June 2010

Patently-O Readership Survey

[Four-Minute ANONYMOUS SurveyMonkey Survey] I understand that Patently-O has perhaps hosted too many surveys over the past few days. However, this survey is the most important one because it impacts my bottom line. I use the results to prove to advertisers that Patently-O readers are plentiful, smart, and well-connected. I also use the survey to improve the website. [Please Complete the Survey]

Thank you!

Dennis Crouch

Prep & Pros: Separated by a Backlog

PatentLawPic1010The world continues to turn even though several hundred thousand patent applications are sitting examined at the US Patent Office.  During this multi-year delay, patent attorneys change jobs, receive promotions, raise billing rates, etc.  One bottom line is that the patent professional that drafts a patent application is often not the same individual that argues the prosecution.  This is a subtle problem created by the backlog.

For the following quick survey, please consider the last five USPTO office action responses that you signed.  Out of those five cases, how many of the corresponding US applications did you personally draft & file? (Obviously, this poll is primarily directed to individuals that prosecute patent applications).

[Don't forget to click "Vote" after selecting your response.]

Why do Applicants File So Many Requests for Continued Examination?

Of the patents issued thus far in 2010, more than 25% carry the baggage of a file history with at least one request for continued examination (RCE) and that rate is expected to rise. RCEs are also filed in a significant number of patent applications that are eventually abandoned. 

Patent Office management sees the high RCE rate as a symptom of a breakdown in the prosecution system. In their view, after two rounds of negotiation, the parties should have arrived at final positions — either by identifying appropriate patent-worthy claims or else by determining that no-such patentable subject matter exists. At that point, further negotiation with the same examiner makes little sense in the ordinary case. If the applicant and examiner come to an agreement then the case is concluded, otherwise the applicant appeals to a higher authority.

The Problem of RCEs: Although RCEs do generate USPTO revenue, they are troublesome because they frustrate the USPTO's goal of reducing the large backlog of 730,000+ unexamined patent applications. Furthermore, the current RCE fee of $810 ($405 for small entities) do not cover PTO expenses associated with the ongoing examination. The cost differential is made-up with maintenance and extension fees. In most of the RCE'd cases, the applicant and examiner eventually do reach an agreement without an appeal to the Board — but only after more rounds of discussion. This re-working of applications raises costs for patent applicants, delays patent issuance, prevents work on the backlog of cases, and generally makes all the parties look silly.

PatentlyO063No Solution Yet: Historically, the patent examiners count system provided some incentive for examiners to induce the filing of RCEs. The count system has been modified to reduce that incentive. Despite this disincentive, RCE filings do not appear to have dropped in any significant way.  Another growing RCE disincentive involves patent term adjustment (PTA). The long examination backlog is leading to unprecedented PTAs that can add additional months and years to the term of a patent. Although the filing of an RCE cuts-off the ongoing accumulation of (type-B) PTA, folks are continuing to file RCEs.

Explaining why RCEs are Filed: Although not universal, the broadest independent claims of a patent application are often narrowed during prosecution. It is important to recognize, however, that the narrowing amendments typically involve the inclusion of limitations already found in dependant claims. In the negotiation context, the dependent claims begin to look like pre-set negotiable points. It obviously takes time to reach some mutual agreement between the applicant and the PTO. Perhaps the usual case does need more than two rounds. However, my sense is that the high RCE numbers persist because initial office action rejections regularly fail to directly address the claimed invention and (consequently?) necessary claim amendments are not proffered by the applicant until after the final rejection. At that point, an RCE may be required. Of course, even in the best of times RCEs are sometimes unavoidable — such when prompted by the late discovery of important prior art. The additional time delay of RCEs may be helpful in other cases such as when limitations that distinguish the invention from the prior art are buried in the specification.

The PTO is looking for ways to reduce RCEs and more generally reduce the re-working of applications. To that end, I would like to ask two general questions that will help me create a follow-on survey:

  1. What is your explanation for the large number of RCE filings?
  2. What can the PTO do help prosecution conclude more quickly (on average) and reduce the number of RCE filings? (examiner behavior, PTO procedures, negotiation techniques, patent application format…)
  3. Do some patent attorneys disagree with my notion that the amendment process is a negotiation?

Ongoing Commentary on Bilski v. Kappos

Mayo v. Prometheus Labs: Bilski and Medical Methods

Mayo v. Prometheus Labs (On Remand to the Federal Circuit 2010)

The Federal Circuit’s first full post-Bilski decision may come in the case of Mayo v. Prometheus Labs. That case had been pending on a petition for a writ of certiorari to the Supreme Court. In a June 29 order, the Court granted the petition and then summarily vacated the decision with a remand to the Federal Circuit to reconsider the case “in light of Bilski v. Kappos, 561 U.S. ___ (2010).”  The Supreme Court regularly uses this grant-vacate-remand (“GVR”) proceeding for pending cases are impacted by a decision.

In the case, the Mayo Clinic has challenging the validity of two Prometheus patents based upon suspect patentable subject matter. (U.S. Patents 6,355,623 and 6,680,302). 

The Prometheus patents claims an iterative approach to dosing that involves three steps: (1) first administer a drug to a subject; (2) then determine the level of drug in the subject; and (3) finally decide whether the next dose should be the same, higher, or lower. The decision on the next dose is made by comparing the the level of the drug in the subject against predetermined thresholds. Claim 1 of the '302 patent adds additional detail including identifying the active ingredient (6-thioguanine), the diagnosis (a GI disorder), and the predetermined thresholds (e.g., 230 pmol of drug per 8108 red blood cells). Claim 46 of the '623 is a broad claim in that it does not not require the administration step (step 1 from above).

