April 2016

Patentlyo Bits and Bytes by Anthony McCain

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Federal Circuit Continues Broad Venue Allowance in Patent Cases

by Dennis Crouch

In its petition for writ of mandamus, TC Heartland raised a set of interesting venue and personal jurisdiction claims – basically arguing that both the statute and Supreme Court precedent strongly limit where patent claims can be brought.

In its new decision, however, the Federal Circuit panel has rejected the petition – finding that “Heartland’s arguments are foreclosed by our longstanding precedent.”  This result was expected – likely even by Heartland’s counsel Prof John Duffy and Jim Dabney – and the long game has seemingly always been focused on en banc review and a potential supreme court review.  An eventual win by Heartland would result in a major shake-up of patent litigation by greatly reducing the concentration of patent cases – especially those in the Eastern District of Texas.

The basic setup:

Heartland alleged that it is not registered to do business in Delaware, has no local presence in Delaware, has not entered into any supply contracts in Delaware or called on any accounts there to solicit sales. But Heartland admitted it ships orders of the accused products into Delaware pursuant to contracts with two national accounts.

Based upon this setup, Heartland argues (1) that it does not “reside” in Delaware for venue purposes according to 28 U.S.C. § 1400(b); and (2) that Delaware district court lacks specific personal jurisdiction over it for this civil action.

Unfortunately for Heartland, these same arguments were raised and resolved by VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).  Although Heartland presented an argument that an amendment to the statute overruled VE Holdings, that argument was flimsy and rightly rejected by the appellate panel.  Rather, the real argument – now to be presented en banc – is that VE Holdings was wrongly decided and represents a misinterpretation of both the statute and Supreme Court precedent.

I previously explained the primary argument as follows:

In the dispute, Heartland has asked the court to reconsider its interpretation of the patent venue statute 28 U.S.C. § 1400(b) and order that the limiting elements of the provision be given effect.  Under the proposed interpretation, a patent infringement case could only be filed in districts either (1) the defendant resides or (2) the defendant has both committed acts of infringement and has a regular and established place of business. This proposal stems directly from the language of 28 U.S.C. § 1400(b) which requires either (1) residency or (2)  a combination of infringing acts plus a regular-place-of-business as a prerequisite to proper patent venue. For the past several decades the limits of § 1400(b) have been given essentially no weight after being undermined by 28 U.S.C. § 1391(c). This broadened provision undermines § 1400(b) by providing a very broad definition of the term “resides” — indicating that that “except as otherwise provided by law,” a defendant will be deemed to “reside” in any venue where the defendant is subject to that court’s personal jurisdiction in the action at hand. When § 1400(b) and § 1391(c) are read together, it appears that patent cases can be filed in any venue with personal jurisdiction over the defendant.  The point of the TC Heartland mandamus action is that those two provisions should not be read together, but instead, the more traditional and limited definition of “residency” should apply when interpreting 1400(b).

On TC Heartland’s side is Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  In that case, the Supreme Court ruled that “28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).”  This statement was reiterated by the Supreme Court in Brunette Mach. Works Ltd. v. Kockum Indus., Inc., 406 U.S. 706 (1972) (“Congress placed patent infringement cases in a class by them-selves, outside the scope of general venue legislation.”).  Congress then amended the statute which led the Federal Circuit to hold that Fourco no longer held sway.




Patent Quality Symposium Report – USPTO Patent Quality Initiative Moving Forward

Guest Post by Professors Colleen Chien, Santa Clara University Law School and Arti Rai, Duke Law School

On Wednesday, April 27, 2016, the USPTO hosted a day-long conference around the one-year anniversary of its Enhanced Patent Quality Initiative. We were among the over 1,800 virtual attendees (in addition to over 400 participants at USPTO headquarters and in the satellite offices) and provide this brief summary of some of the highlights. A recording of the day is available here, and information on the launch of the Office’s Stakeholder Training on Examination Practice and Procedure (STEPP) program is here. The USPTO’s current request for comments on patent quality metrics, including the Master Review Form (MRF), is due May 24. Santa Clara Law research assistant Angela Habbibi is pulling together a summary of the USPTO’s request for comments on quality case studies here, and the hardworking students of the Berkeley Technology Law Journal have done the same, with respect to comments submitted to the USPTO from last year, here, and comments submitted to the Journal here.

USPTO Director Michelle Lee and Deputy Commissioner for Patent Quality Valencia Martin-Wallace opened the day by highlighting four inter-related components: 1) the clarity of the record pilot; 2) new quality metrics, as embodied in a new Master Review Form; 3) using post-grant outcomes to improve patent examination; and 4) improved prior art search, so as to accomplish “compact prosecution.”  Subsequent speakers discussed each of these components in detail, generally with a focus on one or more of the following themes – clarity, consistency, accountability, and collaboration.

Clarity of Record Pilot

Robin Evans, Director of TC 2800, focused on the clarity of the record pilot, which started in March and will run for 6 months. The pilot includes approximately 130 randomly selected examiner participants, (all GS 11-15 with at least years of 2 years of experience) and 45 SPEs.  The USPTO anticipates processing about 2000 applications through the pilot.

Examiners in the pilot will focus on enhancing documentation of claim interpretation (including functional/112(f) language), giving more precise reasons for allowance, doing pre-search interviews at the request of the examiner, and giving more detailed interview summaries.  Examiners are also supposed to document the amount of time they spend improving clarity. Examination conducted in the pilot will be compared with that conducted by a control group composed of similar examiners.

Master Review Form, Consistency, and Data Collection and Analysis

According to Director Lee and Brian Hanlon, the Director of the Office of Patent Legal Administration, the pilot’s emphasis on record clarity is also embodied in the new 25-page Master Review Form for quality, which places equal weight on clarity and correctness.  As Marty Rater, Chief Statistician of the Office of Patent Quality Assurance explained in the afternoon, the MRF is the Office’s response to a general perception that the quality composite that the Office has long relied upon needed to be replaced.  While not all 25-pages would be used for any one application, having a single uniform form will enable previously siloed reviews, carried on (for example) at the TC, OPQA, and other levels, to draw from a common core of data and improve consistency across the agency. Stakeholders in the afternoon session provided feedback on how the MRF could be made clearer and shorter, so as to facilitate consistent reviews.

A look at the 135 quality case study topics submitted for consideration to the USPTO in response to a recent request highlights that consistency in the application of Sections 101, 103, and 112 is perhaps the greatest concern. Consistency has ramifications for compact prosecution and continuation practice as well. If an applicant is confident that her applications are consistently subjected to high-quality examination, she may find it easier to appeal or abandon on the basis of a final rejection, rather than continuing the case in hopes of a different outcome from a different examiner on the same patent application.

In line with the case study suggestions, the USPTO aims to address concerns about particular types of examiner rejections and consistency across technology groups within the patent corps. To that end, it will be conducting studies on the use of section 101 and 112(f) by examiners; on the correctness and clarity of motivation statements in obviousness rejections based on combining references; and enforcement of written description requirements in continuation applications.

