The Ethical Issues Caused by Devaluation of Patents by Alice and CLS

First, to confirm Dennis’s anecdotal belief on the main page that firms are moving toward trade secrets, I heard that repeatedly at the IMPI conference, which had chief IP counsel from lots of big players.  Any benefit that the quid-pro-quo of our system is eroded by Myriad and CLS.  I have no clue whether that affects stock liquidity, but it sounds intuitively correct.

But, I’m writing because what I heard, and what others are saying on line, are making me concerned that the enormous impact on patent value represented by Myriad and CLS, and the years of absolute confusion that we’re facing, may trigger disclosure obligations by lawyers in some circumstances. While most firms, I am told, do not capitalize patents, some do. Sarbanes Oxley could be implicated by that.  In M&A transactions, valuation statements need to be thought through.  Google, for example, after it recently acquired a slew of patents said it had acquired certain value of patents.  That value is down.

Here is what one author has said:

 It would be an unwise publicly-traded tech company in the US that is not currently doing a full audit of its patent portfolio to assess where it stands in this post-Alice world.

The full article is here.  Another article from ipwatchdog is here.  (Both link to a study that I personally find very unreliable and so I’m not linking to it.)

I’m not sure that’s good advice.  I am sure that, without legislative investigation, consideration of actual policies and data, the Supreme Court has radically changed our patent system.

What a mess. Read the statute, Supreme Court. Read the statute.

8 thoughts on “The Ethical Issues Caused by Devaluation of Patents by Alice and CLS

  1. 4

    It is no surprise to me that an expert in ethics sees the inequity of what has happened. It is fundamentally unfair for parties to spend money on patents and then change the rules and invalidate them en masse. The parties that get hurt the worst are the small guys (OK, I’m not going to lose sleep over IBM’s loss). People who spent a relatively large amount of their money on a business venture and now find it ruined. To make it worse, the USPTO is taking an unduly hard line on software now (in my opinion) far in excess of “fundamental economic practices.” Clearly usurping this opportunity to wipe out software applications and reduce the backlog. I have some start-up clients with legitimate applications (not business methods nor the “alice” type of claims which are intended for trolling) and now with 101s (if they can’t be overcome) they have lost everything.

    I’m really surprised I haven’t seen more about this in the media. I guess nobody cares about the little guys.

    1. 4.1

      patent leather, State Street Bank was considered the change — and everyone knew it was just a matter of time ’til the Supreme Court reversed. The Court signaled its displeasure more than once.

      Only the naive would bank on the long term viability of that case.

      However, patent firms that were not frank with their clients on State Street Bank because their own self interest would be adversely affected by such advice might have an ethical problem. I would consider suing such a firm if my money were lost based on “bad advice.”

      1. 4.1.1


        How ethical is it for you to continue to attempt to use State Street as your scape goat?

        Time for you to stop the misguided mantra.

        I – for one – have long told you that State Street is not needed to defeat your agenda and re shaping of the laws and history.

        That you must depend on the Court to rewrite the law (as opposed to Congress) is abundantly clear.

        Only the truly naive do not recognize how you bail on the valid points that I present for conversation. Only the truly naive do not recognize your posts as naked proslytizing.

        3, the new 4, is still not 5.

      2. 4.1.2

        Ned, hope you are still checking this thread.

        As far as I am concerned, State Street only confirmed the current line of thinking at the time. The MPEP removed the “business method exception” and the USPTO had been granting business method patents long before State Street came out (otherwise how would State Street have gotten their patent?) At the time SS came out, lawyers where I worked (some very good ones, I might add) all thought the decision was in line with what was taking place and I never heard anyone say “oh this will be reversed eventually so lets milk the clients now.” The Supremes denied cert in State Street, Alappat, and all the other software cases of the era.

        I think that any suit against a firm that took money to file patents that were eventually invalidated on 101 grounds 15 years later is ludicrous. I think we would both agree that the problem is the Supreme court continuously denying cert. Statutory stare decisis should have prevented the result in Alice (if the Supremes didn’t like any Fed Circuit result then grant cert. for gods sake).

        if there is a suit against anyone, it should be against the US gov’t for a taking of a class of property (it is established that issued patents are property). You may think this sounds ludicrous, but there is some authority for this.

        But hindsight is 20/20. I’ve been around a long time, and nobody in the late 90’s was predicting the reversal that seems to have happened. If you think it was so obvious, can you find a law review article or something predicting such reversal to show me?

        The USPTO is currently taking Alice to the extreme, to suit their own agenda. This is very unfair in my opinion. If the next 101 case heard by the Supremes limits Alice and allows other types of software claims that the USPTO is currently rejecting, I think there would be a claim against the USPTO.

  2. 3

    David, on “read the statute,” do you think that Congress intended to overrule Hotel Security and its progeny in ’52?

    Second, have you ever compared the “101” statute in the 1793 Act to the 1790 Act? “New” and “composition” were added, while “known” and “used” were retained.

    New and composition are related, but “new” does not mean and clearly was not intended to mean “known” or “used” as they are in the same sentence.

    Read the statute — especially at the time of first introduction of the terms involved.

  3. 2

    What a mess. Read the statute, Supreme Court. Read the statute.

    Considering the exception predated the statute in question I don’t know what it would accomplish.

    But, I’m writing because what I heard, and what others are saying on line, are making me concerned that the enormous impact on patent value represented by Myriad and CLS

    So companies have been stealing/negligently taking millions, perhaps billions from the public? And the reflex is that we have to get it back to them asap? It would probably be more accurate to evaluate the Myriad claims in terms of dead people than monetary loss.

  4. 1

    Oh, come on. Even according to the mildly hysterical articles you cite, the disclosure obligations that you’re concerned about affect one lawyer (the top one) at each of maybe half a dozen publicly traded companies that have patent portfolios that are: (1) of material value, (2) on the companies’ balance sheets, and (3) likely to be materially affected by Alice. Those companies know who they are, and know very well how to document a value for these portfolios that won’t surprise the market.

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