upon previous discoveries and breakthroughs. Sometimes those improvements are major advancements, but often they are incremental steps forward. In the pharmaceutical field, incremental or follow-on innovation frequently results in new therapeutic uses for existing drugs, which address serious challenges related to adverse effects, delivery systems, and dosing schedules. While they might not sound like medical breakthroughs on par with the discovery of penicillin, these advancements in the administration and use of pharmaceuticals improve public health and save lives.

Additionally, follow-on innovations are—and should remain—subject to the same patentability standards as any other technologies. Patents reward advancements that are novel, useful, and nonobvious, and our patent system has long recognized that patent claims are to be presumed patentable and nonobvious. The Graham amendment would have turned this established standard on its head, creating a separate and ill-defined hurdle for certain advancements in medicine.

The benefits of incremental innovation to public health and patients cannot be overstated. New formulations of malaria drugs, dosing regimens and delivery systems for AIDS patients, more efficient administrations of insulin for the treatment of diabetes, and developments in the treatment of cognitive heart disease have all been possible because of incremental innovation.

Imposing unjustified restrictions on the patentability of advancements like these would be disastrous for drug development, as the incentives that come with patent protection would be all but eliminated. Without the assurance that their innovative labor would be supported by intellectual property protection, pioneering drug developers would shift resources away from improving drug formulations and uses. The development of more effective treatments of some of the most devastating diseases would stall, as innovators would be unable to commercialize their products, recoup losses, or fund future research and development.

As critics continue to target myopically the patent system for a broader issue of drug prices in the American health care system, it’s likely not the last time that language like this will be proposed. In order to avoid the implementation of such ill-conceived standards into our patent laws, understanding what’s at stake is critical. The future of medical innovation depends on it.

Tags "patent trolls", Antitrust, broken patent system, competition, innovation, intellectual property, Kevin Madigan, patent, patent litigation, patent reform, patentability, Sean O'Connor, Section 101, USPTO

Patents

CPIP Scholars To Federal Circuit: Protect Innovation in the Life Sciences

Post author By Joshua Grove
Post date April 30, 2018

Last week, a group of CPIP scholars—Chris Holman, David Lund, Adam Mossoff, and Kristen Osenga—filed an amicus brief in Natural Alternatives International v. Creative Compounds, a case currently on appeal to the U.S. Court of Appeals for the Federal Circuit. The amici ask the appellate court to correct the district court’s misapplication of the patent-eligibility test under Section 101 of the Patent Act since it threatens innovation in the life sciences.

The plaintiff-patentee, Natural Alternatives International or NAI, provides nutritional products, including proprietary ingredients and customized nutritional supplements, to its clients. NAI owns several patents relating to beta-alanine, a non-essential amino acid that delays the onset of muscle fatigue. The district court held that the claims were ineligible subject matter under the two-step Alice-Mayo test: the claims were directed to a natural phenomenon and lacked an inventive concept containing more than conventional, routine activity.

The amici point out that the district court’s overly-restricted view of patent-eligibility doctrine will dissuade the research and development of natural products that are beneficial for mankind. They note that the district court glossed over several predicate factual questions and failed to properly consider the claims as a whole. They conclude that the continued misapplication of the Section 101 analysis has resulted in legal uncertainty, undermining the innovation industries that rely on stable and effective patent rights.

The Summary of Argument is copied below, and the amicus brief is available here.