The Federal Circuit held the method patentable under its Bilski test by finding that the required administration of the drug transformed an article into a different state or thing — essentially creating a per se rule that a method requiring administration of a drug will be deemed patentable subject matter under Section 101. The court also held that the "determining the level" step was necessarily transformative since "those levels cannot be determined by mere inspection." 

On remand, the focus will shift from the machine-or-transformation test to the broader question of whether the claims are directed to a statutory “process” and/or whether the claim scope is impermissibly abstract. Of course, the machine-or-transformation test may still be instructive in answering these question.

Abstract Idea and Broad Functional Language: The claims are written in broad functional language without tying the the claimed methods to any particular technology. Thus, the "administering" step could potentially be accomplished by any effective method (that has or will be invented) of getting the drug into the subject. Likewise, the patent offers potential methods of "determining the level" of drug in the body (e.g., liquid chromatography) but the claim is broadly written to seemingly cover any mechanism that fulfills that method. 

Novelty Involves the Mental Step: Of course, the general iterative process is well known, what makes the Prometheus claims novel is that they identify the particular thresholds that are important (e.g., 230 pmol). In practice, the process of comparing the thresholds to the subject's drug level is done in the mind of a physician. As Mayo explains, this merely involves the physician's mental recognition of a natural correlation between metabolite levels and patient condition.

The case also represents a growing trend of pitting patient advocates (who want cheaper access to medicine) against innovators (who create better treatments).

Note: In the same Post-Bilski order, the Supreme Court also issued a GVR in the case of Classen Immunotherapies, Inc. v. Biogen IDEC.  On remand, the Federal Circuit will be asked to decide whether the following claim fits within the scope of 35 USC 101:

Claim: A method of determining whether an immunization schedule affects the incidence or severity of a chronic immune-mediated disorder in a treatment group of mammals, relative to a control group of mammals, which comprises immunizing mammals in the treatment group of mammals with one or more doses of one or more immunogens, according to said immunization schedule, and comparing the incidence, prevalence, frequency or severity of said chronic immune-mediated disorder or the level of a marker of such a disorder, in the treatment group, with that in the control group.

Guest Post: Why Bilski Benefits Startup Companies


I asked Professor Ted Sichelman to provide his thoughts on how the Bilski decision impacts start-up companies and their incentive to innovate. DC

By Ted Sichelman, University of San Diego School of Law

Before practicing law and becoming a professor, I founded and ran a small software company that sells speech recognition software to taxicab companies. After my company designed its technology, we filed for patents. Later on, when raising financing from angel and venture capital investors, they reviewed our pending applications carefully and considered them a way to stop potential competition. Indeed, in a recent survey of startup firms, the Berkeley Patent Survey—which I conducted with Robert Merges and Pamela Samuelson of UC Berkeley School of Law and Stuart Graham (now Chief Economist at the PTO)—startup executives reported that nearly 70% of venture capital firms and 50% of angel investors said that patents were important to their investment decisions. Relatively broad patentable subject matter assists startups in raising needed funds. As I have argued elsewhere, another reason for broad subject matter is that startups engage in substantial amounts of post-invention—but pre-commercialization—innovation that is not always technological in nature. For instance, many startups generate marketing, financial, legal, and other types of non-technological innovations during the costly commercialization process. Providing IP protection for these innovations not only can produce more of them, but also can help drive technology commercialization.

Assuming the Federal Circuit and the PTO do not go astray in implementing Bilski—which admittedly leaves many doors open to do so—the opinion will allow startups to continue to use patents to garner financing and will, hopefully, set an appropriate balance on the patentability of non-technological inventions. In particular, as I urged in an amicus brief with Professors Mark Lemley, Michael Risch, and Polk Wagner—Bilski rightly adheres to the 150-year old tradition that as long as the claimed invention is a machine, manufacture, composition of matter, or a process, only natural phenomena, laws of nature, and abstract ideas should be excluded from eligible subject matter.

One might contend that by allowing business methods—as well as software and other “intangible” innovations—to be patented, startup firms will encounter a greater “thicket” of patents, making it more difficult for them to enter particular markets. For example, an amicus brief in Bilski filed on behalf of “entrepreneurial and consumer advocates” argued that “if the PTO is permitted to grant broad business and service process patents, small start-up businesses would face an entirely new regime of business regulation – essentially requiring businesses to request private permits to operate from their competitors who have patents, independent of whatever technology the new business uses to compete.” Justice Stevens’ echoed this view by writing in his concurrence that business methods patents “can take a particular toll on small and upstart businesses.”

In actuality, under the Federal Circuit’s previous State Street Bank opinion, in operation for a decade prior to Bilski, the PTO regularly granted “broad business and service process patents” and there is little evidence that these patent-holders required startups to license them in any significant numbers. The Berkeley Patent Survey found that only 8% of the population of respondent software companies and 12% of venture-backed software companies had licensed-in even one patent. In sum total, a relatively low percentage, 0.6% and 3%, respectively, reported licensing a patent solely to avoid a lawsuit. And while Bilski ultimately holds that business methods are not per se unpatentable, the practical effect of the outcome will be to place unapplied business methods into the precluded “abstract idea” category. If implemented properly, such an approach will ensure that startups—and, indeed, larger and more established companies—are not unnecessarily subject to overly broad patents while maintaining robust incentives to innovate.

Ted Sichelman is an Assistant Professor at the University of San Diego School of Law, where he teaches patent law and other intellectual property courses.

