All posts by Jason Rantanen

About Jason Rantanen

Jason is a Law Professor at the University of Iowa College of Law.

Oracle’s brief: More competing questions

By Jason Rantanen

Yesterday, Dennis wrote about competing questions in a Supreme Court cert petition.  In its merits brief in Google LLC v. Oracle America, Inc., filed on Wednesday, Respondent Oracle also frames the issues a bit differently than Google did.

Google Questions presented

Oracle Questions presented

1. Whether copyright protection extends to a software interface. 1. Under §102(a), computer programs, like all “works of authorship,” have “[c]opyright protection,” as long as they are “original.” The merger doctrine does not make any expression unprotectable except in the rare circumstance where there were very few ways to express the idea. Does the Copyright Act protect the code and organization that Google concedes were original and creative and that Oracle could have written in countless ways to perform the same function?
2. Whether, as the jury found, petitioner’s use of a software interface in the context of creating a new computer program constitutes fair use. 2. Was the Court of Appeals correct in holding that Google’s copying was not fair, where Google conceded it copied for commercial purposes and that the code it copied serves the same purpose and has the same meaning, and Google did not dispute the evidence that Android competes directly with Oracle’s work, harming its actual and potential markets?

Read Google’s brief here: Brief of Petitioner (Google)

Read Oracle’s brief here: Respondent Brief (Oracle)

We’re reading the Google and Oracle briefs in my Introduction to Intellectual Property class this semester as part of the concluding exercise for the unit on copyright.  On Monday we’ll discuss and debate the two positions in small groups then see which is most persuasive to a group of smart law students with a few weeks of copyright law.

Guest Post by Prof. Holbrook: Whose Law Controls On Sale Prior Art in Foreign Countries?

Guest post by Timothy R. Holbrook, Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law, Emory University.

The America Invents Act (AIA) effected a sea change in U.S. patent law.  One of the most significant changes was to shift the U.S. from a “first to invent” to a “first inventor to file” system for allocating priority.  This move is reflected in the restructuring of 35 U.S.C. § 102, the provision that defines prior art for assessing whether an invention is novel and non-obvious.

Aside from the shift in assessing priority, some contended that, by amending § 102, Congress had rejected long-standing Supreme Court precedent that allowed secret uses and sales of the invention to trigger the statutory bars under the 1952 Patent Act.  In Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court, in its first case addressing the AIA’s § 102, rejected this argument.

The AIA did more than shift the United States to a first-inventor-to-file system, however.  The AIA also eliminated geographic limits on prior art.  Under the 1952 Patent Act, activities triggering the public use and on-sale bars under then-35 U.S.C. § 102(b) had to take place “in this country.” The elimination the geographic limit greatly expands what qualifies as prior art under the AIA.  Moreover, the Supreme Court’s interpretation of the AIA in Helsinn makes that even more sweeping as secret sales activity that may not be accessible to the broader public can now qualify as prior art.

The removal of the territorial limits, however, also presents a different question: whose law will govern whether an invention is deemed “on sale”?  Under the 1952 Patent Act, to be on sale, an invention (1) had to be the subject of a formal commercial offer for sale and (2) had to be ready for patenting.  Whether the invention is subject to a formal commercial offer is assessed from basic contract principles.

In the foreign context, however, what constitutes a formal commercial offer may vary from U.S. law. Because these proposed or completed sales transactions could take place outside of the United States, the law of another country generally would govern any potential or actual agreements.

The elimination of the geographic limits to on-sale activity now presents a choice of law problem.  On one hand, one could argue that the law of the relevant country should control: the parties in the transaction have that law in mind and not necessarily U.S. patent law.  On the other, if the courts were to rely on foreign law to assess whether the invention is “on sale” under § 102(a) of the AIA, then what qualifies as on-sale prior art would vary widely, depending on the law of the country in which the commercial activity took place.  The same activity might qualify as prior art in one context and not in another.  Courts, therefore, would be better of creating U.S. law defining triggers on-sale prior art regardless of where the activity occurred.

So what route will the courts take?  I suspect it will be the latter, using Federal Circuit law to define the contours of on-sale prior art even when the activity arises overseas.

The Federal Circuit addressed an analogous situation in interpreting the statutory bars under § 102(b) of the 1952 Patent Act.  After the Supreme Court reworked the on-sale bar test in Pfaff v. Wells Electronics, Inc., the Federal Circuit in Group One, Ltd. v. Hallmark CardsInc., clarified step one of the two-part test by requiring a formal commercial offer for sale.  In so doing, the court confronted a similar choice of law issue: should the law of the state governing the transaction dictate whether the invention was on sale, or should Federal Circuit law?

The court opted for the latter, rejecting the district court’s use of Missouri law to determine whether the invention was on sale.  The court reasoned that reliance on state law would create variability in interpreting a federal statute and emphasized “the importance of having a uniform national rule.” As the court stated:

To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentee’s actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system.

If past is prologue, one could easily see the court reaching the same conclusion with respect to the use of foreign law to interpret § 102(a) of the AIA.  Applying the law of various countries where commercial activities arise could lead to widely varying standards for on-sale prior art.  Indeed, the situation would be fare more complex than applying state law not only because of differing legal standards but also differing legal systems.  It is a more complicated analysis for U.S courts to discern foreign law than to discern the law of a given state.  It seems highly likely, therefore, that the Federal Circuit choose to apply its own law, using basic contract principles, in interpreting § 102(a) on-sale prior art that arises in foreign countries.

The situation at the international level, however, is far more complex than refusing to apply state law.  Activities in a foreign country would be assessed, and indirectly regulated, through the application of a U.S. legal standard, implicating concerns of the extraterritorial application of U.S. law.  Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences. That said, I would be surprised if courts consider this activity to trigger the presumption against extraterritoriality, in the same way they failed to truly account for the presumption in the patent exhaustion context.

The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change.  As yet, the importance of the removal of these territorial limits has not been explored by the courts.  Particularly as it relates to on-sale prior art, courts likely will be applying U.S. law to activities arising in foreign countries in the interest in having a uniform standard.

Tim Holbrook is Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law at Emory University.  This essay is drawn from part of his article, What Counts As Extraterritorial in Patent Law?, 25 B.U. J. SCI. & TECH. L. 291 (2019).

A Decade of Federal Circuit Decisions

By Jason Rantanen

While most commentators are focusing on year-in-reviews, I thought it would be fun to do a decade-in-review using data from the Compendium of Federal Circuit Decisions, the publicly-accessible dataset that we’ve developed at Iowa Law containing information about all decisions by the Federal Circuit since 2008.  You can access the Compendium via empirical.law.uiowa.edu/.

1. Decisions by origin

Recently, we updated the Compendium to include all decisions arising from origins other than the District Courts and USPTO.  This lets us compare decisions across all origins along a variety of dimensions.

Figure 1 shows the distribution of Federal Circuit decisions by major source.  A “decision” in the Compendium is defined as an opinion or Rule 36 affirmance.  I’ve grouped origins with small numbers of appeals, including the Board of Contract Appeals, Department of Justice, and Department of Veterans’ Affairs, into the “other” category. (The figures link to larger versions.)

Figure 1

Or if strata are more your thing:

Figure 2

These graphs show the well-known increase in decisions arising from the USPTO (mostly from inter partes review proceedings), but also a decline in decisions arising from the MSPB. (These outputs match the inputs: the Federal Circuit’s statistics page indicates a decline in the number of docketed appeals arising from the MSPB.)  While decisions arising from the district courts and the USPTO have crossed paths over the past few years, the number of decisions originating from the district courts is about where it began the decade. Overall, the court’s total output has risen by about 100 decisions/year during this time.

2. Precedential opinions by origin

Another way to assess a court’s output is in terms of its precedential opinions, as these constitute law on which future courts and parties rely.  Below is a chart showing the Federal Circuit’s annual number of precedential opinions by major source of origin.  The “other” group here includes the “other” category from the above graphs plus the Court of Appeals for Veterans’ Claims, Court of International Trade, and International Trade Commission.

Figure 3

Figure 3 shows precedential opinions in appeals arising from the district courts peaking at about 100 in 2014 and 2015, before falling to about 75 for the last few years. At the same time, the number of precedential opinions in appeals arising from the USPTO has risen substantially, from under 20 in 2013 to about 50-60 for the last few years.

3. Types of Decision by Origin

The below pie charts show the distribution of precedential opinions, nonprecedential opinions and summary affirmances under Rule 36.  by source of origin for the entire period 2010-2019.  About 30% of the Federal Circuit’s decisions consist of Rule 36 affirmances.

Figure 4

The lion’s share of precedential opinions and Rule 36 affirmances come from appeals from the District Courts and USPTO, nearly all of which involve patent issues.  For nonprecedential opinions, it’s the opposite: about half of these of these are written in appeals from the MSPB and CAVC.

One other way of looking at the data on decision types by court of origin for the entire decade:

Figure 5

  1. District court and PATO opinions: precedential, Rule 36 and nonprecedential

The final set of graphs for today are annual decisions from the USPTO and District Court by decision type.

Figure 6

Figure 7

If there are particular graphs of Federal Circuit decisions from the last decade that you’d like to see, send me an email and if we have the data I’ll try to generate them.

You’re welcome to play around with the data on your own.  If you do use it for something that you publish, please include a citation to the Compendium.  There’s a convenient cite form on the landing page for the database.  You’re also welcome to use the above graphs in presentations, provided that you give credit to PatentlyO and the Compendium of Federal Circuit Decisions (https://empirical.law.uiowa.edu/compendium-federal-circuit-decisions).

More reading on the Compendium of Federal Circuit Decisions and methodology & cautions for case count data generally:

Thanks to my research assistants for their work on the Compendium, especially Will O’Brien, Lindsay Kriz, Madison Murhammer-Colon, John Miscevich and Joseph Bauer.

Guest post by Profs. Yu and Contreras: The Uncertain Criminal Status of PAE Litigation in China

Guest post by Professor Jorge L. Contreras and Associate Professor Yang Yu of Shanghai University of International Business and Economics.  Professor Yu has graciously provided translations of core parts of the court’s judgment and Prosecutor’s protest.

On September 30, 2019, the Shanghai Pudong New Area People’s Court (court of first instance) ruled that an individual, Mr. Li Xingwen, was guilty of criminal extortion for asserting patents against a number of Chinese companies shortly before their initial public offerings (IPOs). The case was widely reported in the international press (see here, here and here) before the official release of this first-instance judgment, and gave rise to concern about the risks of asserting patents in China. The full text of the Shanghai court’s decision was finally released on September 30, 2019 and reveals several interesting details about the case. In particular, Mr. Li’s conduct giving rise to the judgment of extortion involved the falsification and backdating of a license agreement with a related company in order to extract additional royalties from a company with which Li had already settled.  However, most of Mr. Li’s other patent assertions, notwithstanding their strategic filing prior to the defendants’ IPOs, were viewed as legitimate.  Then, on October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgment against Mr. Li was too lenient.  Below, we summarize the facts of the case and the findings of the court of first instance, then assess the implications of the People’s Prosecutor’s protest.

The Patent Assertions

According to one news report, Mr. Li was a prolific inventor and patent agent. Beginning as a university student, he reportedly applied for over 1,000 patents, more than 600 of which had issued at the time of the case. These patents covered a diverse range of products including “a folding bicycle, a flushing water tank, a self-filtering aquarium, [and] an insecticidal device” (IAM, Oct. 1, 2018).  In addition to these, Mr. Li filed numerous patents covering aspects of electrical equipment. Working with his brother, Li established several holding companies to which he transferred some of these patents.

Beginning in 2015, Li’s companies sued four Chinese electronics firms for patent infringement in the Beijing, Xiamen and Shanghai courts. In several cases, the litigation was brought as the defendant companies were in the process of registering their securities in IPOs on the Shanghai or Shenzhen stock exchanges.  In all cases, the alleged infringers settled the cases brought by Mr. Li’s companies, committing to pay him a total of RMB 2.163 million (RMB 1.163 million of which had been paid at the time of his prosecution).

Some cases involved the assertion of two Chinese patents claiming methods for data transmission and image acquisition against Zhang Yue Technology Inc., a manufacturer of e-book readers. A series of cases were brought from March 2017 to  July 2017 by Mr. Li’s company Shanghai Ke Dou Electronic Technology Co. Ltd. (Ke Dou) in the Beijing Intellectual Property Court and Shanghai Intellectual Property Court.  Zhang Yue settled with Ke Dou on 15 July 2017, agreeing to pay a total of RMB 800,000.

Then, at the end of 2017, Li’s holding company Ke Dou entered into an agreement with another Li company called Shanghai Bu Dao Industrial Co., Ltd. (Bu Dao).  Under this agreement, Ke Dou purported to grant Bu Dao an exclusive license to a data transmission patent (Patent No. ZL201010523269.X “Method and system for initiating data transmission between devices through image acquisition”). What’s more, the Ke Dou – Bu Dao agreement was back-dated so that it appeared to pre-date the license that Ke Dou granted to Zhang Yue.

Armed with this exclusive license, Bu Dao sued Zhang Yue in the Beijing IP Court under the same patent. To exert even greater pressure, Bu Dao reported the lawsuit to the China Securities Regulatory Commission (CSRC), which had oversight over Zhang Yue’s pending IPO.  In an attempt to avoid interference with the IPO, Zhang Yue agreed to settle the lawsuit with Bu Dao for an additional RMB 800,000.