The release by the Patent Office of large amounts of data in accordance with the Obama Administration’s decision to treat government data as a national asset of the American people has led to the burgeoning of patent data companies and innovation, with at least 135 companies relying on patent data, according to a count by one of us. But a question regarding data analysis by external sources prompted Valencia Martin-Wallace to note that these external sources produced results that didn’t always match the USPTO’s own analyses.  Deputy Director Russ Slifer elaborated on this theme by noting that the USPTO wanted to be part of the community dialogue on data analysis and had recently put out a large amount of publicly available, freely analyzable data at https://developer.uspto.gov.

Use of Post-Grant Outcomes

Jack Harvey, the Acting Assistant Deputy Commissioner for Patent Operations, discussed several objectives with respect to a just-initiated pilot, expected to last 3-4 months, that will use of post-grant outcomes to enhance quality.  First, in cases where patents petitioned before the PTAB have related applications pending, the examiner on the related applications will receive the petition. Second, and more broadly, data collected from post-grant proceedings will be used to improve examiner search strategy, both at the level of the individual examiner and also across the corps. It’s our understanding that such “feedback loops” have also been a feature of EPO practice: in which nullity proceedings involve the original patent examining team that granted the patent, which can then learn from the post-grant proceedings.

Improved Search and Training

According to Maria Holtmann, Director of International Programs, the goal of improved search will also be pursued through a pilot, to be begun later this year, that will “jumpstart” search by providing automated pre-examination search results.  Ongoing pilots are currently providing examiners with JPO and KIPO search reports prior to the first office action.  And the Global Dossier now provides examiners and the public with “one-stop access” to dossiers of all related applications in the IP5.

We were happy to hear that access to comprehensive prior art sources – including non-patent sources – earlier in the examination process is seen as a major patent quality lever. Work by one of us suggests that European Patent Office search reports cite non-patent literature sources more than USPTO examiners rely upon on them in their own examination, but a number of existing and future initiatives could close this gap. As Donald Hajec, Assistant Deputy Commissioner for Patent Operations, described, the USPTO  is promoting greater awareness of non-patent technical sources, through the STIC, crowdsourcing of NPL, and technical training by outside scientists through the PETTP program, for example. And in line with numerous commentators who have emphasized the importance of Section 112 in policing quality, Hajec stressed the extensive training examiners, particularly those in electrical/mechanical and computer/software art units, have received on Section 112(a) (written description and enablement), 112(b) definiteness, and 112(f).


During the last set of panels, moderated by Deputy Director Russ Slifer, participants from companies and law firms acknowledged the responsibility for patent quality that stakeholders share with the USPTO. The participants on the panel provided their sense of 1) what initiatives of the USPTO initiatives are working for stakeholders and what needs improvement, 2)  the wide variability in the business uses of patents based on company size and industry, and 3) what stakeholders could do, on their own or in conjunction with Examiners, to improve the quality of submitted applications and patent prosecution.

In particular, props were given to Track One, which Bill Bunker of Knobbe commented that certain clients (not small entities) use exclusively, with a much more efficient outcome. He also described the First Action Interview Program as a good early opportunity to achieve a meeting of the minds. Other panelists applauded the USPTO for focusing on patent quality, a topic that they thought had significant economic consequences and was imperative to the functioning and perception of the patent system. However, Laura Sheridan of Google observed that the voluntary nature of certain initiatives like the glossary pilot program limited their impact, and that mandatory enforcement would likely be more effective at raising quality uniformly across applications.

An interesting question is whether or not all patents “need” to be of the highest quality, given the diverse business uses of patents by different types of companies and industries. SAS files patents primarily for defensive reasons, commented Tim Wilson, and needs to have reliable patents for negotiations. In contrast, according to Bill Nydegger of Workman Nydeggerr commented, startups are often just trying to validate their technology and get an issued patent, rather than thinking about it being tested in court or negotiations. Biopharma patents often prove their value in the last five years of a patent’s life, with written description and utility requirements providing the most important filters, Kevin Noonan of MBHB commented.

For both the USPTO and prosecutors, the challenge of increasing quality in the face of flat budgets and price pressure is quite real, although perhaps less of an issue in the biopharma sector. In that vein, several ways to do more with less were discussed. In response to a question from Deputy Director Slifer, panelists discussed how they could continue to ensure that patent prosecutors were actually pursuing a strategy that serves the business use – whether that be to cover one’s own product or that of a competitor. Although getting an issued patent is often the goal of the prosecutor, if its scope is diminished to such a degree that it doesn’t make business sense, cutting off prosecution earlier may be the right approach. In addition, greater collaboration between examiners and applicants earlier in the process could streamline the process. Examiners would probably appreciate applicant summaries of the subject matter. Though applicants are loath to put material into the record, examiners could perhaps get a demonstration of the technology before examination and search began, enabling a substantive discussion of the prior art early in the process.

One question that deserves more attention, in our opinion, is whether the USPTO could provide “model applications” or patents to facilitate  public understanding of what a “quality” application looks like from the standpoint of the USPTO. Shared responsibility comes from shared understanding. The newly devised STEPP program, to educate law-firm and in-house practitioners on how Patent Examiners review applications, starting in July, as well as the Symposium overall, are important steps in achieving shared understanding, and we join the patent community in applauding USPTO efforts.

To further these efforts, our institutions, Santa Clara and Duke Law Schools, will be hosting two conferences on USPTO initiatives and other levers for improving patent quality later this year.  The conferences will be held in Santa Clara and also in the DC area and will focus on empirical evaluation of patent quality levers.  We will provide more information on these forthcoming conferences shortly.

DTSA as a Shoe Horn for Contract and Employment Law Claims

I expect that an important result of the Defend Trade Secrets Act (DTSA) will be the creation of supplemental federal jurisdiction over contract and employment disputes that are otherwise a matter of state law decided by state courts.  The majority of trade secret lawsuits also involve breach of contract and/or employment law claims – with the breach serving as the requisite ‘improper means,’

The DTSA provides federal district courts with original jurisdiction of the new federal claim of trade secret misappropriation.  Once a federal cause of action is established, the court will also “have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367(a).   Where, as above, the breach of contract or employment duty wrapped into the factual tale of trade secret misappropriation then a court would likely find the supplemental jurisdiction requirements met.   The statute goes on to give district courts deference to “decline to exercise supplemental jurisdiction” in certain situation.  28 U.S.C. § 1367(c).

As we move toward more contract cases in Federal Courts, it will be interesting to see the extent that large corporations next push for federalizing of contract law.