***

SUMMARY OF ARGUMENT

The district court’s decision in Natural Alternatives International, Inc. v. Creative Compounds, LLC, No. 16-cv-02146-H-AGS, (S.D. Cal. Sept. 5, 2017) and Natural Alternatives International, Inc. v. Hi-Tech Pharmaceuticals, Inc., No. 16-cv- 02343-H-AGS, (S.D. Cal. Sept. 5, 2017), represent an improper application of 35 U.S.C. § 101. The parties in their briefs address the relevant innovation covered by Natural Alternatives’ patents, as well as the application of the Supreme Court’s and the Court of Appeals for the Federal Circuit’s § 101 jurisprudence. Here, amici offer additional insight concerning the legal and policy problems with the trial court’s decision. Specifically, amici contend that Natural Alternatives’ claims represent precisely how the patent system should reward discovery of a therapeutic use of a natural compound, and thus their invention should be eligible for patent protection. The Supreme Court has repeatedly emphasized that patents claiming new uses of known drugs or new applications of laws of nature are patent eligible, and these teachings properly applied provide patent eligibility for the kinds of claims at issue in this case. Assoc. for Molec. Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 594 (2013); Mayo Collaborative Servs v. Prometheus Labs., Inc., 566 U.S. 66, 87 (2012). The district court’s decision to the contrary conflicts with the Patent Act as an integrated statutory framework for promoting and securing innovation in the life sciences, as construed by this court as well as by the Supreme 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); Myriad at 577. 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, the “threshold test” of § 101 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 applied the two-step “Mayo/Alice test” from the Supreme Court’s recent § 101 cases in an unbalanced and legally improper manner. See Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014); Mayo, 566 U.S. at 66. These practices of the inferior courts include 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 natural products to conclude that a patented invention is ineligible.

The lower courts’ unduly stringent and restrictive patent eligibility test under the Mayo/Alice test produces results such as the district court’s decision in this case. This improper application of the Mayo/Alice test inevitably leads to § 101 rejections of patentable product and method inventions; here, the district court rejected an innovative invention in the biotechnology sector that the patent system is most certainly designed to promote. When a patent describes a discovery made by the inventor, even if that invention relates to a natural product or natural law, it should be possible to describe a particular application of that law or discovery that is patent eligible so as to reward the inventor for their efforts.

Furthermore, the improper treatment of the § 101 inquiry as primarily a question of law requiring no evidentiary findings whatsoever, especially when the parties expressly disagree as to what a person having skill in the art would consider routine or ordinary, allows courts to gloss over both what the claims are directed to and what importance limitations beyond the ineligible material may have. See Berkheimer v. HP Inc., 881 F.3d 1360, 1368-69 (Fed. Cir. 2018). This improper characterization of § 101 has sowed indeterminacy in patent eligibility doctrine, and has left inventors and companies in the innovation industries with little predictability concerning when or how courts will dissect claims and make conclusory assertions that they are patent ineligible under § 101.

The court in this case has an opportunity to more properly instruct the lower courts in the manner in which the § 101 analysis should be made, particularly with regard to the role of factual evidence in determining when a claimed application of a natural law or product is routine, well-understood, or conventional and when it is not and thus that the claimed invention is eligible for patenting.

To read the amicus brief, please click here.

Tags Federal Circuit, patentability, Section 101, USPTO

Innovation Inventors Patent Law Software Patent Uncategorized

CPIP Scholars File Amicus Brief in Trading Technologies v. CQG

Post author By Joshua Grove
Post date July 29, 2016

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

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

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

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

SUMMARY OF ARGUMENT

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

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

To read the full amicus brief, please click here.

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

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

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

Post author By Joshua Grove
Post date July 14, 2016

By Adam Mossoff and Kevin Madigan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

#AliceStorm: When It Rains, It Pours…

Post author By Joshua Grove
Post date February 4, 2016

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.

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%):

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:

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).

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.

Tags #AliceStorm, abstract idea, Alice, Bilski, Bob Sachs, CBM, covered business method, Federal Circuit, patent, patentability, PTAB, Section 101

Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

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

Post author By Joshua Grove
Post date November 19, 2015

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.

Tags #AliceStorm, abstract idea, Alice, Bilski, Bob Sachs, CBM, covered business method, Federal Circuit, Octane Fitness, patent, patentability, PTAB, Section 101, state street bank, USPTO

Administrative Agency Innovation Inventors Patent Law Patent Litigation Uncategorized

Overview of Comments on the USPTO's July 2015 Update to the Interim Examination Guidance

Post author By Joshua Grove
Post date October 23, 2015

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

In late July, the USPTO issued its July 2015 Update to the 2014 Interim Section 101 Patent Eligibility Guidance (IEG). The July 2015 Update addresses a number of the issues and concerns raised in the public comments to the IEG and is supposed to assist examiners in applying the 2014 IEG during the patent examination process. The July 2015 Update also includes a new set of examples of claims involving abstract ideas and sample analysis under the Mayo framework. The USPTO is seeking public comments on the July 2015 Update, and comments are due on October 28, 2015, via email at 2014_interim_guidance@uspto.gov.