Arrest and Charges

After signing the second license agreement, Zhang Yue reported Mr. Li and his brother to the police (IAM, Jul. 23, 2018). The case was investigated by the securities crime unit of the Shanghai Public Securities Bureau.  Mr. Li and his brother were arrested in January 2018 and prosecutors charged them with extortion on August 24. As reported by IAM (Oct. 1, 2018) the Shanghai Public Security Bureau explained the charges as an effort to preserve order in China’s capital markets, and justified them on the basis that the purpose of Li’s litigation was not to protect his patented technology but simply to earn large sums of money. This behavior, one official noted, “is in line with the characteristics of extortion”.

The Court’s Decision

The Shanghai Pudong New Area People’s Court rendered its decision in Mr. Li’s case on September 30, 2019. It evaluated the conduct of Mr. Li and his brother with respect to four different defendants that had been sued for patent infringement, including Zhang Yue.  In three of the cases, Mr. Li’s lawsuits were timed to coincide with the defendant’s preparation for or execution of an IPO.  Unlike the Public Securities Bureau, however, the court did not consider this fact to be dispositive.  In order to prove the crime of extortion, the court explained that the accused must have illegally obtained payment by means of threats and intimidation.

The court then noted that the patents asserted by Mr. Li’s companies against the four defendants were either recognized as valid by the China National Intellectual Property Administration (CNIPA) or were, at worst, of uncertain validity. As a result, seeking and obtaining license fees for such patents was not illegal. It was not relevant that Mr. Li’s demands for royalties came at sensitive times when the defendant companies were preparing for stock listing or financing.  Moreover, the court did not find evidence that Mr. Li’s companies carried out “threats or blackmail” simply by demanding payment for its patents.  Rather, it was possible that the defendants decided to pay the requested amounts for legitimate business reasons.  Accordingly, extortion was not found in these instances.

However, with respect to the second demand made against Zhang Yue, Mr. Li and his brother colluded “in bad faith” to fabricate an exclusive license agreement between their companies Ke Dou and Bu Dao. Bu Dao then sought additional royalties from Zhang Yue after it had already paid Ke Dou for the same patent.  Moreover, when Mr. Li reported Zhang Yue’s infringement of the patents to the CSRC, he did so only to pressure Zhang Yue to pay Bu Dao for these patents.  This action constituted coercion, and Zhang Yue’s payment to Bu Dau was made out of fear of the effect that nonpayment might have on its pending stock offering.  As a result, the court found that the Lis’ behavior toward Zhang Yue constituted criminal extortion.

The convictions required the Lis to refund the payment improperly paid by Zhang Yue, as well as additional fines of RMB 50,000 and 20,000 for Mr. Li and his brother, respectively.  In addition, Mr. Li and his brother were sentenced to four years and six months, and two years, imprisonment, and the unspecified “tools” used to commit the extortion were confiscated.

The Prosecutor’s Challenge to the Judgment

On October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate (the local prosecutorial authority) lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgments against Mr. Li and his brother were too lenient, in that no extortion judgment was imposed with respect to their patent demands against the companies other than Zhang Yue. In its protest, the Prosecutor has argued that having the right to bring a patent enforcement action under the civil patent law does not necessarily exonerate a patentee from a criminal judgment of extortion. That is, civil and criminal offenses must be judged independently, and in this case, whether or not the Li brothers had patents, their conduct amounted to extortion.  The Prosecutor also questions the legitimacy of Mr. Li’s  enforcement actions under the patent law, arguing that the patents were not clearly valid or enforceable, were based on minor modifications to prior art technology, and involved extremely low R&D costs – all of which make the basis for his patent claims dubious.  What’s more, the settlement payments made by the alleged infringers were not related to the number, content or value of the patents, but were instead paid unwillingly in order to avoid litigation that could scuttle their other financing and corporate transactions. The Prosecutor points to Mr. Li’s deliberate targeting of companies that were in the process of obtaining financing and failure to make substantial preparations for litigation as further evidence of his malicious intent.  For all of these reasons, the Prosecutor has petitioned the court to extent its extortion judgment to the Li brothers’ other patent assertions.

Conclusions

It not clear when the People’s Court will rule on the Prosecutor’s protest, or when (or whether) a written decision will be issued in response. However, the outcome of this protest could be important for all firms considering the initiation of patent infringement litigation in China. While one can assume that few legitimate patent holders will resort to the clearly deceptive tactics adopted by the Li brothers (e.g., creating backdated licensing agreements between related shell companies), the Prosecutor seeks to impose criminal penalties on behavior that is far more common in the business environment:  asserting patents without certainty regarding their validity, confronting an infringer prior to or in the midst of a financing transaction, or obtaining a settlement payment that is not directly related to the number or value of the asserted patents. In the U.S. and other Western countries, tactics like these have generally been accepted as permissible, so long as a patent has been validly issued by the relevant granting authority.  But if the Shanghai Pudong New Area People’s Procuratorate has its way, an entirely new level of intent-based scrutiny could be applied to patent litigation.

Guest Post by Prof. Rai: In the Constitutional Cross-Hairs: PTAB Judges and Administrative Adjudication

Guest post by Arti K. Rai, Elvin R. Latty Professor of Law and Faculty Director, The Center for Innovation Policy, at Duke Law.

Last Thursday, in Arthrex v. Smith & Nephew (Fed. Cir. 2019), a panel of the Federal Circuit held that the administrative patent judges (APJs) at the PTAB are “principal officers” who must, under the Appointments Clause of the Constitution, be appointed by the President and confirmed by the Senate.  In contrast, the current patent statute provides for APJs to be appointed by the Secretary of Commerce in consultation with the PTO Director.  The panel further determined that it could remedy the constitutional defect by severing APJ removal protections, thereby rendering them inferior officers who can be appointed by “Heads of Departments” like the Commerce Secretary.

As this post details, the panel did a careful job of addressing one of the most knotty constitutional issues raised by PTAB adjudication.  But precisely because the issue is knotty, the panel’s decision is unlikely to represent the last step in the road.  Indeed, the USPTO has already indicated that it may seek en banc review.

All parties agreed, as did the panel (citing Professor John Duffy’s prominent 2007 Patently-O paper), that APJs are officers within the meaning of the Appointments Clause.  The only question was whether APJs are principal or inferior officers.

The panel’s conclusion regarding principal officer status rested on Justice Scalia’s 1997 opinion for the Court in Edmond v. United States.  In that case, the Court held that inferior officers must be “directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.”

According to the panel, PTAB judges lack adequate direction and supervision for two reasons: first, “presidentially appointed officers” cannot “review, vacate, or correct decisions by the APJs”; and, second, these presidentially appointed officers (specifically the Secretary of Commerce and Director) have only “limited removal power.” Although severing APJ removal protections would not give the Director review power over individual decisions, it would, according to the panel, be sufficient to demote APJs to inferior status.

The road ahead will likely be tumultuous.  At the Supreme Court, administrative law has long been a battlefield between various flavors of formalist and functionalist reasoning about how agencies fit into the executive branch and interact with the legislative and judicial branches.  Indeed, in taking its relatively formal approach to the distinction between principal and superior officer, the Edmond Court had to distinguish the considerably less formalist opinion in Morrison v. Olson, written only 9 years earlier.  In Morrison, Justice Scalia had written a stinging dissent, castigating the majority for relying on multiple indicia of inferiority, including limited responsibility, and for not recognizing that “inferior” necessarily means subordinate. Nine years later, Justice Scalia was able to secure 8 votes for his position. (Justice Souter concurred only in part.)

The Arthrex decision also comes during a period of even greater-than-usual Supreme Court turmoil over administrative adjudication.  Most relevant for present purposes, the Court has already decided a steady stream of constitutional and nonconstitutional cases involving the PTAB.  In the most prominent of these cases, Oil States Energy Services v. Greene’s Energy Group, an ideologically diverse coalition of seven Justices ultimately concluded that administrative adjudication of granted patents survived constitutional scrutiny.  But Justice Gorsuch, joined by Chief Justice Roberts, dissented in strong terms, warning against the perils of adjudication by judges who don’t enjoy Article III protections.

Of course, as the Arthrex opinion illustrates, under more formal versions of Appointments Clause jurisprudence, decisions made by actors who are not subject to significant direction and control by a presidentially appointed official may themselves be unconstitutional.  The Supreme Court’s 2018 decision in Lucia v. SEC makes it clear that the Court’s more formalist Justices, including Justices Gorsuch and Roberts, continue to take the Appointments Clause very seriously.  In that decision, all of the Justices who tend to embrace formalism, joined by Justice Kagan, held that as a constitutional matter the administrative law judges of the SEC were officers (albeit inferior officers) who had to be appointed by the politically accountable Commission.

As commentators have discussed, the juxtaposition of Oil States and Lucia in the 2018 term illuminates potential constitutional tensions in administrative adjudication.  Some formalist academics who are particularly concerned about the tension have suggested simply removing large swaths of adjudication from the administrative state and placing it instead in Article III.

Conventional administrative law has taken a different, but still relatively formal, approach.  Conventionally, whether the judge is an administrative law judge (ALJ) (a specific type of judge who enjoys very strong protections against removal) or some other type of administrative judge, she has some level of decisional independence and protection against firing.  However, the judge’s decisions are subject to a right of review by a politically appointed agency head.

What about the patent statute? The statute gives the Director overall responsibility for USPTO “policy direction and management supervision” as well as power to promulgate regulations by which the PTAB is bound.  As for specific PTAB decisions, it provides for “rehearing” of such decisions.

Consistent with the academic literature (for example, this article I coauthored) suggesting that the rehearing mechanism be used to distill from the hundreds of PTAB opinions issued each year certain precedential opinions that bind the agency, the Director has set up an elaborate “Precedential Opinion Panel” (POP) process to rehear PTAB cases that raise important issues. The POP is selected by the Director and by default consists of the Director, the Commissioner for Patents, and the Chief Judge.

The Arthrex panel did note the Director’s general supervisory powers over the PTAB, his regulatory authority, the rehearing provision, and the POP procedure. It emphasized, however, that neither the statute nor the POP procedure explicitly provide for a right of rehearing over specific cases by the Director only.  Presumably, any functional ability the Director might have to persuade the Commissioner for Patents and the Chief Judge is insufficient.

If the Supreme Court were to take the case, what it might decide is anyone’s guess. The cleanest path forward is therefore surgical Congressional intervention that gives the Director an explicit, unilateral right of review.  This approach would cure any perceived constitutional infirmity without subjecting APJs to at-will firing.  If subordination is the key to inferior status, then both formalists and functionalists might agree that, for adjudication, subordination through transparent and reasoned review of the adjudicator works better than subordination through firing.

New PatentlyO Law Journal Article: Alice at Five

New PatentlyO Law Journal article by Jasper L. Tran (Jones Day) and J. Sean Benevento. This article builds on Mr. Tran’s prior work Two Years After Alice v. CLS Bank. 98 Journal of the Patent and Trademark Office Society, 354 (2016).

Abstract: This paper updates the statistics on the five years after Alice v. CLS Bank and discusses 19 Federal Circuit cases (including their exemplary patent claims) that found eligibility upon Alice challenges. The Alice invalidation rate at the Federal Circuit and district courts has lowered over time, averaging cumulatively 56.2% at its near-five-year mark.

From the Introduction:

Alice Corp. v. CLS Bank Int’l (commonly known as “Alice”) is no stranger to IP readers and needs little introduction. Briefly, the Supreme Court five years ago decided Alice and raised the patentability standard for (mostly) computer-implemented inventions under 35 U.S.C. § 101, such that implementing an abstract idea on a computer is insufficient to transform that idea into patentable subject matter.  At the time, a Supreme Court justice even considered Alice a “minor case” in following its prior § 101 framework set forth in Mayo Collaborative Servs. v. Prometheus Labs., Inc. two years earlier.

But the reality has been the opposite – Alice has been a major force in patentability determinations under § 101.

For example, in the first month and a half following Alice’s release, 830 patent applications were withdrawn from the USPTO. At Alice’s one-year anniversary (June 19, 2015), lower courts (namely district courts, the Patent Trial and Appeal Board (“PTAB”), and the Federal Circuit) applied Alice to invalidate or reject software-based patent claims at an average invalidation rate of 82.9%: 69.7% at the district courts and 94.1% at the Federal Circuit. At Alice’s two-year mark (June 19, 2016), the numbers were slightly lower, at an average cumulative invalidation rate of 78.2%: 66.5% at the district courts and 92.3% at the Federal Circuit. Near the five-year mark (as of March 1, 2019), the cumulative numbers, as shown in Table 1, were even lower (though still the majority); the average cumulative invalidation rate was 56.2%: 53.7% at the district courts and 76.3% at the Federal Circuit.

Read Jasper L. Tran & J. Sean Benevento, Alice at Five, 2019 PatentlyO L.J. 25 (2019).

Prior Patently-O Patent L.J. Articles:

  • Bernard Chao, Implementing Apportionment, 2019 PatentlyO L.J. 20 (Chao.2019.ImplementingApportionment)
  • Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)
  • Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)
  • David A. Boundy, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, 2018 Patently-O Patent Law Journal 20. (Boundy.2018.BadGuidance)
  • Colleen Chien and Jiun-Ying Wu, Decoding Patentable Subject Matter, 2018 PatentlyO Patent Law Journal 1.
  • Paul M. Janicke, Patent Venue: Half Christmas Pie, And Half Crow, 2017 Patently-O Patent Law Journal 13. (Janicke.2017.ChristmasPie.pdf)
  • Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1 (2017) (Janicke.2017.Venue)
  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

Guest Post by Emil J. Ali and David E. Boundy: Executive Orders 13891 and 13892: changes we can expect at the USPTO

Guest Post by Emil J. Ali and David E. Boundy.  Emil J. Ali is a partner at Carr Butterfield, LLC, and David Boundy is a partner at Cambridge Technology Law.  More detail about the authors is provided at the end of the post.