Implementing and Interpreting the Defend Trade Secrets Act

By Dennis Crouch

With today’s 410-2 House vote, the Defend Trade Secrets Act (DTSA) has now passed both the House and Senate and is headed to President Obama for his expected signature.[1]  The DTSA amends the Economic Espionage Act to create a private civil cause of action for trade secret misappropriation based upon the Congressional sense that trade secret theft exists and is harmful.[2]  Trade secret misappropriation (as a civil matter) has previously been purely a matter of state law.  Although there is substantial uniformity between the states,[3] there are also a number of differences and perceived procedural weaknesses.[4]  The DTSA would not eliminate or preempt the various state trade secret rights but rather would operate as an additional layer of potential protection.[5] The law is designed to go into effect on its day of enactment and apply to any misappropriation that occurs on or after that date.

On March 10, 2017, the University of Missouri’s Center for Intellectual Property and Entrepreneurship (CIPE) along with our new Business, Entrepreneurship, and Tax Law Review (BETR) will host a symposium on Implementing and Interpreting the Defend Trade Secrets Act.  I expect that we will live-stream the event and will also publish speaker articles in BETR.  There is a lot to figure out. Contact me if you are interested in sponsorship opportunities (dcrouch@patentlyo.com).

The central provision of the DTSA will be codified as 18 U.S.C. § 1836(b) and reads:

An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

Defining Trade Secret: The DTSA broadly defines the term “trade secret” to mean “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”  Although this definition is broad and certainly includes abstract ideas and laws of nature, it might not encompass information that is only stored in the human mind.[6]

Defining Misappropriation of a Trade Secret:  The statute also defines “misappropriation” in detail.  My rough approximation is as follows: without permission (A) obtaining a trade secret that was knowingly obtained through improper means or (B) disclosing or using a trade secret without knowing either (1) that it is a trade secret or (2) that it was obtained through improper means.  These “improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” However, misappropriation does not include “reverse engineering, independent derivation, or any other lawful means of acquisition.”  The DTSA does not otherwise include a more general fair-use or news-reporting exception.  However, the First Amendment will certainly serve as a backstop.  Further, these definitions do not include any express territorial limit – it will be very interesting to see the extent that these limits will be implied into the law.  Thus, if a U.S. company is holding trade-secrets in India that are stolen in India, could the U.S. company bring action against the Indian entity that caused the injury (presuming personal jurisdiction over the defendant)?

Remedies Civil Seizure: A key procedural benefit of the DTSA is to offer a mechanism for Civil Seizure ordered by courts and enforced by Federal, State, and/or local law enforcement as a preventive measure (akin to a temporary restraining order).

Remedies: Once misappropriation is found, the court will be authorized to grant injunctive relief as “reasonable.”  If “exceptional circumstances” render injunctive relief is “inequitable” then a court may order a reasonable royalty for the misappropriator’s continued use of the trade secret.  Depending upon how the statute is interpreted, this setup appears to create a presumption of injunctive relief – a stark difference from contemporary patent law doctrine under eBay v. MercExcange.  The statute also provides for compensatory damages for either (i): (I) “actual loss of the trade secret” and, in addition (II) “any unjust enrichment” not compensated in (I); or (ii) a reasonable royalty for the use.  Willful misappropriation can double damages.[7] In these calculations, I suspect that courts will take into account both the market-value of the trade secret as well as the “expenses for research and design and other costs of reproducing the trade secret” that were avoided by the misappropriation. The provision also includes an attorney fee shifting provision limited to cases involving bad-faith or willful-misappropriation.

Remedy against Former Employees: Most trade secret cases involve former employees moving (or starting-up) to a competitor.  A major concern raised against early versions of the bill was that the DTSA would empower employers to prevent such movement.  As amended, the bill now indicates that injunctive relief that would “prevent (or place conditions on) a person from entering into an employment relationship” must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”[8]  Of course, such “threat” does not necessarily mean that the employee expressly threatened misappropriation but rather will likely be based upon circumstantial evidence regarding likelihood of misappropriation (i.e., ‘threat level’).[9]  In addition, the injunction preventing or limiting employment cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”  This bit appears to be directed toward giving credence to non-compete and other limits in various states. However, of key importance is that it only limits injunctive relief and does not appear to limit any cause of action against former employees.  As a consequence, this sets the likelihood of a fight between certain state employment laws that favor employee rights against the new federal trade secret law.

Whistle Blowers: Professor Peter Menell was instrumental in proposing a public policy immunity provision that is included in the DTSA.  The provision would offer immunity from liability (whistle blower protection) for confidential disclosure of a trade secret to the Government or in a Court Filing (made under seal).  The provision includes a notification requirement that employers should immediately implement.

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[1] Defend Trade Secrets Act of 2016, S. 1890.

[2] Although trade secret rights are thought of as a form of intellectual property, the bill is clear that the DTSA “shall not be construed to be a law pertaining to intellectual property.”  The result of this could, for example, mean that the intellectual property licensee exception in bankruptcy law would not apply to licenses of trade secret information.  See 11 U.S.C. § 365(n).  [In Bankruptcy Law, Trade Secrets are defined as a form of IP, but it is unclear to me at this point which statute would prevail.]  Because the DTSA is an amendment to the Economic Espionage Act – a criminal law – it will also be codified in Title 18 of the United States Code that is generally directed to “crimes and criminal procedure.”  Although I don’t know exactly, there may be aspects of Title 18 (such as general definitions) that will shape the interpretation of federal trade secret law.  As an example, 18 U.S.C. § 2(b) offers a “general principle” of respondeat superior that “[w]hoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”

[3] Consider the popularity of the Uniform Trade Secrets Act in the various states.

[4] Jury trial should still apply to the extent it has in state cases.

[5] The Economic Espionage Act already includes a rule of construction that the statute “shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5(commonly known as the Freedom of Information Act).”  The DTSA reaffirms this principle by stating that “[n]othing in the amendments made by this section shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law.”  The bill provides for original jurisdiction of these trade secret cases in federal district court. However, it does not create exclusive jurisdiction – as such it would be proper for a party to bring such a claim in state court (when permitted by the state court). However, in that case, the other party may attempt to remove the case to Federal Court.  You might also query as to whether the federal claim is a ‘compulsory claim’ under the law such that if someone brings a state-law claim and loses they would later be estopped from bringing the federal claim.

[6] There may also be constitutional limitations on a company owning and controlling that information.

[7] This provision suggests by implication that misappropriation may be non-willful despite the fact that the misappropriation definition includes a mens rea element.

[8] My understanding is that Jim Pooley and Mark Lemley were instrumental in suggesting the addition of this provision that has now put the Bill in form where it is broadly supported by the politicians.

[9] Improperly obtaining a trade secret is a form of misappropriation – this creates some potential confusing situations in the interpretation of the provision.