Here is an overview of what I think are the key issues and concerns with the July 2015 Update. Feel free to use any of my analysis in your comments to the USPTO.

1. Requirements of Prima Facie Case and the Role of Evidence

A significant number of the public comments on the 2014 IEG noted that examiners have the burden to make the prima facie case that a patent claim is ineligible, and that the Administrative Procedures Act (APA) and Federal Circuit case law requires that this determination be made based on “substantial evidence,” and not examiner opinion. In particular, all of the public comments that addressed this issue stated that examiners should have to provide documentary evidence to support a conclusion that a claim is directed to a judicial exception or that claim limitations are well understood, routine, and conventional.

In the July 2015 Update, the USPTO responded by stating that whether a claim is ineligible is a question of law and courts do not rely on evidence to establish that a claim is directed to a judicial exception, and therefore examiners likewise do not need to rely on any evidence that a particular concept is abstract, or a fundamental economic concept, or even a law of nature. The USPTO’s reliance on the judicial model is legally incorrect. First, examiners are bound by the APA and judges are not. Second, that eligibility is a question of law does not mean that there are not factual issues, as well—it merely determines whether the court or a jury is to make the finding. Obviousness is likewise a question of law, but there are clearly factual issues involved. Third, when judges take judicial notice, they are making a finding of fact, and they must do so under the requirements of Federal Rules of Evidence, Rule 201, which states that “The court may judicially notice a fact that is not subject to reasonable dispute because it: … can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” This requirement is similar to the requirements of Official Notice set forth in MPEP 2144.03: “Official notice unsupported by documentary evidence should only be taken by the examiner where the facts asserted to be well-known, or to be common knowledge in the art are capable of instant and unquestionable demonstration as being well-known.” Thus, by its own logic, examiners should comply with the requirements of MPEP 2144.03.

As to the role of evidence, again the public comments that discussed this issue all took the position that examiners must cite authoritative documentary evidence, such as textbooks or similar publications to support a conclusion that a claim recites a judicial exception or that certain practices are well known, conventional or routine. The public comments on this issue all made the same argument: that the Supreme Court in Bilski and Alice cited references in support of their conclusions that the claims were ineligible.

In response to this uniform opinion, the USPTO maintained its position that citations of references was not necessary because the references in Bilski and Alice were technically not “evidence” since the Court is an appellate court, and further that the references were not necessarily prior art. This argument misses the point. Regardless of whether the references were evidence under the Federal Rules of Evidence, the Court felt it necessary and proper to cite them. Further, the Court did not cite references as prior art or suggest that they need to be prior art—rather, the Court cited the references as an authoritative basis to show that the claims were directed to longstanding, well-known concepts. That the Court did this not once, but twice, is strong guidance that the USPTO should follow suit.

Similarly, examiners should be instructed to accept and give substantial weight to documentary evidence submitted by applicants rebutting the examiner’s conclusions under either Step 2A or 2B of the Mayo framework. This includes declarations from the inventor or others showing that particular limitations are not considered judicial exceptions by a person of ordinary skill in the relevant technical or scientific community, or that claims limitations would be considered “significantly more” by such person, or that the claim limitations provide improvements to the art.

2. The Role of Preemption in the Mayo Framework

The majority of public comments stated that preemption is the core concern underlying the judicial exceptions to Section 101, and that the examiner should be required to establish that a claim preempts a judicial exception in order to find the claim ineligible. The USPTO again took an opposing view to this consensus interpretation, asserting that questions of preemption are inherently addressed in the two-part Mayo test. The USPTO also stated that “while a preemptive claim may be ineligible, the absence of complete preemption does not guarantee that a claim is eligible.” This has effectively eliminated arguments made by applicants that their claims were patent eligible because they did not preempt other practical applications of the judicial exception. Neither the Supreme Court nor the Federal Circuit has endorsed the concept that preemption does not matter given the Mayo framework. Instead, the courts continue to evaluate patent claims with respect to preemption even after the Mayo framework has been applied.