On October 9, 2019, the White House issued two executive orders, Promoting the Rule of Law Through Improved Agency Guidance Documents, (E.O. 13891), reprinted at 84 Fed. Reg. 55235 (Oct. 15, 2019), and Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication (E.O. 13892), reprinted at 84 Fed. Reg. 55239 (Oct. 15, 2019). Both Executive Orders are generally directed to requiring federal agencies to “act transparently and fairly with respect to all affected parties … when engaged in civil administrative enforcement or adjudication.” E.O. 13892 goes on to explain that individuals should not be subject to enforcement actions without “prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct.”

Executive Orders 13891 and 13892—in General

For the most part, Executive Orders 13891 and 13892 are simple reminders and restatements of long-standing requirements of the Administrative Procedure Act (APA). For example, E.O. 13891 § 1 and E.O. 13892 § 3 remind agencies that they may not enforce “rules” against the public unless those rules are promulgated as “regulations,” in full compliance with the APA and similar laws. E.O. 13892 § 3 and § 4 remind agencies that the APA allows agencies to use sub-regulatory guidance documents to “articulate the agency’s understanding” of other law, or announce tentative positions, but may not apply those soft-edged understandings as if they were hard-edged enforcement standards, unless the agency has followed certain procedures required by the APA. E.O. 13891 and 13892 each state that agencies have sometimes inappropriately exerted authority, without following statutorily-required procedures.

In addition, Executive Orders 13891 and 13892 go above statute to add a few additional requirements for fairness and transparency.  These above-statutory requirements ask agencies to give notice of all their sub-regulatory guidance documents. Covered guidance documents are defined to include anything to which the agency intends to give prospective effect, that is promulgated without the formality of “regulation” (E.O. 13291 § 2(b)). That class includes the Manual of Patent Examining Procedure, the Patent Trial and Appeal Board’s Trial Practice Guide, and the Manual of Trademark Examining Procedure, and likely includes decisions of the Patent Trial and Appeal Board, Trademark Trial and Appeal Board, and OED on which the agency intends to rely for future effect, including ones the USPTO considers “precedential.” (These decisions are excluded from coverage to the extent they decide past issues in specific cases, E.O. 13892 § 2(c)(iv); they’re covered only to the extent an agency relies on them for future effect.) For example, E.O. 13892 requires agencies to “afford regulated parties the safeguards described in this order, above and beyond those that the courts have interpreted the Due Process Clause of the Fifth Amendment to the Constitution to impose” (emphasis added). E.O. 13892 explains that agencies, like the USPTO, must work to “foster greater private-sector cooperation in enforcement, promote information sharing with the private sector, and establish predictable outcomes for private conduct.”

Among the new requirements added by Executive Orders 13891 and 13892 to promote transparency and predictability are the following:

  • Each agency must list all its sub-regulatory guidance documents in one consolidated database of its web site, which must be indexed and searchable. The public should be able to rely on two sources, the Federal Register and one web page, rather than being in a sports bar confronted with twenty screens following twelve simultaneous games. Agencies should avoid relying on guidance documents that pop up without prior notice, or confound the public with fragmented guidance flowing through dozens of web pages, the Official Gazette, the Federal Register, several manuals and guides that are updated without statutorily-required notice, several email lists, web widgets, and the like.
  • After the Office of Management and Budget issues further implementing guidance, agencies will have a year to purge guidance documents of invalidly-promulgated requirements. We expect that, by the end of 2020, MPEP §§ 714.14, 802.01, 819, 1207.04, the 2015 rewrite of MPEP § 601.05(a), and Ex parte Quayle, among others, will be reviewed. They must either be repromulgated as regulation with full cost-benefit analysis, or else dropped.
  • The orders set additional procedures to promulgate, and provide ongoing periodic review, of various sub-regulatory guidance documents.

The Orders then return to statutory underpinnings, and require agencies to apply them in a consistent and predictable fashion.

“Unfair surprise”

“When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.” E.O. 13892 § 4. Anyone that has ever phoned the USPTO and been told that words on a page don’t mean what the words look like they mean will be reassured that that is never supposed to happen again after October 9, 2019.

Moreover, the definitions section of E.O. 12892 highlights the breadth of what it means for an Agency’s position to be an “unfair surprise,” as discussed in Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012). In Christopher, the Supreme Court noted that agencies are required to provide fair warning regarding the conduct that a regulation requires or prohibits and can’t rely on principles of judicial interpretation to save an unfairly-vague rule or give it enforceable “teeth” ex post. See 567 U.S. at 156. E.O. 13892 explains that agencies “must avoid unfair surprise not only when it imposes penalties but also whenever it adjudges past conduct to have violated the law.” E.O. 13892 appears to be a step in the right direction to help inform practitioners (and others) about the practical implications of otherwise innocuous conduct.

When an agency states a position in sub-regulatory guidance, the law has long recognized that the agency may not stand on that guidance as the last word; rather, the agency must entertain alternative positions. “Interpretive rules do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” Perez v. Mortgage Bankers Ass’n., 135 S.Ct. 1199, 1204 (2015). E.O. 13892 § 6 requires the agency to give an aggrieved person an opportunity to be heard to contest an agency guidance position, and give a written decision that articulates a basis for its action.

Example: the Office of Enrollment and Discipline

The Office of Enrollment and Discipline (OED) may be considered as one example office within the USPTO, which may have to retool to comport its conduct to the new Executive Orders. Simply reading 37 C.F.R. Part 11 and the Final Orders issued by  OED does little to instruct practitioners of the practical standards applied by OED, or implications of practitioners’ conduct. While OED appears to attempt to provide helpful guidance to practitioners into Final Orders, much of this guidance is after the USPTO has already disciplined others, who themselves likely were not aware of the ramifications of their own acts, omissions, or mistakes. While OED may inform individual practitioners that their response to a Request for Information is an opportunity under 5 U.S.C. § 558(c) to demonstrate compliance with the USPTO Rules of Professional Conduct, OED often finds that compliance to be “too little too late,” leaving practitioners subject to discipline.

Of course, many practitioners claim they either never heard of OED because they practice only in trademark law, or they were not properly informed that their conduct, including outside of patent and trademark law, implicated OED’s interpretation of the USPTO Rules of Professional Conduct. Many practitioners, on first hearing of an OED position asserted against them in a Request for Information and Evidence (the typical “first knock at the door” from OED), complain of unfair surprise, because the USPTO does not give practitioners fair advance notice of its standards. That is truly a fair criticism, often not understood by OED.

Case in point—OED’s “publication” of decisions does not comport with legal requirements set by the APA, at least if the agency intends to rely on these past decisions as precedent for future decisions. 5 U.S.C. § 552(a)(1) and (2) (and now E.O.s 13891 and 13892) require agencies to publish their adjudicatory decisions in the Federal Register, and/or provide useful indexing on their websites (depending on the level of future reliance the agency intends to apply to its own past decisions). Admittedly, OED does publish its decisions on its website and in the Official Gazette, but only those who know where to look can find them, and they aren’t “indexed” as required by law. Truly, it is troubling to see the “enforcement arm” of the USPTO, which has the power to end careers, exercise discretion without careful observance of statutory due process. Furthermore, many such practitioners are caught in the reciprocal discipline web, as we described in an earlier post on Mr. Ali’s blog, which could result in double disbarment by the USPTO.

Implementation for the USPTO

The USPTO faces a scramble to clean up decades of noncompliance with law. With very few exceptions, Executive Orders 13891 and 13892 are simply restatements of principles that have been in effect for decades, under the Administrative Procedure Act (in effect since 1948), Regulatory Flexibility Act (since a large statutory amendment in 1996), Paperwork Reduction Act (1995), Executive Order 12866 (1992), prior Executive Orders 13258 and 13422 (which were in effect until 2009, and significantly overlap with E.O. 13891), and the Bulletin on Agency Good Guidance Practices, 72 Fed. Reg. 3432 (2007). The USPTO has on occasion expressed overt hostility to Presidential authority. For example, in 2011, one of the USPTO’s senior-most officials plainly refused to implement one of these predecessor orders of the President of the United States.[i] Because of these decades of what appears to be noncompliance, what should be a straightforward addition to various pages of the USPTO’s website may require a ground-up rebuild of the USPTO’s compliance/regulatory function, and review of the entirety of the USPTO’s regulatory corpus.

Long-standing statutory requirements that might now be implemented because of the two Orders, and corrective action we may expect from the USPTO, include:

  • Agencies must observe requirements of the Paperwork Reduction Act (E.O. 13892 § 8(b)) and Regulatory Flexibility Act (E.O. 13892 § 10), two statutes of which the USPTO has been particularly dismissive. For example, the Regulatory Flexibility Act requires agencies to avoid imposing costs on small entities. The USPTO’s analyses have historically only considered the effect on small entity applicants, and ignored to effects on small entity law firms. The USPTO’s Paperwork Reduction Act filings fail to reflect the regulations that define scope of coverage, e.g., 5 C.F.R. § 1320.3(b)(1) and (c)(4)(i). The USPTO should, by new regulation that restates existing law for guidance of USPTO staff, require staff to perform required cost-benefit analyses.
  • PTAB decisions, to be “precedential” or otherwise relied on, must be published in the Federal Register. 5 U.S.C. § 552(a)(1); E.O. 13892 § 3. In winter 2018-19, when one of the Vice Chief APJ’s was answering Q&A questions at a conference, one of the authors, Mr. Boundy asked why the PTAB did not publish its precedential decisions as required by statute. The answer was “Mr. Boundy, aren’t you elevating form over substance?” Mr. Boundy pointed out that the requirement was statutory. Mr. Boundy indicated several similar anecdotes in his brief to the Federal Circuit in Facebook v. Windy City. We have now had nearly a year to see how much weight statutes carry with the PTAB, if a reminder comes from a member of the public. Perhaps a reminder coming from the President will be more effective.
  • O. 13891 § 4 requires all agencies to promulgate regulations governing promulgation and amendment of guidance documents. One of the key requirements required by E.O. 13891 is that the agency must inform all its employees that guidance documents do not bind the public. See also E.O. 13892 § 3. That’s always been the law; now the USPTO will be obligated to inform and train its examiners and petitions decision-makers that they are not to cite the MPEP in any manner adverse to applicants. (The USPTO may use guidance to give tentative resolutions of ambiguity, but not to create new obligations or attenuate rights.) One of our recent articles, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, laid out the magnitude of the problem.  Another recent article, The PTAB is Not an Article III Court, Part 3, spelled out a good first draft of the necessary regulations.

Practical implementation for the public

Some practical implications for practitioners are immediately clear, as the White House reminds parties of rights they’ve had under statute and regulation for decades. Others will become clearer over time, as the Office of Management and Budget issues implementing guidance, as the USPTO implements the Orders and guidance, and as OED and the rest of the USPTO issue decisions. Practitioners should review forthcoming regulations and notices published in the Federal Register. For example, going back to our case study with OED, the office may propose procedures under this Executive Order, which discusses self-reporting, voluntary information setting, and other actions related to practitioners. Of course, those practitioners currently facing OED proceedings may benefit from this Executive Order by offering an explanation that the public was not properly put on notice of OED’s newfound interpretations of its rules.

We hope to see the USPTO create a dialogue with stakeholders of all shapes and sizes, and institute a new commitment to the rule of law, with predictable compliance with statutes, regulations, and Executive Orders. We’re available to help in any way we can. Director Iancu, you know where to find us.

 

[i] Then-Acting Associate Commissioner for Patent Examination Policy Robert Bahr, Decision on Petition, 10/113,841 (Jul. 14, 2011) at pages 19-20, refusing to implement the Bulletin for Agency Good Guidance Practices, OMB Bulletin 07-02 (Jan. 18, 2007), reprinted in 72 Fed. Reg. 3432-40 (Jan. 25, 2007). The Bulletin carries the same binding effect against agencies as an executive order.

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Emil J. Ali is a partner at Carr Butterfield, LLC where his practice includes advising and representing intellectual property attorneys in ethics investigations and litigation matters before the Office of Enrollment and Discipline (OED), as well as various state bars. Mr. Ali also provides conflicts and compliance advice to various law firms and in-house departments regarding managing effective compliance policies, and transitioning intellectual property professionals.

Mr. Ali is active in several intellectual property and ethics associations, and serves as the Vice-Chair of the ABA-IPL Ethics & Professional Responsibility Committee as well as being part of the Oregon State Bar Unlawful Practice of Law Committee. In addition to being a Registered Patent Attorney, Mr. Ali is admitted to practice in California, the District of Columbia, and Oregon. Emil writes about intellectual property legal ethics and OED procedure at www.oedethicslaw.com/blog.

David Boundy is a partner at Cambridge Technology Law. Mr. Boundy practices at the intersection of patent and administrative law, and consults with other firms on court and administrative agency proceedings, including PTAB trials and appeals. In 2007–09, Mr. Boundy led teams that successfully urged the Office of Management and Budget to withhold approval of the USPTO’s continuations, 5/25 claims, information disclosure statements, and appeal regulations under the Paperwork Reduction Act. In 2018, the Court of Appeals for the Federal Circuit asked Mr. Boundy to lead a panel of eminent administrative law academics and the President’s chief regulatory oversight officer in a program at the court’s Judicial Conference on administrative law issues. Judge Plager recommended Mr. Boundy’s article published in ABA Landslide, The PTAB is Not an Article III Court, Part 1: A Primer on Federal Agency Rulemaking, to the patent bar. Another recent article, The PTAB is Not an Article III Court, Part 3: Precedential and Informative Opinions explains the role of sub-regulatory guidance. He may be reached at DBoundy@CambridgeTechLaw.com.