Federal Circuit Rejects Reduced-Deference for AIA-Trial Decisions

by Dennis Crouch

En banc denials in Merck & Cie v. Gnosis (Fed. Cir. 2016) and S. Alabama Medical v. Gnosis (Fed. Cir. 2016)

The Federal Circuit has denied en banc review of decisions in four inter partes review proceedings brought by Gnosis. Federal Circuit had previously affirmed the Patent Trial and Appeal Board’s IPR determination that the challenged Merck and SAMSF patent claims were invalid as obvious.[1]

The petitions focused on the standard-for-review of factual findings made by the PTAB. The appellate panel applied the “substantial evidence” standard that requires affirmance of challenged factual findings when those conclusions are based upon “more than a mere scintilla” of evidence.  The Supreme Court has restated this standard only requiring that “a reasonable mind might accept [the evidence] as adequate to support [the] conclusion.”  In the appeal, the patentees agreed it is appropriate that PTAB factual conclusions be given deference. However, the patentees argued that the standard should be “clear error” – a lower level of deference.  A way to think about the difference between the two of these is to consider that factual findings by a jury are generally reviewed for substantial evidence (higher deference) while a judge’s factual findings are reviewed for clear error (lower deference).

In most administrative law areas, agency factual determinations are reviewed for substantial evidence.  However, the patentees here argued that the litigation-like setup in this case calls for a litigation-like standard of review, i.e., clear error.  Thus, the primary question presented:

Should PTAB factual findings be reviewed for “clear error” or “substantial evidence” in an appeal of a final written decision in an inter partes review?

In an 11-1 split, the Federal Circuit has denied en banc rehearing on this issue.  Judge O’Malley (joined by Judges Wallach and Stoll) offered her opinion explaining the denial.  Judge Newman dissented.

Judge O’Malley’s opinion appears to be designed to set-up Supreme Court review (if Cuozzo wins its case) or Congressional action.  She writes:

I agree that application of the substantial evidence standard of review is seemingly inconsistent with the purpose and content of the AIA. This court is bound by binding Supreme Court precedent—Dickinson v. Zurko, 527 U.S. 150 (1999)—and this court’s own—In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000)—to apply the substantial evidence standard of review to factual findings by the Board, however. Because Congress failed to expressly change the standard of review employed by this court in reviewing Board decisions when it created IPR proceedings via the AIA, we are not free to do so now. I, thus, concur in the denial of en banc rehearing in this case because there is nothing that could come of our en banc consideration of the question posed. I write separately, however, because I agree with the dissent to the extent it argues that a substantial evidence standard of review makes little sense in the context of an appeal from an IPR proceeding. But the question is one for Congress.

Judge Newman argues that the trial-like setup of the AIA proceedings allows for an important distinction from the Zurko and Gartside decision that requires a full reconsideration of the standards applied to PTAB determinations.

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[1] Merck owns U.S. Patent No. 6,011,040; and SAMSF owns U.S. Patent Nos. 5,997,915, 6,673,381, and 7,172,778 that are licensed to Merck.  The patents relate to methods of using folate to lower a patent’s homocysteine level.

Investing in Patents

ScreenShot175I’m sitting now with my copy of Russ Krajec‘s new book titled “Investing in Patents.” (released on April 26 on Amazon).  I have known Russ for more than a decade – throughout that time he has been a creative force in rethinking the business of patent law.

The book is designed to be read by business leaders, entrepreneurs, and investors and is the type of book that patent attorneys should be recommending to their clients.  Of course, is will force those patent attorneys to step-up and explain how the patents being sought will serve as good business assets rather than worthless cost sinks.

Congratulations Russ on this great addition.

Design Patent Claim Construction: More from the Federal Circuit

Guest post by Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law.

Sport Dimension, Inc. v. Coleman Co., Inc. (Fed. Cir. April 19, 2016) Download Opinion

Panel: Moore, Hughes, Stoll (author)

Coleman accused Sport Dimension of infringing U.S. Patent No. D623,714 (the “D’714 patent”), which claims the following design for a “Personal Flotation Device”:


The district court construed the claim as: “The ornamental design for a personal flotation device, as shown and described in Figures 1–8, except the left and right armband, and the side torso tapering, which are functional and not ornamental.” The court, like many other courts and a number of commentators, interpreted the Federal Circuit’s 2010 decision in Richardson v. Stanley Works as requiring courts to “factor out” functional parts of claimed designs. Coleman moved for entry of judgment of noninfringement and appealed the claim construction (along with another issue not relevant to this discussion).

After Coleman’s appeal was docketed, the Federal Circuit disavowed the “factoring out” rule that many had read in Richardson. As discussed previously on this blog, in Apple v. Samsung and again in Ethicon v. Covidien, the court insisted that Richardson did not, in fact, require the elimination of functional elements from design patent claims.

Following this new interpretation of Richardson, the Federal Circuit reversed the district court’s construction of Coleman’s claim. The court stated, for the third time in a year, that district courts should not eliminate portions of claimed designs during claim construction. So it seems that the Federal Circuit’s retreat from Richardson is complete—if that weren’t clear already.

And, for the first time I’m aware of, the court actually explained how it determined whether something is “functional” for the purposes of claim construction. It’s been clear for a while that the court was using a more expansive concept of “functionality” in the context of claim construction than it was using for validity. (For more on this issue, see this recent LANDSLIDE article by Chris Carani.) However, the court hasn’t seemed to acknowledge that disconnect or explain how courts should analyze functionality in the claim construction context. In this case, the court did both. The Federal Circuit stated that the Berry Sterling factors, although “introduced…to assist courts in determining whether a claimed design was dictated by function and thus invalid, may serve as a useful guide for claim construction functionality as well.” (Those factors, discussed here, are very similar to the factors used by courts to determine whether a design is invalid as functional in the trademark context. For more on the trademark test and how it differs from the current design patent test for validity, see here.) Applying the Berry Sterling factors to the facts of this case, the court affirmed the district court’s conclusion that the armbands and tapering were functional.

So in Sport Dimension, it is clear that the Federal Circuit thinks it is important to determine whether an “element” or “aspect” (the court uses those words as synonyms) of a design is functional. And it is very clear that courts are not supposed to completely remove functional “elements” or “aspects” from design patent claims as a part of claim construction. But what are courts supposed to do? Here is what the court said:

We thus look to the overall design of Coleman’s personal flotation device disclosed in the D’714 patent to determine the proper claim construction. The design includes the appearance of three interconnected rectangles, as seen in Figure 2. It is minimalist, with little ornamentation. And the design includes the shape of the armbands and side torso tapering, to the extent that they contribute to the overall ornamentation of the design. As we discussed above, however, the armbands and side torso tapering serve a functional purpose, so the fact finder should not focus on the particular designs of these elements when determining infringement, but rather focus on what these elements contribute to the design’s overall ornamentation.

It’s not at all clear what the court is trying to say here, especially in the highlighted portion (emphasis mine). It seems that perhaps the court is trying to say that, in analyzing infringement, the factfinder should focus on the overall appearance of the claimed design. But if that is what the court meant, then this “claim construction” frolic adds nothing—the infringement test already requires the factfinder to look at the actual claimed design, as opposed to the general design concept.