More significantly, the USPTO’s argument fails to address the more likely situation: that a claim blocks (preempts) only a narrow range of applications or implementations of the identified judicial exception. This is not merely a case of an absence of complete preemption; it is the absence of any significant degree of preemption at all. The Supreme Court recognized that preemption is a matter of degree and held that a claim is ineligible where there is a disproportionate risk that the judicial exception is fully preempted. In Alice, the Court stated:

The former [claims on fundamental building blocks] “would risk disproportionately tying up the use of the underlying” ideas, and are therefore ineligible for patent protection. The latter [claims with limitations that provide practical applications] pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.” 134 S.Ct. at 2354 (emphasis added).

Since by definition a claim must preempt something, it is only where the scope of the claim covers the full scope of the judicial exception that the claim is rendered ineligible. Judge Lourie, whose explanation of the Mayo framework in CLS v. Alice was directly adopted by the Supreme Court, put it this way:

Rather, the animating concern is that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add “significantly more” to the basic principle, with the result that the claim covers significantly less. See Mayo 132 S. Ct. at 1294. Thus, broad claims do not necessarily raise § 101 preemption concerns, and seemingly narrower claims are not necessarily exempt. What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application.

Thus, both the Supreme Court and the Federal Circuit use preemption as the mechanism to evaluate whether a claim is eligible or not by applying it on both sides of the question: ineligible if preemptive, eligible if not preemptive. In addition, over 100 district court decisions since Alice have expressly considered whether the claims preempt, even after applying the Mayo framework. If the Mayo framework inherently addressed the preemption issue as the USPTO asserts, there would be no reason for the courts to address it. Finally, by removing preemption from the Mayo framework, the USPTO has turned the framework into the sole test for patent eligibility—directly contrary to the Supreme Court’s holding in Bilski that there is no one sole test for eligibility.

Lourie’s statement that a claim is patent eligible when it includes “substantive limitations…with the result that the claim covers significantly less” than the judicial exception provides a simple and expedient basis for using preemption as part of the streamlined analysis–something the USPTO has resisted in the July 2015 Update. Examiners are well trained to evaluate the scope of a claim based on its express limitations. Accordingly, they can typically determine for the majority of claims that, whatever the claim covers, it has limitations that prevent it from covering the full scope of some judicial exception. If the point of the streamlined analysis is to avoid the unnecessary burden of the Mayo framework, then a preemption analysis provides the best way to achieve that goal.

Finally, to suggest that the Mayo framework is precise enough to be a definitive test is to ignore the obvious: both steps of the framework are undefined. See McRO, Inc. v. Sega of America,, Inc., No. 2:12-cv-10327, 2014 WL 4749601,at *5 (C.D. Cal. Sept. 22, 2014) (Wu, J.) (“[T]he two-step test may be more like a one step test evocative of Justice Stewart’s most famous phrase [‘I know it when I see it’].”). The Court refused to define the scope of abstract ideas in Alice (Step 2A), and Step 2B entails evaluating the subjective requirement of “significantly more” or “enough.” What is left, then, is analysis by analogy and example—and both common sense and life experience tell us that these approaches very often lead to mistakes. Analogies can be good or bad, and most examples can be argued either way. Preemption serves as a way of evaluating whether the outcome from such analysis is consistent with the underlying rationale for the judicial exceptions in the first place.

3. Abstract Ideas Must be Prevalent and Longstanding in the Relevant Community

The majority of public comments on the IEG argued that to establish that an idea is abstract, an examiner must show that the idea is “fundamental” in the sense of being “long-standing” and “prevalent,” following the statements of the Supreme Court. Various commentators suggested specific rules for examiners, such as evidence that the idea has been known and used in practice for a period of 25 or more years. Even those who supported a restrictive view of patent eligibility suggested that examiner should look to “basic textbooks” to identify abstract ideas.