 

2019 Iowa Law Review Issue: Administering Patent Law

By Jason Rantanen

I’m thrilled to announce the publication of the articles from the Iowa Law Review’s symposium, Administering Patent Law.  (Although Chris Walker beat me to the punch by a mile.)  It’s a terrific group of articles that focus on issues at the intersection of patent law and administrative law.  Here’s the abstract of my introduction to the issue:

Ten years ago, few people—with the exception of a handful of visionary academics—spent much time thinking about the significance of administrative law to the patent system. Today, administrative law issues pervade the patent system, from examiners and patent judges up to the United States Supreme Court. At the same time, modern administrative law itself faces a series of challenges that call into question its fundamental premises, such as the degree of deference that courts should grant agencies and the amount of political control that is constitutionally permissible or required. What does all this mean for the future of patent law?

Thanks to the support of the David F. Hellwege fund at the Iowa Law School Foundation, this issue of the Iowa Law Review contains an amazing array of scholarship on these topics from some of today’s brightest and most prominent patent law thinkers.

And the articles themselves:

Administering Patent Law, Jason Rantanen

Rigorous Policy Pilots: Experimentation in the Administration of the Law, Colleen V. Chien

Reasoned Decisionmaking vs. Rational Ignorance at the Patent Office, John F. Duffy

A Functional Approach to Judicial Review of PTAB Rulings on Mixed Questions of Law and Fact, Rebecca S. Eisenberg

Patent Trial and Appeal Board’s Consistency-Enhancing Function, Michael D. Frakes & Melissa F. Wasserman

PTO Panel Stacking: Unblessed by the Federal Circuit and Likely Unlawful, John M. Golden

Elite Patent Law, Paul R. Gugliuzza

Patent Court Specialization, Sapna Kumar

Institutional Design and the Nature of Patents, Jonathan S. Masur

The Hamiltonian Origins of the U.S. Patent System, and Why They Matter Today, Robert P. Merges

Statutes, Common Law Rights, and the Mistaken Classification of Patents as Public Rights, Adam Mossoff

Machine Learning at the Patent Office: Lessons for Patents and Administrative Law, Arti K. Rai

Renewed Efficiency in Administrative Patent Revocation, Saurabh Vishnubhakat

Constitutional Tensions in Agency Adjudication, Christopher J. Walker

Prior Art in Inter Partes Review, Stephen Yelderman

All of the articles are available through direct links above.  If you would like a physical copy of the issue, the Iowa Law Review editors have told me that you should contact the printer at on.demand@christensen.com and request a copy of Volume 104, Issue 5.  I’m not sure what the exact price is, but it’s likely be about $30 including shipping. (The whole volume is $53).

Executive Orders on Agency Practice

By Jason Rantanen

Yesterday, the President issued two significant executive orders relating to agency practice: the “Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents” and the “Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication.”

The order on guidance documents requires agencies to provide their guidance documents on easily searchable websites along with disclaimers about their legal effect.  In addition, for new guidance documents that are “significant,”  the order requires public notice and comment of at least 30 days and approval by “the agency head or by an agency component head appointed by the President, before issuance.”   “Significant guidance document” is defined as including the usual >$100 million effect on the economy, but also encompasses guidance documents that raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles of [EO] 12866.”

The order on adjudications seeks to require greater public notice of both agency jurisdiction and the relevant legals standards applied by agencies in enforcement actions and adjudications.  Provisions include the requirement that “When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.”  The order also limits the use of guidance documents by the agency:

Sec. 3Proper Reliance on Guidance Documents.  Guidance documents may not be used to impose new standards of conduct on persons outside the executive branch except as expressly authorized by law or as expressly incorporated into a contract.  When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it must establish a violation of law by applying statutes or regulations.  The agency may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes or regulations.  When an agency uses a guidance document to state the legal applicability of a statute or regulation, that document can do no more, with respect to prohibition of conduct, than articulate the agency’s understanding of how a statute or regulation applies to particular circumstances.  An agency may cite a guidance document to convey that understanding in an administrative enforcement action or adjudication only if it has notified the public of such document in advance through publication, either in full or by citation if publicly available, in the Federal Register (or on the portion of the agency’s website that contains a single, searchable, indexed database of all guidance documents in effect).

The orders include several limitations on their scope and effect, but overall they’re very wide-reaching.  I’m especially interested in the ways in which they might affect the USPTO, but really need to spend some time thinking through the implications.  For example, on the one hand, the MPEP is specifically directed to examiners, not patent applicants.  On the other hand, it’s often quoted directly by examiners in office action responses and relied on fairly heavily by applicants.   Lots to unpack here.

There are some great posts over at the Notice and Comment blog about the two orders.  Thanks to Chris Walker for pointing these out.

Guest post by Prof. Chien: Comparative Patent Quality and the Prior Art Gap

Guest post by Colleen V. Chien, Professor, Santa Clara University Law School. This post is the third in a series about insights developed based on USPTO data.

“If we could further narrow this gap in prior art between examination and litigation, then the accuracy of the patent grant – and therefore, its reliability – would increase.”

Director Andrei Iancu

As Congress charts its path for the rest of the year, many in the patent community are eagerly awaiting new legislation on patentable subject matter. But to the extent that the Supreme Court’s jurisprudence can be understood as a clumsy response to the proliferation of weak patents, reversing these decisions will not address the underlying root causes of poor patent quality. It is therefore crucial to address the question raised at a recent Hearing before the Senate Subcommittee on Intellectual Property: how can the quality of US patents be ensured?

This post focuses on an aspect of patent quality that, though receiving scant focused attention by scholars (with some exception, such as the excellent work of Professor Steve Yelderman, now clerking at the Supreme Court), comes up in the examination of over 90 percent of all patent applications.[1] No other issue comes close: the USPTO reports that only about a third of office actions include a rejection based on 35 U.S.C. § 112 and just 11% percent receive a rejection based on § 101. The aspect is the robustness of prior art vetting under §§ 102 (novelty) and 103 (nonobviousness). Below I argue that policymakers should pay more attention to the patent system’s most important tool for ensuring a patent’s quality: not § 101 or inter partes review, but prior art.

The task of vetting inventions in view of the prior art is old, but there are a number of new challenges. As Director Iancu has repeatedly acknowledged, the “ever-accelerating publication and accessibility explosions” strain the ability of examiners to find the best prior art during examination. Foreign patenting, which creates harder-to-evaluate foreign language prior art, is on the rise. In areas of rapid development like artificial intelligence, not unlike the early days of software in which a President’s Commission recommended prohibiting software patents because of the inability to vet them, prior art is being generated at an extraordinary rate – but in repositories like arxiv.org or Google scholar, not necessarily in filings at the Patent Office. As part of its continued focus on prior art, the Office has multiple initiatives to improve access to prior art, including the Collaborative Search and Search Feedback Pilots. It’s asked about prior art in its recent call for comments about patenting artificial intelligence (deadline extended to 11/8). But how can we know if current or piloted approaches are enough?

In a recent paper, Comparative Patent Quality, I argue that the age-old tool of benchmarking can yield valuable insights for tracking quality in patent examination, and in particular the robustness of considered prior art. In it, I describe and apply an approach for benchmarking examiner citation patterns exploiting the natural experiment that occurs when the same application is filed in the USPTO and a foreign patent office (such as the European Patent Office (EPO)). The paper specifically considers the extent to which examiners are considering the full range of prior art—not just patents but also non-patent literature (NPL)—when vetting applications.

A second project, Rigorous Policy Pilots, considers two other prior art benchmarks. The first is the patent applicant’s Information Disclosure Statement (IDS), in which an applicant must disclose to the USPTO all of the prior art or other information of which she is aware material to her application. Another is the Patent Trial and Appeals Board’s inter partes review decisions, in which administrative law judges cite what they believe to be the most relevant prior art.

These papers validate and quantify what Director Iancu has called, the “gap between the prior art found during initial examination and the prior art found,” in this case, in inter partes review. Non-patent literature (NPL) is not being cited by US examiners in the majority of cases, and US examiners are citing it less than European examiners. Within a random sample, 3.2% of the prior art relied upon by a U.S. Examiner (as provided in an 892 Form) was non-patent literature while the comparable rate in European Patent Office cases (as an X or Y reference in the search report) was 20%.[2]

Figure 1 shows the gap in NPL citation rates among Examiners, PTAB judges, and applicants vetting the same invention (906 patents whose claims have been invalidated in inter partes review). While US Examiners cited non-patent literature on average 13% of the time, the PTAB was more than three times more likely to do so (41%). (Figure 1) Applicants were more than five times (66%) more likely to include NPL in an IDS than Examiners (13%) were to cite it. Though the sample size does not permit fine-grained comparisons, the basic finding – that US examiners are citing NPL far less frequently than PTAB judges or applicants – held across all technical centers.[3]

These comparisons have their limits: in inter partes review, the challenger, not Examiner supplies the prior art, and the patents of IPR are not representative of patents in general. An applicant’s inclusion of a reference in an IDS is very different than an Examiner’s consideration, then application of a reference. European examination is closer to US examination, however, and there’s also a gap, though it’s smaller: among the patents analyzed above that had a European counterpart, EPO examiners cited NPL at a 34% rate, more than double the US examiner rate on the same applications of 14% of the time.[4] But applicants do not necessarily treat European and US “twin” applications identically, and European patent law is not identical to US patent law. Perhaps most importantly, correlation does not imply causation, and it can’t be assumed from these contrasts that a lack of robust vetting is responsible for the issuance of patents later proved to be invalid.[5]

Still, because inter partes review only revisits the patent’s validity in light of the prior art under §§ 102 (novelty) and 103 (obviousness), it squarely presents the question, were there references that the examiner missed? This analysis suggests that the robustness of examiner-cited prior art in general, and the consideration of NPL in particular, deserves attention. Work is ongoing to tease out the differences and their relationship to quality not only according to this metric, but also other aspects of robustness pertaining for example to foreign patents and the classes from which patent citations are drawn.

What can the USPTO do now to pay more attention to the robustness of prior art and narrow the gap? I recommend a few steps. First, the Office should make the “robustness of the prior art considered,” whether measured by NPL citation, foreign patent citation, diversity of references, or other measure, an explicit quality metric within existing and future prior art initiatives, consistent with the Office’s commitment to continuous improvement. Studying the link between the robustness of cited prior art and quality and tracking this explicitly as a quality metric would signal the importance of this aspect of prosecution.

Second, the USPTO, as it seeks to leverage artificial-intelligence to improve examination, should take into account the “bias” against non-patent literature currently embedded in examiner citations. If a tool is trained primarily on examiner citations it will reinforce this bias, growing, not narrowing, the gap. As to artificial intelligence applications in particular, the USPTO should also work to ensure that US examiners have access to the same references and resources (including time and information) that those in industry[6] and their international counterparts do. With many AI patent applications coming from non-US sources, high patent quality now can protect freedom to operate later, for US innovators.

Second, as the USPTO continues to evolve its approach towards prior art, including through pilots, it should do so with an eye towards rigorous evaluation. This means explicitly identifying the goal of the piloted policy (the “treatment,” like enhanced search capabilities or examiner collaboration), the theory of change behind it, and a way to measure whether or not the approach being tested has succeeded in increasing the robustness of prior art cited, using experimental or quasi-experimental approaches. To see if a new approach is working, the Office would compare the robustness of art in applications receiving and not receiving the treatment.

While treating otherwise identical applications differently can present non-trivial challenges, existing caselaw and the experiences of agencies including the USPTO, in its own randomized trademark audits, suggest that they are surmountable and the resulting knowledge, well-worth pursuing. The “hard evidence” generated by a rigorous policy pilot, implemented with sufficient power and controls, could be particularly important for justifying changes, perhaps costly, to examination and prior art processes. More importantly, applying rigorous approaches to prior art pilots would do more to support the discovery of what works to advance patent quality, using the patent system’s most important tool for doing so: prior art vetting.

Thanks to research assistant Nick Halkowski, 3L at SCU Law, for providing excellent data support.

[1] Author’s analysis, using the USPTO Office Action Dataset.

[2] Comparative Patent Quality, n 239.

[3] Across all TCs except TC2800, where the gap was 17%, the gap between Examiner and PTAB NPL citation among the 906 invalidated patents was of 20% or more . (N=74-186).

[4] Rigorous Policy Pilots, appendix Figure 2.

[5] While several excellent studies of patent quality have considered the role of prior art including Wasserman and Frakes’ studies of the time devoted to patent examination, and work by my colleagues Professors Brian Love and Christian Helmers uncovering the determinants of quality, none of that I am aware has explicitly considered the “gap”, or “relative” citation of non-patent literature citation by US examiners, as compared to PTAB judges, judges, applicants, and EPO examiners as is contemplated by this analysis. Some evidence suggests that the robustness of US examiner vetting, relative to EP examiner vetting, may have implications for outcomes. Among the US patents granted by the USPTO but fully invalidated in IPR, 202 had an EPO counterpart application. Of these, approximately 1/3 of the EPO applications never matured into patents, primarily because they were withdrawn or revoked. But while applications that did not proceed in the EPO but were granted in the US were 30% more likely to have NPL cited in the search report than their US counterpart, the difference in non-patent literature citation among cases where both offices granted the patent was much smaller, a third of that or 10%.