Bilski v. Kappos and the Anti-State-Street-Majority

The 1998 Federal Circuit decision in State Street Bank opened the door to patent protection on a wider variety of innovations — especially in the fields of business methods and software. State Street held that an invention should be patent eligible under 35 U.S.C. §101 if it involves some practical application and “it produces a useful, concrete and tangible result.”

Although not rejected by the majority opinion, it is clear that the broad “useful, concrete, and tangible result” test is dead. That test is conclusively rejected by what I term the Anti-State-Street Majority — a majority created by the combining the two concurring opinions in Bilski and their five-justice majority. The result is that the scope of patentable subject matter is certainly narrowed from its 1998 high-water-mark.

* * * * *

In Bilski v. Kappos (2010), the majority opinion neither endorses nor rejects State Street — writing instead that “nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357.”

The two concurring opinions in Bilski (2010) both explicitly reject the Useful-Concrete-And-Tangible-Result test of State Street. Justice Stevens writes that “it would be a grave mistake to assume that anything with a ‘useful, concrete and tangible result,’ may be patented. (Justice Stevens concurrence at FN 1). Justice Breyer reiterated his prior statement that “if taken literally, the statement [that anything which produces a useful, concrete, and tangible result, is patentable] would cover instances where this court has held the contrary.” (Justice Breyer concurrence). The two concurrences are in agreement on this point and are signed by five Supreme Court Justices — leading to a second majority on that particular point.

Of course, in its In re Bilksi decision, the Federal Circuit already repudiated State Street as inadequate and "insufficient to determine whether a claim is patent-eligible under § 101."

Cumulatively, this means that the broadest notion of patentable subject matter as represented by State Street is not the law. Although not "the test" it appears that the USPTO will continue to use the machine-or-transformation test as a "tool" for determining whether particular process claims fit within Section 101. A recent Post-Bilski notice to examiners indicated as much:

Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101. If a claimed method meets the machine-or-transformation test, the method is likely patent eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea. If a claimed method does not meet the machine-or-transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected under section 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea.

I'm sure that our notion of the law will continue to develop as the Bilski decision makes its way into daily practice.

Bilski v. Kappos

Although Bilski's claims were held unpatentably abstract, the Supreme Court has re-affirmed that the door to patent eligibility should remain broad and open.

Bilski v. Kappos (Supreme Court 2010)(08-964)

The Supreme Court has issued its opinion in Bilski v. Kappos. In the decision, the Supreme Court affirmed that Bilski’s risk-management method was not the type of innovation that may be patented. However, rather than using the Federal Circuit's "machine-or-transformation test", the court simply relied on prior precedent to find the claimed method unpatentably abstract. Justice Kennedy authored the majority opinion. Justices Breyer and Stevens both wrote concurring opinions.

Business as Usual: In general, the opinion offers no clarity or aid for those tasked with determining whether a particular innovation falls within Section 101. The opinion provides no new lines to be avoided. Rather, the outcome from the decision might be best stated as "business as usual."

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

By refusing to state any particular rule or categorical exclusion, the Court has almost certainly pushed Section 101 patent eligibility to the background in most patent prosecution and litigation.

Business Methods: Section 101 does not categorically exclude business methods from patentability. Rather, the court noted that the prior-use defense found in Section 273(b)(1) of the Patent Act "explicitly contemplates the existence of at least some business method patents. . . . [B]y allowing this defense the statute itself acknowledges that there may be business method patents."
Software: Although the court expressly refused to rule on the patentability of software, it appears that software will largely remain patentable. At minimum, the decision would bar any categorical exclusion of software patents. The court neither endorsed nor rejected the Federal Circuit's past interpretations of Section 101 — Noting that "nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357."

Abstract Idea: The one thing that all nine justices agreed upon is that Bilski's method of hedging risk was not patentable because it is an abstract idea "just like the algorithms at issue in Benson and Flook."


The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

Petitioners’ remaining claims are broad examples of how hedging can be used in commodities and energy markets. Flook established that limiting an abstract idea to one field of use or adding token postsolution components did not make the concept patentable. That is exactly what the remaining claims in petitioners’ application do. These claims attempt to patent the use of the abstract idea of hedging risk in the energy market and then instruct the use of well-known random analysis techniques to help establish some of the inputs into the equation. Indeed, these claims add even less to the underlying abstract principle than the invention in Flook did, for the Flook invention was at least directed to the narrower domain of signaling dangers in operating a catalytic converter.

It is unclear to me how patent office examiners will be able to apply the test for abstract ideas in any meaningful way. I suspect that they will not. Rather, the best advice for the USPTO is to focus on Section II-A of Justice Kennedy's opinion. There, the opinion recognizes that Section 101 patent eligibility is "only a threshold test." To be patentable, the invention must also "be novel, see §102, nonobvious, see §103, and fully and particularly described, see §112."

What is the test?: 35 USC 101 offers patent protection for "any new and useful process, machine, manufacture, or composition of matter." Here, the focus was on the definition of a "process" because Bilski's patent application was written to claim a method of hedging risk. Although the majority opinion refused to define the term process, it did write that the machine-or-transformation test developed by the Federal Circuit does not define what is (and is not) a patentable process. Rather, the Court held that the machine-or-transformation offers "a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process." As a "clue," the machine-or-transformation test likely correlates with the existence of patentable subject matter. However, some patent claims that fail the test will still be patentable and other patent claims that pass the test will still be ineligible.   

Read the Opinion

BPAI Review of Obviousness Rejections

Ex parte Quist (BPAI 2010) (precedential opinion)

In only its second precedential opinion of 2010, the Board of Patent Appeals and Interferences (BPAI) has further developed its procedures for its review of obviousness rejections and consideration of evidence of nonobviousness.