This portion of the decision also seems to be in some conflict with the court’s decision in Ethicon. In Ethicon, as here, the district court eliminated all the functional portions of the claimed design. Unlike this case, the district court in Ethicon said that all the elements were functional and, thus, the claim had no scope. The Federal Circuit reversed, stating:

[A]lthough the Design Patents do not protect the general design concept of an open trigger, torque knob, and activation button in a particular configuration, they nevertheless have some scope—the particular ornamental designs of those underlying elements.

So Ethicon says that factfinders must look at the “particular ornamental designs” of functional elements. Sport Dimension says they “should not focus on the particular designs of [functional] elements.” These statements could potentially be reconciled by drawing a distinction between the “particular design” of an element/feature and the “particular ornamental design.” But it’s not at all clear what that distinction might be—or whether it makes sense to draw such a distinction at all.

More importantly, it’s not clear what, exactly, the Federal Circuit hopes to gain by making district courts go through this rigmarole. In this case, the accused product looks nothing like the claimed design, as can be seen from these representative images:

Claimed Design

Claimed Design

Accused Product

Accused Product

Yes, they both have armbands with somewhat similar shapes and some tapering at the torso. But the overall composition of design elements is strikingly different. You don’t need to “factor out” anything or “narrow” the claim to reach the conclusion that these designs are plainly dissimilar. (The same was true, by the way, of the facts in Richardson.) Even for designs that are not plainly dissimilar, the Egyptian Goddess test for infringement should serve to narrow claims appropriately where elements are truly functional because one would expect those elements to appear in the prior art. So once again, one is forced to ask what the Federal Circuit is trying to accomplish with these “claim construction functionality” rules—and whether the game is worth the candle.

Federal Cause of Action for Trade Secret Misappropriation

The House of Representatives has scheduled a floor vote on the Defend Trade Secrets Act (DTSA) for Wednesday April 27, 2016.  The version up for vote is identical to that passed unanimously by the Senate earlier this spring. [Schedule][S.1890].  President Obama has indicated his support as well.  Nothing is likely to deter the DTSA from passing on Wednesday.  The House Leadership is not permitting further amendments prior to the vote and no strong opposition has been voiced other than a group of law professors. States-rights activists have not suggested any reason why the traditional state-law-tort should not also be a federal cause of action.

In March 2017, Mizzou’s Center for Intellectual Property & Entrepreneurship will host a symposium on implementation and implications of the DTSA.  Proceedings will be published in the Law School’s Business, Entrepreneurship, and Tax Law Review (BETR).

The Gatekeeping Function of Patent Eligibility as Part of a More Complete Understanding of § 101 Principles

Guest Post by Bruce Wexler and Edwin Mok

From a review of the opinions expressed in the majority decision and rehearing denial in Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, reh’g en banc denied, 809 F.3d 1282 (Fed. Cir. 2015), petition for cert. filed (No. 15-1182, Mar. 21, 2016), and in the briefs filed by various parties in relation to Sequenom Inc.’s petition for writ of certiorari, we can see several different viewpoints emerge with respect to the case.  Some express the viewpoint that the case reached the wrong outcome, either because the Court (a) misunderstood the facts relating to the invention or patent, (b) misapplied existing § 101 principles, or (c) both.  Others express the viewpoint that the case reached the right outcome, either because the Court (a) correctly applied § 101 principles, or (b) incorrectly did so but would have reached the same outcome under a correct analysis.  And there are also some who express the viewpoint that the case correctly applied current § 101 eligibility principles but still reached a wrong outcome, such that § 101 requires a serious overhaul, or should be done away with altogether as a patentability criterion.  In this article, we do not take a position on any of these viewpoints.  Rather, we write to shed more light on the gatekeeping function of patent eligibility which we see permeating judicial decisions on § 101, making it worthy of careful contemplation when considering any one of the positions expressed above.

Analysis of § 101 patent eligibility generally involves discourse using the term “preemption.”  The Supreme Court, for example, has described preemption as driving the exclusionary principle under § 101.  Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347, 2354 (2014); see also Mayo Collaborative Services v. Prometheus Labs. Inc., 132 S.Ct. 1289, 1294 (2012) (“[Our precedents] warn us against upholding patents that claim processes that too broadly preempt the use of a natural law.”).  But, at the same time, we see in the cases that complete preemption by a patent claim—in the sense of a claim so broad it just recites an abstract idea or natural phenomenon—has not been the sine qua non of patent ineligibility.  For example, we have seen the Supreme Court reject eligibility arguments that merely contend that the claim in fact recites some physical structure, and so does not completely preempt the underlying abstract idea or natural phenomenon itself (putting aside for the moment what that structure is).  The late Chief Judge Archer explained why such arguments are unsatisfactory in a dissent he authored over twenty years ago in In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994), in which he opposed the patentability per se of a mathematical algorithm just because the claim referenced generic computing structures.  His reasoning was strikingly similar to that appearing more recently in Mayo.  As Chief Judge Archer observed, if patent eligibility was necessarily satisfied by reciting any physical structure, then Diamond v. Diehr would have been a much shorter opinion, and Flook and Benson would have come out the other way.  Alappat, 33 F.3d at 1557.  Alice too would have come out the other way, since some of the claims there recited generic computing structures.  See Alice, 134 S.Ct. at 2358-59 (“There is no dispute that a computer is a tangible system (in § 101 terms, a ‘machine’) . . . [b]ut if that were the end of the § 101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.”).

A way to make sense of this situation is to consider the gatekeeping function that § 101 plays within the patent law, also discussed within the Supreme Court cases but at times in a more subtle way.  To understand this function more clearly, we can look to the hypothetical discussed by Chief Judge Archer to explain how § 101, when correctly applied, “lays the predicate for the other provisions of the patent law.”  Alappat, 33 F.3d at 1553.  This hypothetical illustrates that, but for § 101 eligibility principles, a patent could be awarded for originating a new musical composition—something generally agreed to be outside the subject of patent law—by claiming the song in a generic physical form such as a CD (it was the 1990s, after all).  Id. at 1553-54.  Assuming the musical composition was original, the physical structure of the CD would contain a unique assembly of pits and lands specific to that new piece of music, and thus it would be a composition of matter that is structurally novel under § 102.  And because “the patent law cannot examine music for ‘nonobviousness,’ the Patent and Trademark Office could not a make a showing of obviousness under § 103” (which it would be their burden to do).  Id. at 1554.  And even if they could examine this question, the PTO examiners ought not to be judging musical compositions for obviousness (e.g., imagine patent examiners charged with determining whether a guitar lick or chord progression is obvious under patent law).  The result of allowing through the eligibility gate a claim reciting a CD (or equivalent generic structure) embodying the new song could be patent exclusivity granted for discovering a new musical composition.  Chief Judge Archer posited that § 101 acts as a gatekeeper to prevent such discoveries from being eligible themselves for analysis of patentability under the remaining patent law provisions.