[6] These sources include, based on my conversations with researchers:  DeepMind ResearchPapers with Code,  and conference proceedings from NIPSKDDISLVRC, and many others.

New PatentlyO Law Journal Essay: Implementing Apportionment

New PatentlyO Law Journal Essay by Professor Bernard Chao of the University of Denver Sturm College of Law. 

On August 15, 2019, Time Warner filed a petition with the United States Supreme Court seeking to vacate a $139.8 million damages verdict.  That amount represents approximately 5% of Time Warner’s monthly subscriber revenue ($1.37 per subscriber per month). Time Warner argues that this award is too much given the contribution the patented feature made to its infringing service.  At its core, the damages portion of the petition is asking the Supreme Court to provide guidance that will ensure that damages verdicts rely on apportionment principles and provide clarity in how they achieve this.

For years, the Federal Circuit has required apportionment in calculating royalties for complex products because modern technology products (e.g. smart phones and semiconductors) have countless features, most of them unrelated to any given patent at issue. The patentee is entitled to capture value added by the infringing feature, but cannot recover value attributable to everything else.

As with many issues in patent law, this is easier said than done.  How do courts ensure that a patentee’s expert opinion on the ultimate damages figure is based on apportionment principles?  How do we know if the jury verdict reflects those same principles?

These issues are at the heart of Time Warner’s petition.

Read Bernard Chao, Implementing Apportionment, 2019 PatentlyO L.J. 20 (Chao.2019.ImplementingApportionment)

Prior Patently-O Patent L.J. Articles:
  • Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)
  • Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)
  • David A. Boundy, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, 2018 Patently-O Patent Law Journal 20. (Boundy.2018.BadGuidance)
  • Colleen Chien and Jiun-Ying Wu, Decoding Patentable Subject Matter, 2018 PatentlyO Patent Law Journal 1.
  • Paul M. Janicke, Patent Venue: Half Christmas Pie, And Half Crow, 2017 Patently-O Patent Law Journal 13. (Janicke.2017.ChristmasPie.pdf)
  • Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1 (2017) (Janicke.2017.Venue)
  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

Guest Post by Prof. Ghosh: A Fitter Statute for the Common Law of Patents

Guest Post by Shubha Ghosh, Crandall Melvin Professor of Law and Director, IP & Tech Commercialization Law Program and Syracuse Intellectual Property Law Institute, Syracuse University College of Law.  I asked Professor Ghosh to offer his views on the ACLU and Law Professors’ letter.  Below is is response. -Jason

As a law professor, I am in the camp of those who are critical of the proposed bipartisan, bicameral legislation (“the Coons-Tillis bill”) to amend provisions of the Patent Act dealing with patentable subject. I am also in the camp of those who find the “two-step test” introduced by the Supreme Court in its Mayo v, Prometheus, 566 U.S. 66 (2012), and Alice v CLS Bank, 573 U.S. 208 (2014), decisions unworkable and inconsistent with its own precedent. I am also in the perhaps much smaller camp that is skeptical of the approach adopted by the Court in its Association for Molecular Pathology v. Myriad, 569 U.S. 576 (2013) decision (even if I agree with the result that identified genetic sequences are not patent eligible). Here are my thoughts about the Coons-Tillis bill and the comments in the letter from the ACLU and the law professors and practitioners organized by Professor Ted Sichelman of University of San Diego Law School.

A proposed provision of the Coons-Tillis legislation states: “No implicit or other judicially created exceptions to subject matter eligibility, including ‘abstract ideas,’ ‘laws of nature,’ or ‘natural phenomena,’ shall be used to determine patent eligibility under section 101, and all cases establishing or interpreting those exceptions to eligibility are hereby abrogated.”

The language expresses frustrations with judge-made exceptions to patentable subject matter based on implications drawn from the language of the Act or from judge made common law reasoning. If enacted, the amendment would not only remove established exceptions to patentable subject matter, but also would limit the power of the federal judiciary to create exceptions based on its own reasoning and interpretation of the Patent Act. Such legislation is in conflict with the long-established relationship between federal courts and Congress. If enacted, it would invite constitutional challenges claiming violation of the separation of powers, under Article III, of the Constitution. The proposed amendment would very likely be found unconstitutional.

Federal courts have as their role the interpretation of statutes. By abrogating the federal court’s power to develop any implications from the statutory language and to engage in common law reasoning in interpreting the statute, Congress invades long-standing judicial power.  Although a full analysis of the separation of powers is beyond the scope of this post, Congressional limitations on judicial power in other realms have failed under judicial scrutiny. At the extreme, Congress is limited in its power to legislate that federal courts cannot hear certain cases or controversies. See Boumediene v. Bush, 553 U.S. 723 (2009) (suspension of writ of habeas corpus unconstitutional); United States v. Klein, 80 U.S. 128 (1871) (Congress’ limitations on claims relating to confiscated and abandoned property unconstitutional). But see Patchak v. Zinke, 138 S.Ct. 897 (2018) (Congress’ stripping federal court jurisdiction over claims arising from Department of Interior’s taking of land into trust was not unconstitutional).

I am not suggesting that the proposed abrogation goes as far as the suspect legislation in Boumediene and Klein. Federal courts can still adjudicate patent law questions under the Coons-Tillis bill. But the bill does put limitations on how courts can decide cases. This attempt to bind the way federal judges approach a federal question is as problematic as taking away their power to adjudicate in the first place. The Coons-Tillis bill if enacted as drafted will invite substantive litigation which may well lead to the legislation being struck down, in part, as an unconstitutional exercise of Congressional power.

The drafters of the ACLU letter express the concern that the abrogation of the established exceptions will essentially reverse the Supreme Court’s ruling in Myriad that isolated gene sequences are not patentable subject matter. I am not as sure of the specter of genes coming back under patent should Coons-Tillis be enacted. My hesitation stems from what I find to be the opacity in the Supreme Court’s analysis in Myriad. If the Court’s reasoning rested on a constitutional holding that natural occurring substances like genetic sequences are not the “discovery of an inventor” contributing to “progress” in the “useful arts,” as required by Article I, Section 8, Clause 8 of the Constitution, then perhaps the Myriad holding survives a possible enactment of the Coons-Tillis bill.

That is the promise of the Law Professor Letter promoted by Ted Sichelman (and his co-authors Kevin Noonan and Adam Mossoff).  Their principal point is that courts can base patent subject matter exceptions in the constitutional language rather than in a murky common law. This point they contend is true for the established exceptions of abstract ideas, laws of nature, and natural phenomena.  But this optimistic assertion is far from clear; it is certainly possible, but not guaranteed. The Coons-Tillis bill, however, offers no guidance on how the courts should assess patentable subject matter. The proposed legislation requires courts to consider eligibility based on “the claimed invention as a whole” and to disregard the manner in which the invention was made, the state of the art at the time of invention, whether limitations are well-known, conventional or routine, or to the standards of novelty, nonobviousness, or enablement. I would assert that there is some general acceptance for excluding laws of nature, abstract ideas, and natural phenomena from patent eligibility (even if there is disagreement on the scope of these exceptions). I find little comfort in abrogating am established body of law on the hope that a Constitutional analysis will either not change the status quo or provide more light.

In summary, the Constitution may not come to the rescue of the proposed abrogation and more likely the Constitution will be its downfall.

Instead of shackling judicial decision making, a bill more carefully tailored to address the problems with the two-step test of Alice/Mayo and the unclear holding of Myriad would be more desirable.

The two-step test requires the PTO or a court to first determine whether patent claims are directed to an abstract idea, natural phenomenon, or law of nature.  If they are not, then the claims are patentable subject matter. If the patent claims are directed to ineligible subject matter, the second step requires the agency or court to identify an inventive concept for which the ineligible subject matter is embodied, used, or applied. What “directed to” and “inventive concept” mean has been the source of controversy with courts often failing to find an inventive concept beyond the ineligible subject matter. The problem is that there is no meaningful definition of an inventive concept beyond the notions of novelty, nonobviousness, usefulness, and enablement. The Coons-Tillis bill attempts to finesse this problem by basing a determination of patent eligibility on a consideration of the “claimed invention as a whole,” but this only begs the issue.

More targeted reform would abrogate the two-step test with its confusing language of “directed to” and “inventive concept.”  Instead, Congress might attempt to more clearly define the established exceptions, drawing on precedent. The Supreme Court tried to do something like this in its Bilski v. Kappos, 561 U.S. 593 (2010), decision. Justice Stevens’ concurrence would have established an exception for “business methods” but for the switch in Justice Kennedy’s vote. Although the Court, Congress, and the patent bar disfavor exceptions for broad classes of inventions, like software or business methods, Justice Stevens’ approach would have set forth a more principled approach to defining the exception that rested on a careful interpretation of the word “process” in the Patent Act.  Instead of this potentially fruitful approach, we were given an open-ended opinion by Justice Kennedy that quite correctly avoided any specific test while endorsing open ended standards.  Justice Stevens’ policy-based interpretation of the word “process” would have taken us further. The irony is that despite Justice Kennedy’s refusal to adopt a specific test, the Court adopts a rigid, unworkable test in Mayo/Alice.

Congress can follow the trail blazed in Justice Stevens’ Bilski concurrence by spending time offering more helpful definitions of the established exceptions.  The Court’s Myriad decision illustrates the need for more clear definitions.  In determining whether Myriad’s isolated gene sequences were natural phenomena, Justice Thomas’s opinion took us through an exploration of biotechnology that read like outtakes from an episode of Nova. The purpose of his scientific exegesis was to explain why the isolated gene sequences were in fact identical at the level of code to the natural phenomena of the naturally-occurring gene sequences. Justice Scalia would have none of this exegesis and simply concluded, in his concurrence, that the two were in fact the same based on his reading of the record. Notably, the Federal Circuit came to the opposite conclusion, ruling that the isolated sequences differed in chemical composition from the naturally occurring sequences.  This conflict as to determining how the subject matter of an invention compares to ineligible subject matter shows to me that guidance from Congress would be desirable.

One source of uproar over the state of the patent subject matter doctrine is the Federal Circuit’s decision in Ariosa v. Sequenom, 788 F.3d 1371 (Fed. Cir. 2015), finding ineligible an arguably valuable pre-natal diagnostic test because it involved cell-free fetal DNA. The court’s analysis is a collision of two errors, combining the two-factor test in Mayo/Alice with the question of when isolated DNA is naturally occurring in Myriad.  Finding the claims directed to natural phenomena and laws of nature, the court failed to find an inventive concept. Its analysis reduced the test to its nonpatentable elements and not finding more. The case illustrates the mechanical application of the two-step test combined with the uncertainties of determining when an invention is identical to ineligible subject matter.

Can Congress set forth clearer definitions of the recognized categories of ineligible subject matter? Can it clarify the definition of process as Justice Stevens set forth in Bilski? The politics of patent reform may inevitable corrupt the process.  But better than stripping courts of common law decision making in patent law, Congress should nudge the process along through clearer statutory guidance.

Recent developments in bipartisan patent legislation

By Jason Rantanen

This past spring, Senators Tillis (R-NC) and Coons (D-DE), ranking members of the Senate Judiciary Committee, together with Representative Collins, Johnson and Stivers, released draft bill text for bipartisan patent legislation focusing especially on Section 101 (read here).  The Senate Judiciary Subcommittee on Intellectual Property conducted hearings on patent eligibility and disclosure requirements in June, and there was a sense that a proposed bill would drop before the August recess.  With the Senate recess beginning on Saturday, that is looking unlikely.  More likely we will see something in a few weeks, once Congress reconvenes.

There’s still a day and a half to go, however, and two recent letters to the Senate Judiciary Subcommittee on Intellectual Property have presented opposing viewpoints on the central issue being addressed by the proposed legislation: patent-eligible subject matter.

Letter from medical, health and civil rights organizations:

The first, signed by over 200 organizations, including the ACLU, Mayo Clinic Laboratories and Women’s March, begins:

We, the undersigned civil rights, medical, scientific, patient advocacy, and women’s health organizations, write to express our opposition to the recent proposal to amend Section 101 of the Patent Act. The draft legislation if enacted would authorize patenting products and laws of nature, abstract ideas, and other general fields of knowledge. Most troublingly, the legislation would permit patenting of human genes and naturally-occurring associations between genes and diseases. Allowing these patents will prevent the discovery of novel treatments for diseases including cancer, muscular dystrophy, Alzheimer’s disease, heart disease, and other rare and common diseases. It would also create barriers to patients’ access to potentially lifesaving genomic tests, eliminate access to confirmatory testing and dramatically increase the cost of tests that have benefited from innovation that led to reduced costs of DNA sequencing technology. Further, it will stymie competition for developing and improving diagnostic and medical tests, and increase the cost and hinder advancement of targeted therapeutics involving genomic markers. That means higher costs for patients, payers, and the healthcare system overall.

It further asserts that:

The draft legislation released by your offices not only rewrites Section 101 of the Patent Act, it states explicitly that any judicially created exception to patent-eligibility will be abrogated, thereby overturning the Mayo, Myriad, and Alice decisions. If enacted, this threatens to take us back to a time of greater uncertainty regarding patent eligibility. The draft goes further than that, as well. Beyond explicitly abrogating judicial precedent holding that genes, isolated from the genome, are not patentable, the legislation also would define the concept of what is useful to mean “any invention or discovery that provides specific and practical utility in any field of technology through human intervention.” This language essentially adopts the argument for patenting isolated genes that the Supreme Court rejected in Myriad. Myriad argued for, and the PTO granted,15 the patents on the BRCA1 and BRCA2 genes because the DNA was “isolated” from the cell through an act of human intervention. Isolation is required for scientific work with DNA, and permitting patents on isolated DNA resulted in the issuance of patents covering an estimated 20% of the human genome.16 Defining “useful” to include essentially any invention or discovery that was developed through human intervention reinvigorates the argument that human genes are patent-eligible.