On Board review, if the appellant raises the issue as to whether the examiner’s conclusion of obviousness was in error, based in part on the proffered evidence of secondary considerations, the panel must consider if the examiner erred in determining patentability, based upon the totality of the record. In such instances, the Board panel must consider anew all the relevant evidence of obviousness, both for and against, in view of the argument on the issue. One such instance requiring a reweighing is seen in the present appeal – if the Appellants argue that the Examiner erred in determining that the weight of the evidence supports a conclusion of obviousness, the Board must review that conclusion of obviousness anew to see if the preponderance of relevant evidence properly before the Office supports that conclusion.

This decision should be seen as a continuation of the Ex parte Frye (BPAI 2010) holding that the Board must review "the particular finding(s) contested by an appellant anew in light of all the evidence and argument on that issue.”

Despite taking a fresh look at the evidence and conclusions, the BPAI held that the examiner had been correct in determining that the claimed "process for the manufacturing of decorative boards with an abrasion resistant surface and edges" was indeed obvious.

Over 85% of BPAI appeals focus on obviousness. The BPAI has a current backlog of over 16,000 cases. At its current rate of disposal, this figure represents a 29-month backlog.


Bilski, Kenny Rogers and Supreme Court Rule 46

by Professor John F. Duffy, George Washington University Law School

You got to know when to hold 'em, know when to fold 'em
Know when to walk away, know when to run                       
                                       — Kenny Rogers in The Gambler

Kenny Rogers’ hit song The Gambler provides some wise strategic advice, valid not only in cards and but also in law and perhaps in life generally:   If “fold ’em” is an option, sometimes it is the best one. Supreme Court Rule 46 on “Dismissing Cases” provides petitioners in Supreme Court cases the opportunity to “fold ’em,” and in the days remaining before the Supreme Court delivers an opinion in its Bilski v. Kappos case, the most puzzling question in the case has become this: Why won’t the petititoners in Bilski fold?

From the perspective of the petitioners, the case for seeking dismissal seems overwhelmingly strong. In the months since the oral argument in Bilski, every Justice save Justice Stevens has delivered an opinion from the set of cases argued in the November sitting. Bilski remains the only case not decided from that sitting. Because only one case remains undecided and only one Justice has yet to deliver an opinion from that month, there is widespread agreement among those familiar with Supreme Court practice that Justice Stevens is writing the Court’s opinion in Bilski. Thus, the petitioners are now reduced to hoping that Justice Stevens, who once argued in dissent that all software should be outside patentable subject matter, will author an opinion that will be more pro-patent than the positions taken by all but one of the Federal Circuit judges.

But there’s more. Not only do petitioners have no realistic hope of winning anything in the case, they also have much to lose by persisting in the appeal. Petitioners—the named inventors in the application, Bernard Bilski and Rand Warsaw—and their firm WeatherWise have other patent claims, some issued and some pending, that pass the machine-or-transformation test but that may not pass whatever test Justice Stevens is busy constructing.

That’s a quick summary of the case for the petitioners seeking dismissal of Bilski. The details only make the case stronger. Then again, there is also a distinct possibility that petitioners’ side of the case may want to lose.

The Petitioners’ Chances for Victory: Nil.

Any rational consideration of persisting in a legal case should begin with a frank assessment of the chances for gain and loss.   I’ll begin with the chances for gain, for they are as close to zero as can be imagined.

Good poker players learn to read other players’ “tells,” subtle clues which give hints about the likely outcomes if the hand is played to completion. In Bilski, the Supreme Court has also given some awfully clear “tells” that do not bode well for the petitioners.

Most importantly, the assignment pattern of the Court’s opinions strongly suggests that Justice Stevens is writing the opinion. The assignment of opinions in the Court is typically done with two goals in mind: (1) to give each Justice the chance to author at least one majority opinion from each sitting; and (2) to average out the number of majority opinions written by each Justice. Twelve separate cases were argued in the November sitting, including Bilski. (This counts two cases—Graham v. Florida and Sullivan v. Florida—as effectively one case, as the two cases involved the same issue and were eventually decided the same day.) Every Justice has delivered a majority opinion from that month, with the exception of the Justice Stevens. Thus, most Supreme Court watchers would predict that the one remaining opinion from the month—Bilski—was assigned to Justice Stevens.

There is some uncertainty about this result, however. Pursuant to Supreme Court Rule 46, one of those twelve cases (Pottawattamie County v. McGhee) was dismissed two months after the oral argument, so the Justice assigned to write the opinion in that case is not publicly known. Still, Stevens still remains the most likely candidate to have been assigned the Bilski opinion because of the larger pattern of assignments from the Court’s first three sittings (September, October and November). During those three months, 26 cases were argued. If the Court were trying to average out the workload among the Justices, then every Justice save one should have been assigned three majority opinions to write.

By now, all Justices have delivered three majority opinions from those first sittings with the exception of Justices Stevens and Sotomayor. Justice Stevens has delivered only one majority opinion (a case argued in October); Justice Sotomayor has delivered two majority opinions (one each from October and November). It seems highly likely that Justice Stevens was assigned only two majority opinions to write from the first three sittings because Stevens was also writing the principal dissent in Citizens United v. FEC, the hugely important campaign finance case to which the Court gave expedited consideration.   (If, however, Justice Stevens was originally assigned three majority opinions, then he would have definitely been assigned Bilski.) Assuming Justice Stevens was assigned only two majority opinions, then the assignments to write majority opinions in Bilski and the now-dismissed Pottawattamie County case would have been distributed to Stevens and Sotomayor. Sotomayor would seem like the natural for Pottawattamie County, which involved the immunity of state prosecutors from civil liability, because Sotomayor served as a state criminal prosecutor under New York City’s Robert Morgenthau. Stevens, by contrast, was an antitrust lawyer before becoming a judge, and he has shown significant interest in patentable subject matter.