The Supreme Court has also discussed this gatekeeping aspect of patent eligibility.  In Mayo, the Court rejected the government’s argument as an amicus that “virtually any step beyond a statement of a law of nature itself should transform an unpatentable law of nature into a potentially patentable application sufficient to satisfy § 101’s demands.”  Mayo, 132 S.Ct. at 1303.  In so doing, the Court discussed the limitations of patent law’s other provisions to judge ineligible subject matter:

We recognize that, in evaluating the significance of additional steps, the § 101 patent-eligibility inquiry and, say, the § 102 novelty inquiry might sometimes overlap.  But that need not always be so.  And to shift the patent-eligibility inquiry entirely to these later sections risks creating significantly greater legal uncertainty, while assuming that those sections can do work that they are not equipped to do.

Id. at 1304 (concluding that §§ 102, 103, and 112 cannot “substitute . . . for the better established inquiry under § 101”).  The Court recognized that the presence of a law of nature in a claim would not be entirely ignored when analyzing novelty and nonobviousness, since it is indeed an aspect of the claimed invention.  Id.  In other words, the entirety of the claimed subject matter that passes through the eligibility gate is evaluated for novelty and nonobviousness.  This operation of the patent law is viewed as supporting a need for an eligibility inquiry up front, which asks whether the invention as described and claimed by the patentee as a whole resides in something more than just the new idea or law of nature itself, so that it is appropriate to allow the claim as a whole to be judged by the remaining substantive patentability provisions.  And, from this perspective, we can also understand how very basic questions of a patent’s stated novelty for the claimed subject matter, and the breadth of the claim, can impact how the eligibility question is answered.  See, e.g., id. at 1295, 1297-98; Alice, 134 S.Ct. at 2359-60; Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107, 2116-19 (2013).

Chief Judge Archer’s hypothetical in dissent wound up playing out in the area of business method patents.  The Federal Circuit’s decision in State St. Bank & Trust Co. v. Signature Fin. Grp., Inc., 149 F.3d 1368 (Fed. Cir. 1998), having as a foundation the majority opinion in Alappat, opened the floodgates for patenting new methods of conducting business.  Seismic changes in the way banking was done during the late 1980s (see The Big Short for a dramatization of that happening) fostered this eventual patenting explosion.  Although these patents generated controversy, it would take over a decade and a half, until Alice, for the Supreme Court to rule that inventions residing in a way of doing banking business were simply beyond the realm of patent law, even where the claims recited generic computing structures.  See Alice, 134 S.Ct. at 2360.  This decision has dramatically changed how lower courts look at business method patents.  See, e.g., Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) (reversing its own two pre-Alice rulings that had upheld validity, and finding the patents in suit to be ineligible).

Currently, the gateway through which a proposed invention must pass is based on Supreme Court precedent, including the Mayo ruling.  In close cases, the § 101 principles may not be so easy to apply, especially since inventions generally speaking are constituted from arrangements of physical forms, which call into operation laws of nature and natural principles, arriving at a useful result.  See, e.g., Alappat, 33 F.3d at 1551-52 (quoting G. Curtis, A Treatise on the Law of Patents for Useful Inventions at xxiii-xxv (4th ed. 1873)); cf. Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605, 609-10 (1950) (underlying a claimed invention is its “way,” the physical form; “function,” the principles of operation; and “result,” the effect achieved).  Thus, the task of separating what is appropriate for the subject of patent law from what is not appears to inevitably demand a set of core principles, rather than a detailed recitation of rules that neatly answers every case in all technical areas.  Historical efforts by courts to construct rigid mechanical tests for eligibility have, after struggling and evolving, ultimately failed.  For example, in the late 1970s and early 1980s, the Federal Circuit’s predecessor court developed a series of rules for eligibility, which lengthened in name as subsequent cases recognized the need to address existing inadequacies—the so-called Freeman‑Walter‑Abele test—before it was finally rejected.  See, e.g., State St. Bank, 149 F.3d at 1374.  As Chief Judge Archer explained, “[w]ithout particular claimed subject matter in mind, it is impossible to generalize with bright line rules the dividing line between what is in substance [a patent-eligible application] versus merely the discovery of an abstract idea or law of nature or principle outside § 101.”  Alappat, 33 F.3d at 1554.  He observed that the copyright law has long lived with a similar tension in the idea/expression dichotomy (i.e., the principle that the expression of ideas can be protected by copyright but not ideas themselves).  Id. at 1554 n.15; see also 17 U.S.C. § 102(b).  However, as he explained, “[t]here are . . . answers in every § 101 case.”  Alappat, 33 F.3d at 1554.  One question that has arisen is whether the Federal Circuit’s more recent decision in Genetic Techs. Ltd. v. Merial L.L.C., Nos. 2015-1202, 2015-1203 (Fed. Cir. Apr. 8, 2016)—which stated (slip op. at 11) that it was effectively bound to its outcome by Ariosa, which was itself said to be compelled by Mayo in the opinion of Judge Lourie (Ariosa, 809 F.3d at 1284)—altogether signals an attempt to return to a set of bright-line rules, or whether these cases instead reflect a genuine acceptance and application of the Supreme Court’s § 101 principles on their specific facts.  Either way, the Supreme Court precedents are ultimately bookends for understanding how to apply the law of eligibility in any particular situation.

As we can therefore see, § 101’s gatekeeping role is not distinct from the provision’s policy purpose of preventing undue preemption.  A possible way to think about it is that if the Mayo test is properly applied, and the totality of claimed subject matter is allowed through the eligibility gate, then the law of novelty and nonobviousness and claim breadth should, for example, be operating on subject matter in a way that is appropriate under the patent law.  This is a way to make sense of the different outcomes in Diamond v. Diehr (finding eligible a claim to an improved rubber-curing process that involved use of a computer algorithm) and Parker v. Flook (finding ineligible a claim to a method for using an algorithm to adjust alarm limits).  See Alice, 132 S.Ct. at 2358.  From a practice standpoint, thinking about § 101’s gatekeeping function in relation to the totality of the claimed subject matter may in some cases serve as a useful check on understanding how a court may perceive the patent eligibility issue.  For example, if the novelty or nonobviousness analyses would devolve into an evaluation of the novelty or nonobviousness of an idea or natural phenomenon itself, without significantly more to that inquiry, that may indicate to the inventor, the patent examiner, or the court that the invention is treading near the borderline of patent-ineligible subject matter.  This is a more nuanced understanding than simply regarding Mayo as articulating a “two-part test,” without adequate recognition as to what that test is trying to do.

In our next post, we consider the different opinions in the denial of the petition for rehearing in Ariosa and particularly their expressed commentary on principles of patent eligibility.

Bruce Wexler is a partner, and Edwin Mok an associate, in the New York office of Paul Hastings.  Their practice focuses on patent litigation and trials.  Mr. Wexler is also an adjunct professor at New York University School of Law, where he teaches an advanced patent course.

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Patent Protection for Scientific Discoveries: Sequenom, Mayo, and the Meaning of § 101

Guest post by Jeffrey A. Lefstin, Professor, University of California, Hastings College of Law, and Peter S.  Menell, Professor, University of California, at Berkeley School of Law.  Professors Lefstin and Menell recently filed an amicus brief in support of Sequenom’s petition for certiorari.