Read the whole letter here: ACLU Letter

Law Professor Response Letter

A letter in response, signed by a group of 24 law professors, former government officials, and scholars (some of whom testified at the June hearings) opens with:

As law professors, former government officials, and scholars, we write to express our support for the congressional effort at reforming patent eligibility doctrine. As Congress considers legislation to bring balance back to the patent system in promoting the high-tech and biopharmaceutical inventions that drive the U.S. innovation economy, it is imperative that its deliberations are based on accurate statements of the law and of the real-world performance of the U.S. patent system.

The letter takes direct aim at the health and civil rights’ organizations’ letter:

We are deeply concerned about misapprehensions of law and misleading rhetoric in a recent letter to Congress submitted by the American Civil Liberties Union (ACLU) and other medical and policy organizations that oppose this legislative reform effort. Their claim, for instance, that the “draft legislation if enacted would authorize patenting products and laws of nature, abstract ideas, and other general fields of knowledge” is a profoundly mistaken and inaccurate statement. Rather, the proposed amendments preclude “implicit or judicially created exceptions to subject matter eligibility,” and do not eliminate constitutional and statutory bars to patenting laws of nature, abstract ideas, and general fields of knowledge.

Read the full letter here: Law professor response letter

Stay tuned for a third perspective, offered by Syracuse University  College of Law professor Shubha Ghosh.

Celgene v. Peter: application of IPRs to pre-AIA patents is not a taking

By Jason Rantanen

Celgene Corp. v. Peter (Fed. Cir 2019)18-1167.Opinion.7-30-2019

Panel: Prost (author), Bryson, Reyna

While Oil States v. Greene’s Energy, 138 S.Ct. 1365 (2018), answered the question of whether inter partes review proceedings were unconstitutional generally, it left unanswered the question of whether application of inter partes review proceedings to patents granted prior to the America Invents Act constituted a taking under the 5th Amendment.  Here, the Federal Circuit directly addresses that question, concluding that it is not.

Constitutional challenges like this one can be challenging to raise effectively on appeal.  While usually, the issues are brought up in a footnote or single sentence, this was not one of those instances: Celgene devoted 8 pages of its principal brief to its takings argument, making a serious go at it.  Still, Celgene had not raised the argument before the Board and requests to address an argument for the first time on appeal are granted only in exceptional circumstances.  However, given the circumstances–Celgene’s raising of an issue not directly resolved by Oil States, the growing number of retroactivity challenges following Oil States, and the thoroughness of the briefing on the issue, among other considerations–the court concluded that “this is one of those exceptional circumstances in which our discretion is appropriately exercised to hear Celgene’s constitutional challenge even though it was not raised below.”  Slip Op. at 25.

Celgene’s argument on the merits rested on a regulatory takings theory.  It contended that “subjecting its pre-AIA patents to IPR, a procedure that did not exist at the time its patents issued, unfairly interferes with its reasonable investment-backed expectations without just compensations.”  Id. at 26.  In response, the PTO argued that (1) the patent owner never had a valid property right because the patent was erroneously issued in the first instance,” and (2) “patents have been subject to reconsideration and cancellation by the USPTO in administrative proceedings for nearly four decades, and Celgene’s own patent[s were] issued subject to this administrative revocation authority,” and that “the AIA did not alter patent holders’ substantive rights.”  Id. at 26, 27 (internal quotation marks omitted).

The Court’s analysis focused on the degree of the change: “specifically whether IPRs differ from the pre-AIA review mechanisms significantly enough, substantively or procedurally, to effectuate a taking.”  Id. at 27.  The court concluded that they were not, a conclusion that was also in line with its precedent rejecting “constitutional challenges to retroactive application of the pre-AIA ex parte reexamination mechanism.”  Id.  The money quote:

The validity of patents has always been subject to challenge in district court. And for the last forty years, patents have also been subject to reconsideration and possible cancellation by the PTO. As explained below, IPRs do not differ significantly enough from preexisting PTO mechanisms for reevaluating the validity of issued patents to constitute a Fifth Amendment taking.

The bulk of the court’s remaining discussion walks through the various administrative revocation procedures in place over the past few decades, comparing and contrasting them with IPRs.  While the court recognized differences between ex parte and inter partes reexaminations, on the one hand, and inter partes review proceedings on the other, it viewed the similarities as “far more significant.”  Id. at 30.  The substantive grounds for review are the same (anticipation and obviousness, based on the same categories of prior art, the same evidentiary standard applies (preponderance of the evidence), the same claim construction standard applies (broadest reasonable interpretation applied in this set of IPRs), in both cases the Director has discretion to initiate the proceeding, and serve essentially the same purpose.

In the end, “Although differences exist between IPRs and their reexamination predecessors, those differences do not outweigh the similarities of purpose and substance and, at least for that reason, do not effectuate a taking of Celgene’s patents.”  Slip. Op. at 36.

The court also affirmed the PTAB’s decisions finding the appealed claims obvious.

 

Solutran v. Evalon: Processing Paper Checks and Patent-Eligible Subject Matter

By Jason Rantanen

Solutran, Inc. v. Evalon, Inc., U.S. Bancorp (Fed. Cir. 2019) 19-1345.Opinion.7-30-2019

Panel: Chen (author), Hughes and Stoll

This opinion involves review of a district court opinion denying summary judgment that claims 1-5 of U.S. Patent NO. 8,311,945 are invalid for failure to recite patent-eligible subject matter.  (The district court also granted summary judgment that the claims were infringed.)

Claim 1 is below.  Without knowing more, can you predict how the court resolved the appeal?

1. A method for processing paper checks, comprising:

a) electronically receiving a data file containing data captured at a merchant’s point of purchase, said data including an amount of a transaction as-sociated with MICR information for each paper check, and said data file not including images of said checks;
b) after step a), crediting an account for the mer-chant;
c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each said check, associating said digital image with said check’s MICR information; and
d) comparing by a computer said digital images, with said data in the data file to find matches.

The answer is after the jump.

(more…)

Amgen v. Coherus: Argument-based prosecution history estoppel

By Jason Rantanen

Amgen Inc v. Coherus Biosciences Inc. (Fed. Cir. 2019)  18-1993.Opinion.7-29-2019

Judges Reyna, Hughes, Stoll (author)

The doctrine of equivalents (“DOE”) may be every patent law student’s favorite doctrine to hate.  (Edit: to clarify, I mean that it can be complicated not that it’s conceptually a “bad” doctrine.) I sometimes introduce it as “the rule against perpetuities – except more complicated and economically significant.”  Under the DOE, a patent can be infringed even when the accused product or process doesn’t literally meet all the limitations of the claim.

Central to the DOE is prosecution history estoppel: a doctrine that prevents “a patentee from using the doctrine of equivalents to recapture subject matter surrendered from the literal scope of a claim during prosecution.”  Slip Op. at 8, quoting Trading Techs. Int’l, Inc. v. Open E Cry, LLC, 728 F.3d 1309, 1322 (Fed. Cir. 2013).  Because prosecution history estoppel is a question of law, it often functions as threshold question that is resolved before moving to the fact-specific equivalents analysis.  Indeed, David Schwartz, Lee Petherbridge and others have argued that PHE is one of the key mechanisms that the Federal Circuit has used to limit the application of the doctrine of equivalents following Warner-Jenkinson.

Often when we think about prosecution-history estoppel, we think about amendment-based estoppel, which can arise when an applicant makes a narrowing amendment to a pending claim.  This case involves one of the trickier aspects of PHE: argument-based estoppel.

Background

Amgen sued Coherus for infringement of Patent No. 8,273,707, which relates to methods of purifying proteins using hydrophobic interaction chromatography (“HIC”).”  Slip Op. at 2.  This process uses a combination of a buffered salt solution containing the protein that is poured into a HIC column.  The proteins bind to column matrix and impurities are poured off.  The ‘707 patent claims a process that increases the maximum amount of protein in solution that can be loaded into the HIC column by using certain combinations of salts “chosen form one of three pairs: citrate and sulfate, citrate and acetate, or sulfate and acetate.”  Slip Op. at 4.

During prosecution (this gives rise to the PHE ruling), the examiner rejected the claims as obvious in view of a prior art patent that “disclosed several salts for improving hydrophobic interactions between a protein and the column matrix.” Slip Op. at 4.   Amgen responded by pointing out that “the pending claims recite a particular combination of salts.  No combinations of salts [are] taught nor suggested int eh Holtz et al. patent, nor [are] the particular combinations of salts recited in teh pending claims taught nor suggested in this reference.”  Id. at 4-5.  A supporting inventor declaration pointed out the three pairs above “reduced purification costs on a commercial scale as compared to using only a single salt.”  Id. at 5.  After another rejection, Amgen further pointed out that “choosing a working salt combinationw as a ‘lengthy development path’ and that ‘merely adding a second salt’ would not result in the invention” and the examiner allowed the claims.  Id. at 6.

In 2016, Coherus filed an abbreviated Biological License Application for an Amgen product.  Because Coherus’s protein purification method uses a chromatography buffer containing a salt combination, but not one of the specific combinations recited in Amgen’s claim, when Amgen sued for infringement in 2017, Amgen’s infringement theory rested on the doctrine of equivalents rather than literal infringement.  The district court subsequently granted Coherus’s motion to dismiss on the pleadings for failure to state a claim.

Federal Circuit: Argument-based prosecution history estoppel applies here

On appeal, the Federal Circuit affirmed the application of argument-based estoppel. “To invoke argument-based estoppel, ‘the prosecution history must evince a clear and unmistakable surrender of subject matter.'” Slip Op. at 9, quoting Conoco, Inc. v. Energy & Envtl. Int’l, L.C., 460 F.3d 1349, 1363 (Fed. Cir. 2006).  Here, the court held, argument-based estoppel applies “because Amgen clearly and unmistakably surrendered unclaimed salt combinations during prosecution.”  Id. at 9.  Amgen repeatedly pointed to the particular combinations of salts as important in distinguishing the prior art references.  As a result, “a competitor would reasonably believe that Amgen surrendered unclaimed salt combinations.”  Id. at 10 (internal quotation marks omitted).

Amgen’s primary argument, that it asserted other reasons for distinguishing the prior art reference, was not persuasive as “our precedent instructs that estoppel can attach to each argument.”  Id. at 11.  Nor was the court persuaded by Amgen’s argument that it’s last response before the claims were allowed did not contain the particular-salt-combination argument.  But “[t]here is no requirement that argument-based estoppel apply only to arguments made in the most recent submission before allowance.”  Id. at 11.  For those seeking to avoid this outcome, note the court’s final words on the subject: “We see nothing in Amgen’s final submission that disavows the clear and unmistakable surrender of unclaimed salt combinations made in Amgen’s January 6, 2011 response.”  (I’m curious: has any applicant ever disavowed an argument made earlier in prosecution?  This seems like a risky strategy for getting claims allowed.)

 

Update from the Compendium of Federal Circuit Decisions

By Jason Rantanen

We recently launched an updated version of the Compendium of Federal Circuit Decisions that contains information on decisions posted to the Federal Circuit’s website for all origins, not just appeals arising from the USPTO and District Courts (although the richest data is still for appeals from those sources).  Data is current through June 28, 2019.

For those who aren’t familiar with the Compendium, it’s a database designed specifically to support quantitative empirical research about the Federal Circuit’s decisions.  We’ve coded an array of basic information about Federal Circuit decisions to make it as easy as possible for anyone to do their own empirical studies.  There’s data on document type to panel judges to authorship information and more.  We’re constantly working on adding new types of data, so if there’s something specific that you’d like empirical data on, just let me know.

Below are a few basic highlights through the first six months of 2019.  As always, the usual disclaimers when working with quantitative data about court decisions apply.  Large-scale quantitative overviews only provide one perspective into judicial decisions and are subject to various selective forces that are described in various sources including this one.

Decisions by Origin

As the below chart shows, the gap between decisions (which we define as opinions and Rule 36 summary affirmances) in appeals arising from the USPTO and the District Courts continues to widen.  Both are a little lower so far in 2019 than 2018.   Through the first six months of 2019, the number of decisions arising from the district courts is about 20 fewer than in 2018 (106 through June 30 in 2018 vs. 87 in 2019) and the number of decisions arising from the USPTO is about 10 fewer (132 in 2018 vs. 121 in 2019).

Keep in mind that the Federal Circuit’s output of decisions is dependent on appeals, and appeals form both sources have shown a slight decline from peaks in 2015 (docketed appeals from district courts) and 2016 (docketed appeals from the USPTO).   The next chart shows data from the Federal Circuit’s monthly reports (not the Compendium) about appeals docketed.  While the number of appeals arising from the USPTO will likely go up this year, the number of appeals arising from the district courts is likely to continue declining (consistent with a decline in the number of patent cases filed over the last few years).

I have a chart that shows how many appeals arise from the PTAB versus the TTAB, but it’s not very interesting because the vast majority of appeals every year come from the PTAB (these days, by an order of magnitude).  A bit more interesting is the below chart, which shows Federal Circuit decisions by dispute type in appeals arising from the USPTO.  Consistent with conventional wisdom, most of these involve appeals from inter partes review proceedings, although there was a bump in appeals from rejections of patent applications last year.