The USPTO responded in the July 2015 Update by asserting that abstract ideas need not be prevalent and longstanding to be fundamental, arguing that even novel abstract ideas are ineligible: “examiners should keep in mind that judicial exceptions need not be old or long‐prevalent, and that even newly discovered judicial exceptions are still exceptions.” The USPTO stated that ”The term ’fundamental‘ is used in the sense of being foundational or basic.” This analysis begs the question. An idea is foundational or basic because it is widely accepted and adopted in the relevant community—it is fundamental to the practices of the community. Indeed, any textbook on the “foundations” of a particular scientific field would explain the principles and concepts that are long-standing and widely-accepted by scientists in that field. It would not be a significant burden on the examiner to cite to such publications to support a finding under Step 2A. Indeed, the inability of an examiner to do so would be strong evidence that a claim is not directed to a foundational or basic practice.

4. USPTO Reliance on Non-Precedential Federal Circuit Decisions

Public comments noted that the 2014 IEG included citations and discussions of non-precedential Federal Circuit cases, such as Planet Bingo, LLC v VKGS LLC, and SmartGene, Inc. v Advanced Biological Labs, and indicated that because the cases are non-precedential, they should not be cited and relied upon by the USPTO as the basis of its guidance to examiners. Further, it was pointed out that the 2014 IEG mischaracterizes the abstract ideas at issue in these cases.

For example, the USPTO characterizes SmartGene as holding that “comparing new and stored information and using rules to identify options” is an abstract idea. The Federal Circuit’s actual holding was much more specific: that “the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options.” The court itself unambiguously limited the scope of its decision: “[o]ur ruling is limited to the circumstances presented here, in which every step is a familiar part of the conscious process that doctors can and do perform in their heads.” Thus, the USPTO’s characterization removed key aspects of the court’s expressly-limited holding: that the comparing steps were inherently mental steps (not computer steps) performed by a doctor considering medical rules (not any type of rules) to evaluate medical options (not other types of options). The court’s ruling cannot be generalized to all types of comparisons on all types of information using all types of rules. The improper generalization of the court’s holding has resulting in examiners applying SmartGene to find many claims for computer-implemented inventions ineligible. This is because many, if not most, computer processes can be characterized as comparing stored and new information and applying a decision rule to produce a useful result. For example, most automobiles use computers and embedded software to monitor vehicle sensors and take actions. A typical fuel management computer compares a current measure of fuel (new value) with a predefined minimum amount of fuel (stored information) and determines whether to turn on a low fuel light (using rules to identify option). Under the USPTO’s characterization of SmartGene, a claim to such a process would be deemed an abstract idea, an obviously incorrect outcome.

The USPTO did not address any of the problems identified by the public comments regarding non-precedential cases. Instead, the July 2015 Update simply states that the “2014 IEG instructs examiners to refer to the body of case law precedent in order to identify abstract ideas by way of comparison to concepts already found to be abstract,” and makes multiple other references to precedent. Even so, the July 2015 Update relies repeatedly on non-precedential Federal Circuit decisions, such as Dietgoal Innovations LLC v. Bravo Media LLC, Fuzzysharp Technologies Inc. v. Intel Corporation, Federal Home Loan Mortgage Corp. aka Freddie Mac v. Graff/Ross Holdings LLP, Gametek LLC v. Zynga, Inc., Perkinelmer, Inc. v. Intema Limited, and Cyberfone Systems, LLC v. CNN Interactive Group, Inc.

The USPTO should eliminate any discussion of or reliance upon non-precedential decisions. In the alternative, the USPTO should at minimum explain to examiners that such decisions are limited to their specific facts and are not to be generalized into controlling examples or rules.