Another clue to the authorship of Bilski comes from the lengthy delay in announcing the opinion. As previously mentioned, Justice Stevens wrote the principal dissent in the Citizens United case, which was heard and decided on an expedited basis by the Court because of the case’s importance to the spring primary season. Stevens’ impassioned dissent in that case ran for 90 pages, and that opinion seems to have delayed the release Stevens’ other majority opinions. Indeed, for two months after the January decision in the Citizens United case, Justice Stevens was the only Justice on the Court not to have delivered any majority opinion during the entire Term.

If, as seems likely, Justice Stevens is writing the majority opinion in Bilski, that is an awful omen for the petitioners. Justice Stevens wrote the majority opinion for the Court in Parker v. Flook (1978), which created the enigmatic rule that certain forms of “post-solution activity” cannot transform an unpatentable principle into a patentable process. Justice Stevens is also one of the few Justices ever to attempt to draw bright-line rules for excluding whole fields from the patent system. His dissent in Diamond v. Diehr, 450 U.S. 175, 193 (1981), sought to promulgate “an unequivocal holding that no program-related invention is a patentable process under § 101 unless it makes a contribution to the art that is not dependent entirely on the utilization of a computer.” 450 U.S. at 219.

In addition to the Court’s fairly clear “tell” that Justice Stevens will deliver the opinion of the Court, there are other signs that the petitioners’ chances for ultimate success are nil. The oral argument did not go well at all for petitioners’ counsel (to put it mildly), and a significant portion of the government’s argument was devoted to arguing that the Court should not impose a more restrictive rule than that sought by the PTO (e.g., a complete ban on business method patents, whether machine implemented or not). See Transcript of Argument at 40-50. In addition, at the Federal Circuit, even Judge Rader—one of the two judges willing to take a more comprehensive view of patentable subject matter—stated explicitly that he would agree the petitioners’ claims were unpatentable as abstract ideas.

Finally, if more evidence were needed, there is the PTO’s extraordinary record of success at the Supreme Court in patent cases. Two recent articles, one by Colleen Chien of Santa Clara University and one of my own, have independently noted that, since the creation of the Federal Circuit, the government’s substantive positions on patent law have always prevailed at the Supreme Court. See Colleen Chien, Patent Amicus Briefs: What the Courts’ Friends Can Teach Us About the Patent System (2010); John F. Duffy, The Federal Circuit in the Shadow of the Solicitor General, 78 G.W.U. L. Rev. 518 (2010).   The petitioners in Bilski must hope that the Supreme Court will finally rule against the government, and in an opinion by Justice Stevens, stake out a much more pro-patent position than every judge on the Federal Circuit save one.

The Value of Dismissal.

The impossibly slim odds of winning would not matter to the petitioners if they had nothing to lose from persisting in the appeal. But petitioners Bilski and Warsaw have at least two pending patent applications on business methods for hedging risk. See U.S. Pat. App. 200030233323 A1 (Dec. 18, 2003); U.S. Pat. App. 20040122764 A1 (June 24, 2004). Furthermore, Petitioner Warsaw also is the named inventor on several issued claims in a patent assigned to the firm WeatherWise.   See U.S. Pat. No. 6,785,620 (2004). Many of the claims in that patent would seem to pass the machine-or-transformation test, as the claims cover “system[s]” that include various modules for storing and manipulating data. Some claims are also directed to a “computer-readable medium having stored thereon instructions,” which is a form of claim for covering business software that the government currently views as permissible but that could be jeopardized by an unfavorable Supreme Court opinion in Bilski.   

If the Bilski case were dismissed, a decision about patentable subject matter would be left for the future. From the standpoint of petitioners, the future would better for two reason. First, Justice Stevens would be replaced by a new Justice, likely Elana Kagan. That change has to favor those on the side of the petitioners since Justice Stevens takes a more restrictive view of patentable subject matter than many of the other Justices on the Court. By contrast, the Solicitor General’s Office under Kagan expressly endorsed the position (stated during the Bilski oral argument) that the Federal Circuit had correctly decided State Street Bank v. Signature Financial. See Transcript of Oral Argument at 44. The future also presents the possibility of a different case, with perhaps more attractive facts.

Dismissal: Still Time?

Supreme Court Rule 46.1 allows any case to be dismissed, even after the oral argument, by agreement of the parties. The Rule directs that, upon filing of such an agreement, the Clerk of the Court, “without further reference to the Court, will enter an order of dismissal.” Furthermore, Rule 46.2 allows petitioners unilaterally to seek dismissal by agreeing to pay all the court costs and fees due. (Such costs and fees are not attorneys’ fees but merely the minor costs associated with the appeal that are paid by the losing party in any case.) The grounds on which respondents may object to such a filing are strictly “limited to the amount of damages and costs in this Court alleged to be payable or to showing that the moving party does not represent all petitioners or appellants.” The Clerk of the Court is directed “not [to] file any objection not so limited.”

The Rule reflects a very clear policy that the Court will not plunge ahead to decide a case if the petitioners have decided to “fold ’em,” and that policy makes perfect sense from the Court’s perspective. The Supreme Court has plenty of cases to decide, and important issues eventually percolate back up to the Court if they really need to be decided. Indeed, in the November sitting alone, the Pottawattamie County case was dismissed even though argument had been heard two months earlier and the case involved an important issue about the scope of prosecutors’ immunity.