Not shown are a handful of miscellaneous types, such as two appeals from post-grant review proceedings in 2018.

Decision Type

Generally, the Federal Circuit tends to use Rule 36 affirmances more frequently in appeals arising from the PTAB than in appeals arising from the district courts.    Through the first six months of 2019, about half of the court’s decisions in appeals arising from the PTAB have been affirmed via Rule 36 summary affirmances.

The Federal Circuit’s opinions arising from the district courts tend to be designated precedential more often than decisions from the USPTO, although the raw numbers of precedential opinions are getting closer.

Outcomes of appeals from inter partes review proceedings

The below chart shows the outcomes of appeals from inter partes review proceedings.  Since 2016, the court’s affirmance rate of these decisions  has remained around 70% (affirmance-in-full) and 80% (including affirmances-in-part).  While selection effects are still important to consider here, keep in mind that these decisions represent a substantial portion of all completed inter partes review proceedings, so there’s less selection taking place between the USPTO’s determination and the Federal Circuit’s decision than in other forms of appeal. Edit: District court decisions likely have a similar high frequency of appeal characteristic; this is more of an observation relative to appeals generally.

We haven’t yet completed outcome-coding of all the decisions arising from the district courts, so comparative data isn’t available yet. (Soon, hopefully!)

Want the data analyzed in a different way?

You’re welcome to play around with the data on your own.  If you do use it for something that you publish, please include a citation to the Compendium.  There’s a convenient cite form on the landing page for the database.

Thanks to my research assistants for their work on the Compendium, especially John Miscevich, Joseph Bauer and Lucas Perlman.

Guest Post by Prof. Farley: SCOTUS’s Second Take on Trademark Registration as Speech

By Professor Christine Haight Farley, American University Washington College of Law.  Here, Professor Farley offers her take on Iancu v. Brunetti.  You can read Dennis’s write-up here.

The Supreme Court has now struck down as unconstitutional a second trademark registration bar. The court ruled yesterday in Iancu v. Brunetti that the government may no longer deny trademark registration to marks that are “scandalous” or “immoral.” In 2017, the court struck down a provision that denied trademark registration to marks that are “disparaging” in Matal v. Tam. Both registration bars appear in Section 2(a) of the Lanham Act.

Many commentators had seen the cases as so similar that they wondered why the court had even granted certiorari. Perhaps as a result, the case provoked less interest from amicus brief authors. The conventional wisdom was that the court’s opinion in Tam left no room to uphold this provision.

In Tam, the court ruled that denying trademark registration to marks that disparage constitutes viewpoint discrimination because the government was sorting out “ideas that offend.” The court reconfirmed that viewpoint discrimination is presumptively unconstitutional. In his concurrence, Justice Kennedy described viewpoint discrimination as “a form of speech suppression so potent that it must be subject to rigorous constitutional scrutiny.”

For the Brunetti majority, this was a simple case. Indeed, Justice Kagan, who wrote the majority opinion joined by Thomas, Ginsburg, Alito, Gorsuch, and Kavanaugh, dispensed with the case in ten and a half tight pages even as she devoted a full page to examples of marks that were refused registration (comparing them to similar marks that were approved for registration). The opinion is short and sweet: this is the same case as Tam.

According to the majority, the provision at issue “disfavors ideas” and as such is substantively indistinguishable from the provision in Tam. Here, “the Lanham Act allows registration of marks when their messages accord with, but not when their messages defy, society’s sense of decency or propriety.”

The final page or so of the majority opinion is devoted to explaining why the statute cannot be saved by the “limiting principle” offered by the government. This is the part of the opinion about which there is dissent.

The majority rejects the government’s proposal to limit application of this provision to “vulgar” marks–“lewd,” “sexually explicit or profane” marks. Although such a construction would avoid any viewpoint discrimination, the majority holds that the “immoral or scandalous” bar “stretches far beyond the Government’s proposed construction.” The majority concludes that such a construction would amount to the court rewriting the statute because the plain meaning of the statutory language is broader and ensnares marks that offend because of the ideas they express, not just by their mode of expressing ideas.

Here, in the majority opinion’s only footnote, the majority rebuffs the dissenters characterizing their approach as “statutory surgery.” The majority disagrees that the statute is in any way ambiguous and therefore subject to reinterpretation.

Chief Justice Roberts, Justice Breyer, and Justice Sotomayor each filed separate opinions. Although each concurred that the registration bar on mark that are “immoral” amounts to unconstitutional viewpoint discrimination, each would have limited the court’s constitutional sword to strike down only this provision. Each accepted the government’s limiting principle as an appropriate means to avoid a finding that an act of Congress is unconstitutional.

Justice Breyer began his opinion by citing the court’s precedent that, where fairly possible, the court should endeavor to find a statute constitutional. Interestingly, in Tam the court did not, as the majority put it, “pause to consider whether the disparagement clause might admit some permissible applications (say, to certain libelous speech) before striking it down.”

It is in this space, that I believe the Brunetti decision offers a new and interesting perspective on the court’s approach to the First Amendment. In Brunetti, four Justices expressed a view that scandalous modes of expression should be barred trademark registration. In addition to the three dissenters, Justice Alito, the author of the majority opinion in Tam, stated in his concurring opinion that the court’s opinion would not “prevent Congress from adopting a [] statute that precludes the registration of marks containing vulgar terms that play no real part in the expression of ideas.” He went on to note that the mark in question in this case—FUCT–“is not needed to express any idea and, in fact, as commonly used today, generally signifies nothing except emotion and a severely limited vocabulary.”

Justice Alito’s lack of solicitude toward a portion of the marks targeted by the scandalous provision was echoed by Justices Roberts, Breyer, and Sotomayor. Chief Justice Roberts flatly states that “refusing registration to obscene, vulgar, or profane marks does not offend the First Amendment.” Justice Breyer goes so far as to suggest that “an applicant who seeks to register a mark should not expect complete freedom to say what she wishes, but should instead expect linguistic regulation.”

These sympathetic sentiments toward the government’s interest in regulating vulgarity is in sharp contrast to Tam, in which no Justice expressed any support for the government’s regulation of racial epithets. In Tam, the majority stated that “trademarks often have an expressive content” and Kennedy stated that “marks make up part of the expression of everyday life.” In Brunetti, in the context of vulgar marks, no Justice made mention of “expressive marks” beyond the majority’s conclusion that the provision targets ideas that offend.

In Brunetti, it would also appear that some Justices have retreated from the idea that a registration refusal is a burden on speech. I’ve already mentioned Justice Breyer’s suggestion that applicants ought to expect linguistic regulation. Perhaps the most striking rebuttal of registration as speech comes in this passage in Chief Justice Roberts’ opinion:

“Whether such marks can be registered does not affect the extent to which their owners may use them in commerce to identify goods. No speech is being restricted; no one is being punished. The owners of such marks are merely denied certain additional benefits associated with federal trademark registration. The Government, meanwhile, has an interest in not associating itself with trademarks whose content is obscene, vulgar, or profane. The First Amendment protects the freedom of speech; it does not require the Government to give aid and comfort to those using obscene, vulgar, and profane modes of expression.”

Such statements will likely surprise anyone who has read the Tam decision—unless that person attended the oral arguments in Brunetti. Although, as I have suggested, commentators expected the Brunetti case to closely follow Tam, the dialogue in oral arguments were a good clue that at least some members of the court were seeing something different in the Brunetti case. Whereas in Tam, the court appeared to be overwhelming concerned with the free speech rights of Simon Tam who was presented a civil rights activist, in Brunetti, it seems suddenly to have dawned on the court that at issue was the obligation of the government to register a white supremist’s application for the N-word.

This new unease comes through most clearly in the opening lines of Justice Sotomayor’s opinion:

“The Court’s decision today will beget unfortunate results. With the Lanham Act’s scandalous-marks provision, 15 U. S. C. §1052(a), struck down as unconstitutional viewpoint discrimination, the Government will have no statutory basis to refuse (and thus no choice but to begin) registering marks containing the most vulgar, profane, or obscene words and images imaginable.”

In his opinion, Justice Breyer remarks, “Just think about how you might react if you saw someone wearing a t-shirt or using a product emblazoned with an odious racial epithet.” Yes, Justice Breyer, many of us were thinking about exactly that in the Tam case as it caused the Redskins to recover their mark. Undoubtedly, Justice Breyer has seen a few of these t-shirts around DC.

Just three cases have caused a recent interest in these trademark registration provisions: first the Redskins case (Blackhorse v. PFI), then Tam, and finally Brunetti. Previously, the constitutionality of these provisions was settled by the Court of Customs and Patent Appeals, the predecessor to the Court of Appeals for the Federal Circuit, in In re McGinley. On the constitutional issue alone, these three cases have produced seventeen opinions. Even still, many important questions have been explicitly sidestepped such as to what extent, if any, the commercial speech doctrine plays, whether viewpoint neutral content discriminatory registration bars pass muster, or whether trademark registration may be considered as a government program or subsidy. In light of what has transpired, perhaps the McGinley court’s approach has some virtues. In McGinley, the court circumvented the constitutional issue by finding that the government’s refusal to register a mark does not affect the right to use it: “No conduct is proscribed, and no tangible form of expression is suppressed. Consequently, appellant’s First Amendment rights would not be abridged by the refusal to register his mark.” Moreover, as Justice Sotomayor noted in a footnote, the McGinley court bifurcated “scandalous” from “immoral” in precisely the manner that the dissenters suggest would save that bar from being struck down as unconstitutional.

In the end, the implications of this case are narrow. As to First Amendment jurisprudence, we perhaps glean a few more clues as to how to determine what constitutes a viewpoint. Beyond that, we learn that at least four members of the court would support regulating vulgar expression. As to trademark law, it would appear that no further statutory or doctrinal vulnerabilities emerge from this decision that had not been portended by Tam. This decision, however, does pave a path forward for amending the Lanham Act to add a bar to the registration of marks that are “scandalous in their mode of expression,” or are “vulgar, lewd, sexually explicit, or profane.”

TTI v. IBG: Federal Circuit clarifies meaning of “technical solution to a technical problem”

Trading Technologies International, Inc. v. IBG LLC, Interactive Brokers, LLC (Fed. Cir. April 19, 2019).  Panel: Moore (author), Mayer, and Linn  Download TTI v IBG (April 18, 2019)

Trading Technologies International, Inc. v. IBG LLC, Interactive Brokers, LLC (Fed. Cir. April 30, 2019), Panel: Moore (author), Clevenger and Wallach.  Download TTI v. IBG (April 30, 2019)

This is a long post since it covers two opinions addressing Covered Business Method (CBM) review for business method claims, plus discussion of two related opinions for good measure.  tl;dr: The Federal Circuit affirmed the PTAB that the claims are subject to CBM review and are directed to ineligible subject matter.  Along the way it clarified some its jurisprudence interpreting the threshold CBM review regulation.

A potential conflict disclosure at the outset: MBHB, which represented Trading Technologies on these appeals, is the primary financial sponsor of PatentlyO.

On to the writeup…

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Background

Both April opinions in TTI v. IBG involve the same procedural posture, the same general subject matter (displaying market information to traders), and the same issues on appeal: whether the claimed inventions are subject to the “technological inventions” exception to CBM review and whether they claim patent eligible subject matter.  In both cases, the PTAB concluded that the patents were subject to CBM review and held the patents directed to patent ineligible subject matter.  Of the two opinions, the court’s April 18, 2019 opinion is meatier on both issues, so I’ll mainly focus that one.

The two April opinions also provide a counterpoint to the court’s February nonprecedential opinion involving the same parties, the same area of technology, the same procedural posture (appeal from Covered Business Method review decisions by the PTAB), and for some of the patents, the same outcome at the PTAB: lack of subject matter eligibility.   See TTI v. IBG (Fed. Cir. Feb 13, 2019) (nonprecedential).  Writing per curiam, the panel in the February opinion (Judges Lourie, Moore and Reyna) held the patents were for “technological inventions,” and thus were not properly subject to CBM review.  In the two April opinions, overlapping panels (Judges Moore, Mayer and Linn in one and Judges Moore, Clevenger and Wallach in the other) reached the opposite conclusion on different sets of GUI patents.

“Patents for Technological Inventions”

A threshold question for CBM review is whether the patents-in-suit are “patents for technological inventions.   Generally, CBM review is available “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service…”  America Invents Act, § 18(a)(1)(E).  However, this mechanism comes with an important caveat: “…except that this term does not include patents for technological inventions.”  Id.

The USPTO regulation implementing the “technological invention” exception states that:

In determining whether a patent is for a technological invention solely for purposes of the Transitional Program for Covered Business Methods (section 42.301(a)), the following will be considered on a case-by-case basis: whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.

37 C.F.R. § 42.301(b). In Versata v. SAP, 793 F.3d 1306 (Fed. Cir. 2015), the Federal Circuit criticized the regulation while offering a sliver of guidance.  “In short, neither the statute’s punt to the USPTO nor the agency’s lateral of the ball offer anything very useful in understanding the meaning of the term ‘technological invention,'” the court wrote, concluding that “we agree with the PTAB that this is not a technical solution but more akin to creating organizational management charts.”  Id. at 1326, 1327.  