The Supreme Court’s decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012) triggered the most radical redefinition of patent-eligible subject matter in U.S. history by engrafting onto § 101 an ‘inventive application’ requirement for patenting practical applications of scientific discoveries. In Ariosa v. Sequenom (2015), the Federal Circuit held that under Mayo, a diagnostic process based on the discovery of cell-free fetal DNA in the maternal bloodstream was not patent-eligible under § 101, because the steps of amplifying and detecting DNA were conventional at the time the invention was made. Now that Sequenom has filed its petition for certiorari, the Supreme Court has the opportunity to revisit its holding in Mayo that discoveries are not patent-eligible unless inventively applied.

The decision in Mayo came as a shock to patent practitioners and the inventive community.  How could the Supreme Court overlook the clear language running throughout the history of patent law authorizing patent protection for inventions and discoveries? Why would the Court turn away from the long tradition holding that practical application, not inventive application, suffices to render a discovery patent-eligible?

As we have discovered, highly pertinent material in the patent statutes, legislative history, and jurisprudence was never presented to the Mayo Court. The result is a deeply flawed decision that contradicts Congress’s patentability framework and misinterprets critical precedent.

The Mayo Court did not discuss the statutory basis for patent-eligibility of scientific discoveries. Instead, the Court revived Parker v. Flook (1978), which had been supplanted by Diamond v. Diehr (1981), to require that scientific discoveries be inventively applied to be patent-eligible.  Mayo, like Flook, relies upon a single quotation from Neilson v. Harford, an 1841 English case—“We think the case must be considered as if the principle being well known”—to conclude that courts must treat scientific discoveries as part of the prior art in assessing the eligibility of applications of such discoveries. Therefore, unless the scientific discovery is inventively applied, the claim is ineligible for patent protection under § 101.

Unfortunately, many patent litigators – and many of the amicus briefs filed in Sequenom – have shied away from directly confronting the fundamental mistakes in the Mayo decision. They understandably fear that the Supreme Court will not be willing to acknowledge error.  We hope otherwise.  It is critically important that the Court be apprised of the proper basis – the clear text of the statute, legislative history, and the meaning and context of key cases – for interpreting patent eligibility.

Our brief filed in support of Sequenom’s petition makes three basic arguments:

First, the patent statutes have always defined inventions and discoveries to be patent-eligible subject matter. The very first patent statute, the Act of 1790, permitted patents for an “invention or discovery,” and every subsequent statute – the Acts of 1793, 1836, 1870, and 1952 – incorporated both “inventions” and “discoveries” into its text. Legislative history, such as the House and Senate Reports accompanying the Plant Patent Act of 1930, expresses Congress’s understanding that the patent laws have always applied “both to the acts of inventing and discovery.”

Furthermore, the intent to protect conventional applications of new discoveries was incorporated directly into § 101 of the 1952 Act. The legislative history of the Plant Patent Act shows that Congress defined routine and conventional applications of new discoveries as patent-eligible subject matter under § 101’s predecessor statute, R.S. § 4886. And the legislative history of the 1952 Act shows that Congress intended to carry forward that standard of patent-eligibility in § 101.

Even more significantly for Sequenom’s claims, the 1952 Act added a new definition of “process” in § 100(b), defining “process” to include “a new use of a known process, machine, manufacture, composition of matter, or material.” P.J. Federico, one of the chief drafters of the Act, explained that § 100(b) was intended to clarify that the new use of a known material in a known process was patent-eligible subject matter under § 101:

[A] method claim is not vulnerable to attack, on the ground of not being within the field of patentable subject matter, merely because it may recite steps conventional from a a procedural standpoint and the novelty resides in the recitation of a particular substance, which is old as such, used in the process.

Section 100(b) removes any doubt that a process based on the discovery of a new property in a known substance is patent-eligible – even if the process merely recites conventional steps.

Second, Flook and Mayo’s grounding of the ‘inventive application’ requirement in Neilson v. Harford profoundly misinterprets that case. The Exchequer’s reference to treating Neilson’s discovery as “well known” was merely invoking an earlier case, Minter v. Wells (1834), to rule that Neilson had claimed a patentable application of his discovery – a machine – rather than an unpatentable abstract principle. Moreover, Mayo could not have been further from the truth when it claimed that Neilson’s patent was sustained because Neilson had applied his discovery in an inventive way. Neilson’s patent was sustained against an enablement challenge precisely because his means of application were routine, conventional, and well-known. In both English and American law, Neilson became the principal authority for the well-accepted proposition that specific and practical applications of discoveries were patentable, without any novelty or ‘invention’ in the means of application, provided that the patent supplied an enabling disclosure.

Third, a test of inventive application or undue preemption in § 101 disregards the framework established by Congress in the 1952 Act. The great advance of the 1952 Act was to differentiate the amorphous concepts of “invention” and “undue breadth” into the non-obviousness and disclosure requirements of §§ 103 and 112. Shoehorning an extra requirement for ‘inventiveness’ or lack of preemption into § 101 reverses those doctrinal innovations. The Supreme Court recognized as far back as O’Reilly v. Morse (1854) that disclosure, not subject matter, polices the patent bargain against unduly broad claims. That an inventor’s claim might practically preempt all use of a discovery will, as the Court said in The Telephone Cases (1888), “show more clearly the great importance of his discovery, but it will not invalidate his patent.”

Applying §§ 103 and 112 may require fact-intensive inquiries into the state of the prior art, the capabilities of skilled artisans, and the claim scope permissible based on the specification. But that is the structure prescribed by Congress under the 1952 Act. The judicial branch may not discard that statutory framework in favor of an “I-know-it-when-I-see- it” standard for patentability under § 101.

Section 101 – Pivotal Moment for Clarity on Patent Subject Matter Eligibility

Guest post by Bart EppenauerMr. Eppenauer is the Managing Partner of the Seattle office of Shook Hardy & Bacon and former Chief Patent Counsel at Microsoft. In the interests of disclosure, Shook represents three of the many defendants/appellees in the McRo (Planet Blue) case discussed below. Mr. Eppenauer is not involved in that case.

We have reached a pivotal moment for the courts to provide more meaningful guidance on the contours of what actually is patent eligible subject matter (rather than what is not) and a workable framework for applying such guidance. A number of important cases are before the U.S. Supreme Court and the Federal Circuit involving patent subject matter eligibility in the wake of Alice v. CLS Bank Int’l and Mayo Collaborative Services v. Prometheus Labs. Given the high invalidation rate of patents on Section 101 grounds at the Supreme Court, Federal Circuit, U.S. District Courts, and the Patent Trial and Appeal Board (PTAB), interested stakeholders have justifiable concerns on the future value of patents involving software and life sciences, and the fallout this could have on American investment in these crucial industries.