True, if the Solicitor General’s Office were unwilling to agree to the dismissal, it is unclear what would happen. At oral argument, however, the advocate for the Solicitor General’s Office emphasized that the government thought the Court should never have taken the case because it was an “unsuitable vehicle” to decide questions of patentable subject matter. Transcript of Argument at 48. Moreover, the Solicitor General’s Office is very much a repeat player at the Supreme Court, and thus the Office tends to be willing to follow not just the letter but also the spirit of the Court’s rules. Since those rules reflect a fairly clear policy that petitioners’ dismissals should not be opposed unless the petitioner either is not willing to pay costs or does not represent all petitioners, the Solicitor General’s Office seems unlikely to attempt to thwart dismissal where the petitioners comply with the conditions of Rule 46.

A Final Point: A Desired Defeat?

All of the above makes the crucial assumption that the petitioners in Biski want to sustain the patentability of business method patents such as their own. But that assumption may be wrong. The patent application at issue is no longer owned by Bernard Bilski, Rand Warsaw or even WeatherWise, the small start-up company that holds similar patent claims on hedging energy consumption risks and is merely a licensee of the patent application at issue in the case (see Paul Schaafsma news article noting the licensing relationship). As the petitioners’ briefs in the Supreme Court disclose, the real party in interest in the case is Equitable Resources Inc., renamed EQT Inc. during the pendency of the case. See Petitioners’ Reply Brief at (i). That corporation has market capitalization of $5.4 billion (see EQT Financial Report). A quick search of the PTO’s database does not show any issued patents owned by this corporation, and the company’s most recent annual report filed with the SEC makes no mention of patents or intellectual property. It is not at all clear that such a company really wants to have patent protection for innovative ways to manage energy costs or risks, or for any other form of business method. Large companies are often the targets of patent infringement litigation, and start-ups often see patents as a means to compete against established firms. Indeed, the Warsaw patent on hedging risk—which is assigned to WeatherWise, not EQT—could itself provide a reason why the petitioners’ side of the case would welcome defeat.

It remains a puzzle why the petitioners in this case are persisting in an appeal that seems not only doomed but also capable of establishing new and unpredictable restrictions to the scope of patentable subject matter. I had previously thought that “irrational exuberance” provided the best answer—that the Bilski petitioners were likely to remain unrealistically optimistic about their chances for success right up to the end. But the presence of a multibillion-dollar corporation controlling the litigation decreases the chances that the strategy is due to simple inventor over-optimism. Perhaps the entity controlling the petitioners’ side of the case is really quite wily, for there would be no cause to “fold ’em,” if the petitioners’ side would view thorough defeat as victory. That would explain much.  

Employee and Officer Liability for Inducing Infringement

By Jason Rantanen, Visiting Scholar at UC Hastings School of Law

Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc. (Fed. Cir. 2010)

In most patent cases, companies are the ones sued as alleged infringers. But sometimes individuals—particularly corporate officers—are also named as defendants.   While this often occurs when the company accused of infringing appears to be merely the officers’ alter ego, corporate officers can be liable for indirect infringement even when the corporate veil is not pierced.

In Wordtech, the patentholder (Wordtech) sued both a corporation (INSC) and the two principal employees of that corporation. A jury found the claims infringed both directly and indirectly by the corporation’s products, and awarded damages against all three defendants. The jury also returned a verdict of willful infringement of the asserted patents, and the trial judge trebled the jury’s damages award. The two employees appealed the verdict of liability entered against them, and all three defendants appealed the damages determination and district court’s denial of a motion for leave to amend their answer.

Individual Liability

Generally, the “corporate veil” shields officers from liability for tortious conduct occurring in the regular course of their employment, and the employees in Wordtech filed a motion for judgment as a matter of law (“JMOL”) based on this doctrine. The district court denied this motion, allowing the jury to find that the employees infringed the patents.

Individual Liability for Direct Infringement

On appeal, the Federal Circuit affirmed the denial of the motion for JMOL with respect to direct infringement because Wordtech presented substantial evidence during trial that the corporation was nonexistent under Nevada law and, even if it existed, the corporate veil should be pierced. However, the appellate court agreed with defendants that the lack of any instruction on corporate status constituted plain error, and remanded for further proceedings on personal liability for direct infringement.

Individual Liability for Indirect Infringement

The most interesting aspect of the opinion was the Federal Circuit’s ruling on the indirect infringement claims against the employees. Although the court addressed inducement and contributory infringement separately, it applied virtually identical reasoning to both.

The panel began by affirming the denial of the defendants’ Rule 50(a) and 50(b) motions based on the corporate veil theory, pointing out that “corporate officers who actively assist with their corporation’s infringement may be personally liable for inducing infringement regardless of whether the circumstances are such that a court should disregard the corporate entity and pierce the corporate veil.” Slip Op. at 12.   It applied the same reasoning to contributory infringement, concluding that “a corporation does not shield officers from liability for personally participating in contributory infringement.” Slip Op. at 14. Under these rules, the court rejected the individual defendants’ corporate veil defense as irrelevant to issues of inducement and contributory infringement.

Nevertheless, the panel concluded that the employees were entitled to a new trial due to flawed jury instructions, which asked only whether the accused product induced or contributed to infringement. Because a product cannot possess the necessary mens rea elements of inducement or contributory infringement, and there were no jury instructions that might have mitigated the error, the court vacated the verdict of liability.[1]


Addressing the issue of excessive damages in the context of its review of a denial of a motion for a new trial, the panel considered the evidence supporting the jury’s damages finding, which was based on a reasonable royalty under a hypothetical negotiation theory.   The panel reviewed the licenses Wordtech relied upon for the hypothetical negotiation and concluded that the verdict was not supported by the evidence and based solely on speculation and guesswork. This portion of the opinion is noteworthy for the court’s detailed discussion of the licenses and its rejection of them on an array of different grounds.