In a subsequent opinion, the court clarified the regulation as involving a “prong”-type analysis: that is, if a patent fails to meet either the “technological feature” or the “solves a technical problem using a technical solution,” it is not a “technological invention.”  See Apple v. Ameranth, 842 F.3d 1229, 1240 (Fed. Cir. 2016) (“We need not address this argument regarding whether the first prong of 37 C.F.R. § 42.301(b) was met, as we affirm the Board’s determination on the second prong of the regulation—that the claimed subject matter as a whole does not solve a technical problem using a technical solution.”)  The court did not elaborate on the meaning of the “solves a technical problem using a technical solution” language.

Meaning of “solves a technical problem using a technical solution”

The two April TTI v. IBG decisions shed additional light on the meaning of the “technical problem” and “technical solution” prong, drawing a distinction between the practice of a financial product as opposed to a technological invention:

“TT argues the inventions addressed technical problems in the way prior art GUI tools were constructed and operated. It claims the ’999 patent addressed problems related to speed, efficiency, and usability, and the ’056 patent. It claims the ’999 patent addressed problems related to speed, efficiency, and usability, and the ’056 patent addressed problems related to intuitiveness, visualization, and efficiency.”

April 18, 2019 Slip Op. at 8-9.  The Federal Circuit held that this is not a technical solution to a technical problem:

“We agree with the Board that the patents relate to the practice of a financial product, not a technological invention.  The specification states that a successful trader anticipates the market to gain an advantage, ’999 patent at 1:20–26, but doing so is difficult because it requires assembling data from various sources and processing that data effectively, id. at 1:51–54. The invention solves this problem by displaying trading information “in an easy to see and interpret graphical format.” Id. at 2:3–6. The specification makes clear that the invention simply displays information that allows a trader to process information more quickly.”

Ultimately, “This invention makes the trader faster and more efficient, not the computer.  This is not a technical solution to a technical problem.”  April 18, 2019 Slip Op. at 9 (emphasis in original).

Additional language in the opinion reinforces this line between business problems and solutions and technological problems and solutions.  In rejecting a challenge to the PTAB’s decision not to consider the testimony of TTI’s expert, the court wrote “Nothing in his declaration asserts that the claimed interface did anything other than present information in a new and more efficient way to traders. Even if the Board had considered this testimony, it could not have reached a different conclusion.”  April 18, 2019 Slip Op. at 10.  Analyzing another GUI patent, the court stated that providing the trader with information in the claimed manner “is focused on improving the trader, not the functioning of the computer.”

“Indeed, the specification acknowledges that the invention ‘can be implemented on any existing or future terminal with the processing capability to perform the functions described,’ id. at 4:4–6, and ‘is not limited by the method used to map the data to the screen display,’ which ‘can be done by any technique known to those skilled in the art,’ id. at 4:64–67.”

The court’s April 30 opinion, reached the same conclusion on a different patent using similar reasoning.  “Merely providing a trader with new or different information in an existing trading screen is not a technical solution to a technical problem,” the court wrote, before repeating the language about the method focusing on “improving the trader, not the functioning of the computer.”   Apr. 30, 2019 Slip Op. at 7.

One final notable aspect of this set of the opinions: By affirming the PTAB on the second prong of the “technological inventions” regulation, the Federal Circuit avoided needing to address TTI’s argument that “Versata set aside the novelty and nonobviousness language of the first prong of the regulation….”  Apr. 18, 2019 Slip Op. at 8.  That issue remains unsettled.

Patent Eligible Subject Matter

The Federal Circuit affirmed the PTAB on the issue of lack of patent eligible subject matter for all the patents-in-suit in a fairly routine review.  The court conducted the Alice two-stage analysis, concluding that the claims were directed to abstract ideas and did not include an inventive concept.  The most interesting aspect of this component of the court’s analysis is the relationship with the 2017 TTI v. CQG nonprecedential opinion discussed below.

Constitutional Challenges: Not preserved by four sentences

The court declined to address TTI’s constitutional challenges, which consisted of “a total of four sentences in each of its opening briefs” based on “a right to a jury under the Seventh Amendment, separation of powers under Article III, the Due Process Clause, and the Taking Clause.”  “Such a conclusory assertion with no analysis to the underlying challenge is insufficient to preserve the issue for appeal.”  Id.

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Relationship with Prior Decisions

As I noted at the outset, these opinions represent a counterpoint to the court’s February nonprecedential opinion, although since the April decisions are precedential and the February one was not, there isn’t direct legal tension.

The February opinion involved a review of a set of CBM review PTAB decisions finding that the both the two patents involved an even earlier opinion, Trading Technologies International, Inc. v. CQG, Inc., 675 F. Appx 1001 (Fed. Cir. 2017) (nonprecedential), and two other patents were not “technological inventions” and therefore were subject to CBM; in the subsequent CBM review, the PTAB held that the two patents from TTI v. CQG were directed to patent eligible subject matter but the other two patents were not.  As with the April decisions, all the patents involved GUI claims.

The Federal Circuit reversed as to the institution decision on all four patents.  For the two patents involved in TTI v. CQG, the Federal Circuit reasoned that because the two patents were directed to patent eligible subject matter, they must be “technological inventions.”  For the other two patents, the Federal Circuit reasoned that “because we see no meaningful difference between the claimed subject matter [of the two sets of patents] for purposes of the technological invention question, the same conclusion applies in those cases as well.  (This is puzzling to me, since the PTAB held that the first set of patents were directed to patent eligible subject matter but the second set were not.)

There’s also the tension between the subject matter eligibility determination in TTI v. CQG and the lack of subject matter eligibility determinations in the two April 2019 TTI v. IBG decisions, but I’ll leave that for others to opine on.  The Federal Circuit itself declined TTI’s invitation to get into the specifics of how its April 2019 decisions relate to the earlier decisions:

“TT argues that because nonprecedential decisions of this court held that other TT patents were for technological inventions or claimed eligible subject matter, we should too. We are not bound by non-precedential decisions at all, much less ones to different patents, different specifications, or different claims. Each panel must evaluate the claims presented to it. Eligibility depends on what is claimed, not all that is disclosed in the specification.”

April 18, 2019 Slip Op. at 19.

A Response to “Is there Any Need to Resort to a § 101 Exception for Prior Art Ideas?” by Prof. Joshua Sarnoff

Guest post by Professor Joshua D. Sarnoff of DePaul College of Law.  Below, he responds to Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)

In Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas, Mr. Doerre states that “[n]otably, however, there is no similar need to resort to use of an implicit exception to prevent undue preemption of known prior art abstract ideas, as 35 U.S.C. § 102 and 35 U.S.C. § 103 already ensure that claims do not disproportionately ‘“t[ie] up the use of [] underlying” [prior art] ideas.’ This can be seen in that, under 35 U.S.C. § 103, a claim must be inventive over all known prior art ideas, and cannot simply be an obvious application of a prior art abstract idea, or an obvious combination of several prior art abstract ideas.”  Of course, since Section 103 often requires detailed factual evaluations not readily resolved early in litigation, the pressure to use Section 101 remains even for ineligible subject matter that is in fact prior art against the applicant.  And unlike for Section 103, the nature of the creative advance over that discovery may be readily apparent on the face of the patent’s disclosure (particularly where it lies in the discovery itself and thus there is no meaningful additional creativity to render the practical application non-obvious).  But courts are unlikely to grant motions to dismiss under Section 103, and for some bizarre reason we keep giving this ultimate question of law to juries.  Further, Section 103’s obviousness standard in fact is not much clearer than Section 101 standards.

But the important point is that Section 101 is needed for precisely the case Mr. Doerre avoids, when the ineligible discovery is not prior art against the applicant. Mr. Doerre would be absolutely correct that we do not need to use Section 101 if Section 103 could do the job (of excluding uncreative applications of ineligible discoveries in the three categories of excluded subject matter – which are judicial interpretations of the meaning of “invention or discovery” and are not “judicial exceptions” to Section 101 subject matter).  But Section 103 cannot do that job as current written, even though both provisions derived from the same statutory section under the pre-1952 Act.  And that is because such ineligible discoveries are not normally among the categories of Section 102 prior art as applied to an applicant who is also the discoverer of that ineligible subject matter.

As I have written before (see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1757272 and the briefs for amici law professors that I filed in Bilski, Mayo, and Myriad), the ineligible subject matter is often discovered by the applicant himself or herself, and thus does not qualify as Section 102 prior art for Section 103 obviousness analysis.  If it did, then 103 in fact would be able to do the job, although given the tremendous uncertainty over what qualifies as a non-obvious advance under Section 103 we would still have roughly the same amount of uncertainty in the law.  Further, no person who objects to using Section 101 to exclude categorically ineligible discoveries claimed as practical applications thereof would be the happier if we were to amend Section 102 to permit Section 103 to do the job now being performed (and only capable of being performed) by Section 101.  This is because then we would just use obviousness law to have to make the difficult decisions as to whether the claim as a whole represents a non-obvious advance over the ineligible discovery while treating the discovery as prior art against the applicant.  And as just noted, we don’t have a clear theory of how much creativity constitutes a non-obvious advance.  Although the amicus brief I filed for law and economics professors in KSR sought to have the Court explicitly adopt a time and money threshold of ordinary creativity so as to create that clear theory, predictably the Supreme Court declined the invitation to make the law clearer (while still correcting the errors of analysis of the Federal Circuit in assessing what constitutes an “obvious” advance over the prior art of record).

Further, as Professor Katherine Strandburg has persuasively explained (see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2196844) and as the recent and less recent history clearly reflects, the current concern (since Benson) with preemption is not in fact either the source of the current eligibility doctrine nor the grounds for finding any practical applications to be ineligible.  As I explained in both the cited paper and briefs noted above, non-preemption is a consequence of having an inventive application of ineligible subject matter; lack of preemption says nothing about whether the application is in fact inventive in light of the discovery of such ineligible subject matter.  Consequently, were preemption of the entire set of applications of ineligible discoveries actually the concern driving application of the doctrine, none of the claims held invalid by the Supreme Court or the Federal Circuit should have been held invalid, as all those claimed specific applications did not preempt many other things that might have been claimed when employing the ineligible discoveries. (Of course, some of those held-to-be invalid claims may have covered all of the valuable, then-known applications.  But the Supreme Court had held in the Telephone Cases that claiming all valuable applications was perfectly fine, so long as the claims reflected the actual “invention” – meaning, at the time, a creative advance over ineligible subject matter).  Parker v. Flook’s terminology made this quite clear, requiring “some other inventive concept in its application” than mere (i.e., uncreative) application of the categorically ineligible discovery.  Flook’s language (and approach) was explicitly reaffirmed by Mayo’s recitation of a requirement for an “inventive concept” (notwithstanding the failure of the Supreme Court to explicitly acknowledged that Diamond v. Diehr had impliedly overruled Flook on this point, and that Mayo has now impliedly overruled Diehr on this point by reinstating Flook.  That Mayo also improvidently reiterated Benson’s preemption rationale without applying it in any way in the analysis is simply another example of uncareful opinions of the Supreme Court that engender further confusion rather than clarifying the law.  As Professor Strandburg has suggested, we would do well to simply ignore the “preemption” language and focus on the real question, which Professor Jeffrey Lefstin has correctly described (see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398696) of whether we want a standard of inventive application or only of practical application.  (Although I disagree with Professor Lefstin in regard to whether Funk Brothers was in fact the first instance of inventive application, we agree that the 1952 Act did not clearly overrule Funk Brothers.  This is important so that people will not continue to argue that Giles Rich was correct in his later revisionist history (see https://books.google.com/books/about/Laying_the_Ghost_of_the_invention_Requir.html?id=xH1etwAACAAJ) that  all questions of inventive creativity were placed in Section 103 by the 1952 Act, notwithstanding that P.J. Federico, who was the other principal co-author of the 1952 Act, argued the opposite – successfully – in the Application of Ducci case, 225 F.2d 683 (C.C.P.A. 1955) that Section 101’s “process” category (incorporating Section 100(b)’s definition of “process”) continued the “analogous use” test of inventive creativity requirement for claimed processes that the Supreme Court had articulated in Ansonia Brass & Copper Co. v. Electrical Supply Co., 144 U.S. 11 (1892)).

In summary, Mr. Doerre is simply wrong that Section 103 can do the job as currently written.  But if it could, he would be no happier with the state of the law, so long as inventive application remained the law for what constitutes an eligible (or a patentable) “invention,” and all without regard to “preemption.”  Should legislation move forward to eliminate the requirement for inventive application, we will have to learn if it in fact is a requirement of constitutional stature in granting authority to “inventors for their discoveries” (or is simply like the dicta in Graham v. John Deere, 386 U.S. 1, 6 (1966), that Congress may not remove inventions that have entered the public domain by granting patents on them – which the Supreme Court subsequently rejected in the copyright context as a constitutional limitation on legislative power in Golan v. Holder, 565 U.S. 302, 323-24 (2012) (quoting Eldred v. Ashcroft, 537 U.S. 186, 202 n.7 (2003)).  But first, Congress would have to enact such legislation, and there are good reasons not to eliminate the inventive application requirement wholly without regard to the politics of which industries’ oxen will be gored thereby.  And let’s hope that if Congress does go there, that Congress is careful not to thereby permit aesthetic creativity to provide the “practical application” that thereby authorizes the grant of a utility patent as novel and nonobvious subject matter (whenever the aesthetic contribution to the claimed invention functionally interacts with the substrate that forms the remainder of the “claim as a whole,” so that the printed matter doctrine will not apply and thus the aesthetic creativity will thereby prevent a finding of non-obviousness, so we will end up with a design patent on steroids issued as a utility patent).

Disclosure statement: I have no current financial interest in the issues addressed.