5. There is No Separate Category for Methods of Organizing Human Activity

Public comments to the 2014 IEG pointed out various issues with the category of “methods of organizing human activities” as a basis of abstract ideas, and in particular requested clarification as to which types of method would fall within the category. Here too there was a broad agreement among the commentators that the proper interpretation of Bilski and Alice: The Court found that the claims in Alice and Bilski were abstract ideas because they were directed to a fundamental economic practice, not because the claims were methods of organizing human activity. The Court noted that Bilski’s claims were methods of organizing human activity only to rebut Alice’s arguments that abstract idea must always be “fundamental truths.” The Court’s analysis does not logically imply that methods of organizing human activity are inherently abstract ideas.

The USPTO responded by broadly interpreting the scope of the category, stating that many different kinds methods of organizing human activity can also be abstract ideas, but providing no explanation (other than examples) to determine when this is the case and when is it not. The USPTO then mapped various Federal Circuit case into this category, even where the court itself did not expressly rely upon such categorization. For example, the USPTO listed buySAFE, DealerTrack, Bancorp, PlanetBingo, Gametex, and Accenture as examples of cases dealing with methods of organizing human activity. However, none of these cases actually held that the methods in suit were methods of organizing human activity. Instead, every single one of these cases held that the claims were abstract as either mental steps or fundamental economic practices. Attempting to map Federal Circuit cases into this category is both confusing to examiners and the public and unnecessary.

The USPTO should remove this category from the Guidance until such time as the Federal Circuit or the Supreme Court provides a clear definition of its bounds.

6. There is No Separate Category for “An Idea of Itself”

Public comments noted that this is catch-all category that the courts have mentioned in passing but have never provided any definition of its contours, and further suggested that the USPTO clarify that this is not a distinct category of abstract ideas.

In response, once again the USPTO broadly described the category and linked various Federal Circuit cases to it as examples, where the court itself never so characterized the invention. The USPTO lists in this category cases the court held to be ineligible in other categories, such as mental steps (Cybersource, Smartgene*, Classen*, Perkinelmer*, Ambry, Myriad CAFC*, Content Extraction); mathematical algorithms (In re Grams, Digitech); and economic activities (Ultramercial) (*indicates non-precedential decision). In fact, there is no precedential Federal Circuit or Supreme Court case that has defined “an idea of itself” as a distinct category. It is only mentioned in dicta, never in a holding.

The result of the USPTO’s categorization of cases into multiple, different undefined categories is to make it more difficult, not less, for examiners to properly determine which types of claims are within which category. Further, where an examiner asserts that a claim falls into multiple categories (which is a simple assertion to make, since most inventions deal with multiple different concepts), the applicant is forced to rebut each categorization.

7. “Mathematical Algorithms” Are Limited to Solutions to Problem in Pure Mathematics

This category, more than any other, reflects the USPTO’s failure to substantively and meaningfully analyze the issues and provide clear guidance. Public comments to the 2014 IEG provided extensive analysis of the case law and the problems arising from mathematical algorithms being considered abstract ideas. The USPTO did not respond to the substantive analysis at all. Instead, the July 2015 Update merely lists cases that have held claims invalid as mathematical algorithms, without explanation. This is inadequate for several reasons.

First, the USPTO must clarify that the presence of a mathematical algorithm in the specification or claims is not a per se indication that the claims are directed to an abstract idea. In Alice, the Court expressly stated that “[o]ne of the claims in Bilski reduced hedging to a mathematical formula, but the Court did not assign any special significance to that fact, much less the sort of talismanic significance petitioner claims.” Equally so, examiners must not assign any special significance to the presence of a mathematical formula either in the disclosure or in the claim. What matters is the underlying concept, not how it is expressed (e.g. “no special significance”), whether in words or mathematical symbols.