Denial of Motion to Amend

In a curious twist, the trial and subsequent appeal involved no substantive invalidity issues. This was due to defendants’ failure to raise an invalidity defense in their answer, apparently relying on the fact that a previous co-defendant school district had included the defense in its answer. After INSC and its two employees learned that the school district had settled with the patent holder, they moved to amend their answer to add invalidity defenses. The Federal Circuit declined to find that the district court abused its discretion in denying the motion, as it was filed months after the close of discovery despite the defendants’ prior knowledge of the invalidity defenses they intended to raise.



  • Ultimately, the favorable result for the individual defendants turned not on the legal question of whether officers can be liable for patent infringement, but rather on flawed jury instructions. This suggests two lessons from this case: first, be aware of potential employee liability, especially for indirect infringement, and second, make sure your jury instructions accurately reflect the elements of the issues being presented to the jury.
  • Although the opinion describes the individual defendants as employees, the rules it applies refer to corporate officers. This may be reconciled by the fact that Wordtech presented evidence at trial supporting the conclusion that they were officers.   See Slip Op. at 11. Nevertheless, this opinion arguably could be used to apply indirect infringement claims to employees, provided that the necessary mens rea elements are present.

[1] The panel also noted that Wordtech failed to identify proof of elements required for contributory infringement, including the existence of any direct infringement corresponding to the alleged contributory actions. With respect to inducement, although the opinion is silent on who the officers were inducing to infringe, the patentee’s brief indicates that its theory was that the officers induced the corporation’s direct infringement, similar to the circumstances in Power Lift, Inc. v. Lang Tools, Inc., 774 F.2d 478 (Fed. Cir. 1985).

About Jason: After spending several years in practice as a patent litigator, Jason Rantanen is now looking at law from the academic side and is currently a Visiting Scholar at UC Hastings. His recent research focuses on the concept of mens rea in patent law.

Business Method Patents: Insurance Companies Fighting over Patented Annuity Plans

Lincoln National Life Insurance Co. v. Transamerica Life Insurance Co. (Fed. Cir. 2010)

It is not unusual to see insurance companies in litigation. What is unusual here is that the context is patent infringement. Lincoln is pursuing Transamerica and others for infringement of its patents covering a method of administering a variable annuity plan with a guaranteed minimum payment that continues even after an account had been exhausted. Although clearly a business method, the asserted claims do recite (in the preambles) that the method is "computerized."  U.S. Patent No. 7,089,201.

A jury found the claims valid and infringed and awarded $13 million in damages. On appeal, Transamerica asked for reversal of the infringement verdict and for an opportunity to present its case on patentable subject matter. The Federal Circuit reversed on infringement.

Non-Infringement: The asserted claims require that scheduled payments be made "even if the account value is exhausted before all payments have been made." Transamerica argued that it could not infringe because (1) none of its subscribers had ever "exhausted" their accounts and (2) that its computer system has not been configured to automatically pay on an exhausted account.

On appeal, the Federal Circuit agreed with the patentee that the claim did not require that any accounts actually be exhausted. Rather, the claim only requires a particular action if the accounts are exhausted.

On the second point, however, the Federal Circuit agreed with the accused infringer — finding that "nothing in the record" shows that Transamerica uses a computer system to make scheduled payments once an account has been exhausted.

Legal Obligation to Infringe: As an interesting tid-bit, Transamerica's contracts apparently do required the company to continue making scheduled payments even after its accounts had been exhausted.  The Federal Circuit rejected the legal obligation as proof of infringement — holding instead that the claims require computer implementation of the method. Furthermore, a contractual obligation to perform a method does not constitute infringement. Rather, infringement requires performance: "A contractual obligation to perform an act is not performance; indeed, a party could avoid infringement simply by breaching its contract."

Non-Patentable Subject Matter: Based on its non-infringement holding, the Federal Circuit left the Section 101 question undecided as moot.


Patently-O Bits and Bytes

  • Thank you Sponsors:
  • Speaking of the Job-Board. There are several new listings:
    • Leviton Manufacturing (Long Island, New York) needs to hire a patent agent to manage both US and Foreign prosecution.
    • The International IP firm of Ladas and Parry seeks EE patent prosecutors in Los Angeles as well as IP attorneys with their own books of business.
    • Pfizer seeks an experienced patent attorney to join its small molecule therapeutics team in Groton, Connecticut.
    • In Washington, D.C., the firm of Smith, Grambrell & Russell, LLP is seeking an experienced patent attorney with a mechanical engineering background.
  • Speaking of MBHB.
    • I'm proud to announce that Team USA is champion the 2010 Patent Cup Regatta held this year off the island of Marstrand in Sweden. Team USA included three MBHB partners – Leif Sigmond (captain), Marcus Thymian, and Michael Gannon – along with Derek Minihane of Cochlear. The US team beat-out competing teams from Canada, Brazil, France, Germany, UK, and the EPO. [Link]
  • Patenting Methods of Paying for Patents
    • WhitServe LLC v. Benesch Friedlander Coplan & Aranoff LLP et al., 8-10-cv-01639 (D. Md. 2010). [Zura]