Second, the presence of a mathematical formula or equation does not make an invention abstract for a very simple reason: mathematics is a language that allows for the very precise and formal description of certain types of ideas. All modern engineering, including, civil, mechanical, electrical, chemical, computer, etc., as well as all of the physical sciences, relies on mathematical analysis for design and formulation. Using a mathematical equation is simply one—albeit highly precise—way of expressing concepts, which may be either patent-eligible or not. Thus, the presence of a mathematical equation does not by itself imply or suggest anything about the underlying concept, and should not be relied upon by examiners as an automatic evidence of an ineligible abstract idea. While mathematics may be used to describe abstract ideas like the laws of mathematics, it can equally be used to describe entirely mundane and non-abstract ideas like fuel-efficient aircraft approach procedures (U.S. Patent No. 8,442,707), compressing video for transmission on cell phones (U.S. Patent No 8,494,051), efficiently allocating farming resources (U.S. Patent No. 6,990,459), or calculating golf handicaps and the difficulty of golf courses (U.S. Patent No. 8,282,455).

The correct interpretation of “mathematical algorithms” as used by the Supreme Court are algorithms that are solutions to inherently mathematical problems. This was the specific definition used by the Supreme Court in Benson, and confirmed in Diehr. In Benson, the Court stated:

A procedure for solving a given type of mathematical problem is known as an “algorithm.” The procedures set forth in the present claims are of that kind; that is to say, they are a generalized formulation for programs to solve mathematical problems of converting one form of numerical representation to another.

Later, in Diehr, the Court stated that in Benson “we defined ‘algorithm’ as a ‘procedure for solving a given type of mathematical problem,” noting that “our previous decisions regarding the patentability of ’algorithms‘ are necessarily limited to the more narrow definition employed by the Court.” The Court expressly rejected a broader definition that covered any “sequence of formulas and/or algebraic/logical steps to calculate or determine a given task; processing rules.”

The USPTO should clarify that this more limited definition of mathematical algorithms is to be used. This approach beneficially distinguishes between inventions in pure mathematics—which as the Court stated are precisely those that have the disproportionate risk of preemption because they can be used in an unlimited number of different fields—from inventions in applied mathematics, the mathematics used in the engineering and physical sciences. Examiners are well-accustomed by their formal scientific and technical training to distinguish between claims to these two types of inventions making use of mathematical formulas and equations.

8. Identifying Whether a Claim Limitation Recites a Conventional, Routine, and Well-Understood Function of a Computer

The public comments to the 2014 IEG discussed the problems resulting from considering the normal operations of a computer to be merely “generic” functions that are conventional, well-understood, and routine, and therefore by definition insufficient to support eligibility of a patent claim.

In response, the USPTO again ignored the substantive arguments, instead simply stating that examiners may rely on what the courts have recognized as “well understood, routine, and conventional functions” of computers, including “performing repetitive calculations,” “receiving, processing, and storing data,” “receiving or transmitting data over a network”. The July 2015 Update goes on to state that “This listing is not meant to imply that all computer functions are well‐understood, routine and conventional.”

This caveat is hardly sufficient, since the list essentially wipes out all computing operations as they are typically claimed. Just as claims for mechanical processes use verbs and gerunds that describe well-known mechanical operations, so too do claims for computer-based inventions necessarily describe the operations of a computer: receive, transmit, store, retrieve, determine, compare, process, and so forth. There is no other way to claim the operations of a computer except to use such terminology.

Accordingly, since the Supreme Court did not hold that all software and computer-implemented inventions are per se ineligible, the proper interpretation of the Court’s discussion of the generic functions of a computer is more narrowly-focused. Specifically, it is necessary to consider the entirety of each claim limitation, not merely the gerund or verb that introduces a method step. The claim limitation as a whole must recite nothing more than generic functions. When considering computer processing steps on computer data, limitations as to the source of data, the types of data, the operations performed on the data, how the outputs is generated, where the data is stored or transmitted, must all be considered. This is because it is these limitations that distinguish between the merely generic operations (“receiving a data input and determining an output”) and the particular applications.

Tags abstract idea, Alice, Benson, Bilksi, Bob Sachs, Diehr, Federal Circuit, interim eligibility guidance, Judge Lourie, Mayo, MPEP, patentability, preemption, Section 101, Supreme Court, USPTO

Uncategorized

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

Post author By Joshua Grove
Post date September 2, 2015

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

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

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

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

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