Patently-O Bits and Bytes

  • Thank you Sponsors:
  • Speaking of the Job-Board. There are several new listings:
    • Leviton Manufacturing (Long Island, New York) needs to hire a patent agent to manage both US and Foreign prosecution.
    • The International IP firm of Ladas and Parry seeks EE patent prosecutors in Los Angeles as well as IP attorneys with their own books of business.
    • Pfizer seeks an experienced patent attorney to join its small molecule therapeutics team in Groton, Connecticut.
    • In Washington, D.C., the firm of Smith, Grambrell & Russell, LLP is seeking an experienced patent attorney with a mechanical engineering background.
  • Speaking of MBHB.
    • I'm proud to announce that Team USA is champion the 2010 Patent Cup Regatta held this year off the island of Marstrand in Sweden. Team USA included three MBHB partners – Leif Sigmond (captain), Marcus Thymian, and Michael Gannon – along with Derek Minihane of Cochlear. The US team beat-out competing teams from Canada, Brazil, France, Germany, UK, and the EPO. [Link]
  • Patenting Methods of Paying for Patents
    • WhitServe LLC v. Benesch Friedlander Coplan & Aranoff LLP et al., 8-10-cv-01639 (D. Md. 2010). [Zura]

Submitting Positive Decisions to the World Patent Offices

A large number of US patent applications have corresponding applications being examined in various office actions around the world. Although the major Patent Offices generally give no legal deference to the decisions of another Office, it makes sense that the decision of a first-examining Office would at least inform the analysis of the second-examining Office.

On that note, is it a regular practice of patent applicants to highlight the positive actions of other offices (such as the allowance of parallel claims)? Are there certain worldwide offices where this type of submission is more common?

Terminal Disclaimers and PTO: Proposal for a Test Case

Obviousness-type non-statutory double patenting is a judicially created doctrine that operates to prevent patentees from improperly extending a patent's effective term through successive patent grants.

The non-statutory double patenting doctrine was created at a time when patent term was measured from the grant date. At that time, it was easy to "play games" with the patent terms by using a series of continuation applications. Because patent term (for new patents) is now defined by the filing/priority date, most of the potential for games has been eliminated because a family of related applications will typically have the same term. However, a growing issue is patent term adjustment (PTA) that increases the patent term for applications with long prosecution pendency. Because of the increased backlog and changes to PTA calculations, it is likely that later-issued applications in a family will have a longer PTA.

Courts and the PTO have agreed that a patentee can overcome a non-statutory double patenting problem by filing a terminal disclaimer that ties the patent-term of a later-granted patent to the patent term of an earlier-granted patent.

The impact of a terminal disclaimer depends upon what was actually disclaimed. Although applicants can draft their own terminal disclaimer, most folks use the form provided by the USPTO. (SB-0025). The PTO Form disclaims the term of the later-issued patent that extends beyond the earlier-issued patent's term. Regarding PTA, the Form expressly ties the later-issued patent's term to the PTA-adjusted term of the earlier-issued patent.

Although not expressly stated, the Form seems to imply that the PTA of the later-issued patent can be cut-short by the disclaimer. That result, however, is not compelled by the law. In theory (and largely in practice) PTA is based on patent office delay. As such, the equitable basis of the non-statutory double patenting doctrine might not apply to require disclaimer of PTA.

A patent applicant may want to pursue a test-case by modifying the terminal disclaimer form to expressly state that the disclaimer does not cut short the PTA of that later-issued patent. Thus, the term of a later-issued patent with a 400-day PTA and a terminal-disclaimer would limited to the term of the earlier-issued patent plus 400-days.


SGI v. AMD: Chief Judge Rader on Claim Construction

Silicon Graphics, Inc. (SGI) v. ATI Technologies, Inc. and Advanced Micro Devices (AMD) (Fed. Cir. 2010)

In his first opinion as Chief, Judge Rader provided the parties with a lesson in claim construction. This decision is a case-in-point for the high value of professional patent drafting because the decision turns on the esoterics of claim construction. This decision also highlights the primacy of claim construction in the infringement analysis. Namely, the question of whether ATI chips infringe was boiled-down into an interpretation of the claim language.

SGI’s patent is directed to graphics processing hardware that uses floating point calculations.

Meaning of “A”: The asserted patent claims include “a rasterization circuit . . . that rasterizes the primitive according to a rasterization process which operates on a floating point format.” Although the accused ATI chips do use floating point numbers, the ATI rasterization process also uses fixed-point numbers. The district court held that the ATI chips could not infringe because their rasterization process does not operate in floating point format “as a whole.”

On appeal, the Federal Circuit re-parsed the claim language and rejected the district court’s construction as erroneous. Rather, the fact that a circuit rasterizes using fixed point format does not preclude the circuit from also using “a rasterization process which operates on a floating point format” as required by the specification.

The use of the indefinite article “a” in the claim, when coupled with the list of processes provided in the specification, makes it clear that the claims’ references to “a rasterization process” means “one or more rasterization processes.”

The limitation “a rasterization process which operates on a floating point format” therefore means that “one or more of the rasterization processes (e.g., scan conversion, color, texture, fog, shading) operate on a floating point format.” This construction is also in line with the rest of the specification. Nowhere does the specification teach that all rasterization processes must operate on a floating point format.

Summary of the Invention: The claim also requires that the rasterization circuit perform “scan conversion.” The district court required that the scan conversion be accomplished entirely using floating point numbers. On appeal, the Federal Circuit agreed with that interpretation. In making its decision to limit the breadth of the term, the court looked to a statement from the Summary of the Invention that: “the scan conversion process is now handled entirely on a floating point basis” and another statement from the specification that “this rasterization process is performed exclusively in a floating point format.” In several places, the specification indicated that various operations could be performed using fixed point numbers. However, the court held those statements insufficient because they were never specifically directed to the scan conversion process. “Thus general language in the specification permitting some operations to be done in fixed point does not work to contradict the specific language that requires scan conversion in floating point.”