On March 21, 2016, Sequenom, Inc. filed a Petition for Writ of Certiorari seeking to overturn the Federal Circuit’s decision invalidating its pre-natal genetic testing patent as a patent ineligible natural law or phenomenon, in Sequenom, Inc. v. Ariosa Diagnostics, Inc. Ten days earlier, Versata Development Group also filed a Petition for Writ of Certiorari challenging multiple findings by the Federal Circuit involving a Covered Business Method (CBM) Patent Review by the USPTO invalidating its software based hierarchical pricing engine patent. See Versata Development Group, Inc. v. SAP America, Inc. Petitions for Writ of Certiorari on subject matter eligibility were also filed in March in Cloud Satchel v. Barnes & Noble and Vehicle Intelligence Safety v. Mercedes-Benz USA. At the Federal Circuit, several important “abstract idea” cases are soon to be decided, including McRO (Planet Blue) v. Bandai Namco Games America on patents for automated lip synchronization of 3D animated characters, Intellectual Ventures v. Symantec involving malware and spam detection and email filtering patents, and Thales Visionix v. USA relating to a helmet mounted display system patent. Several of these cases could provide an excellent opportunity for the courts to provide more clarity on application of the Mayo/Alice test under Section 101.

The Sequenom case in particular may be the right case for the Supreme Court to reexamine the boundaries of Section 101, especially given the dramatic, if not unintended, impact that Mayo and Alice have had on subject matter eligibility decisions. At the heart of Sequenom, the Court has another opportunity to determine whether a novel method is patent eligible when it involves the research and discovery of naturally occurring phenomenon. Petitioner Sequenom asserts that the Court’s Mayo decision set out uncertain and indiscernible limits on Section 101 doctrine that has eroded trust in the patent system, such that the issue is “particularly life-threatening to life-science innovators.” (Petition p. 12). Several Federal Circuit judges seem to agree with this proposition. In his concurrence in affirming the district court’s decision under Section 101, Judge Linn remarked:

I join the court’s opinion invalidating the claims of the ’540 patent only because I am bound by the sweeping language of the test set out in Mayo…. In my view, the breadth of the second part of the test was unnecessary to the decision reached in Mayo. This case represents the consequence—perhaps unintended—of that broad language in excluding a meritorious invention from the patent protection it deserves and should have been entitled to retain.

In their concurrence on denial of rehearing en banc, Judges Lourie and Moore also strongly asserted that the Sequenom claims at issue were neither solely directed to a natural phenomenon, nor abstract, and “it is unsound to have a rule that takes inventions of this nature out of the realm of patent-eligibility on grounds that they only claim a natural phenomenon plus conventional steps, or that they claim abstract concepts.” But these judges agreed that the Federal Circuit panel “did not err in its conclusion that under Supreme Court precedent it had no option other than to affirm the district court.” And in his separate concurrence of denial of rehearing en banc, Judge Dyk noted:

Yet I share the concerns of some of my colleagues that a too restrictive test for patent eligibility under 35 U.S.C. § 101 with respect to laws of nature (reflected in some of the language in Mayo) may discourage development and disclosure of new diagnostic and therapeutic methods in the life sciences, which are often driven by discovery of new natural laws and phenomena. This leads me to think that some further illumination as to the scope of Mayo would be beneficial in one limited aspect. At the same time I think that we are bound by the language of Mayo, and any further guidance must come from the Supreme Court, not this court.

Without question, Section 101 is no longer a “coarse filter” for subject matter eligibility, as many jurists and practitioners believe it should be. That is evident from the recent landscape of Section 101 decisions since Alice. Of the more than 250 federal court decisions invoking Section 101 since Alice, 70% of those cases have found the patent invalid. And at the Federal Circuit, DDR Holdings v. Hotels.com stands alone as the sole decision upholding the patent under Section 101 among 31 decisions since Alice. My optimistic view that DDR Holdings would forge a sensible path on software patents and that more decisions would follow this path has simply not proven true to date. Nonetheless, given that so many of the patents before the Federal Circuit involved simple financial or business practices or other non-technical practices implemented on generic computers, there still may be hope that DDR Holdings will provide the underpinnings for further decisions clarifying the eligibility of software technology inventions.

Perhaps the nearest opportunity for such a clarification lies in the McRO/Planet Blue case, where we can expect a decision at any time. The case has been noted as a case to watch on software patentability in that the patents at issue arguably utilize complex and specific computer-implemented techniques for automated lip synchronization of 3D animated characters. Based on questions and comments from the judges during oral argument, the Federal Circuit may view this case as involving a technology-based patent that will dictate a different outcome under the Mayo/Alice test than so many of the negative decisions on business method or ecommerce patents with token computer implementation.

It will most likely be several months for a decision in Intellectual Ventures v. Symantec as the Federal Circuit heard oral argument on April 6, 2016. Intellectual Ventures (IV) argues that its patents are designed to improve computer network security through novel approaches to malware and spam detection and email screening. As such, IV believes that their patents solve problems “specifically arising in the realm of computer technology” and DDR Holdings demonstrates that the patents are patent eligible. Symantec counters that the IV patents use generic computing technology to apply basic concepts such as using the Dewey decimal system on digital files or applying standard mail routing practices to email instead of postal mail. IV likely has a better argument that DDR Holdings should apply than many of the recent Federal Circuit decisions where that argument has failed, but I could see this case going either way.

The Thales Visionix case involves a patent for helmet-mounted display systems (HMDS) for use in defense and aerospace applications such as the F-35 Joint Strike Fighter. Unlike traditional heads-up display systems which require a pilot to look straight ahead at a display to read tactical information, a HMDS projects tactical information onto the interior visor of a pilot’s helmet. This frees the pilot from looking straight ahead at a fixed point to receive the displayed information. The claims at issue are not as specific as their intended application, yet recite a motion tracking system that includes inertial sensors and an element for receiving signals from the inertial sensors to determine orientation of a tracked object. The Court of Federal Claims judge applied Alice in a sweeping fashion and found claim 1 amounted to nothing more than a system of generic inertial sensors and a receiving element, and claim 22 as nothing more than an instruction to solve a navigation equation. In concluding that the ultimate concern under Section 101 is one of “preemption,” the judge found that the scope of the patent’s claims is insufficiently limited under Mayo and Diamond v. Diehr, and granted the motion for judgment on the pleadings. Frankly, I was quite surprised to see this decision, and believe that it is an unfortunate example of the Mayo/Alice framework taken to its extreme. Briefing is ongoing in the case, so a decision is months away.

We are at a critical juncture on defining the proper scope and application of Section 101. Unless the judiciary delineates a clearer framework for enabling meaningful patent protection in areas like biotech and software where America has been a technology leader, the U.S. could rapidly lose its competitive edge in these vital industries. Without this guidance, the U.S. will cement its recent reputation as even more restrictive and less open to patenting important new and potentially life-saving technologies than other jurisdictions such as China and Europe, which was unthinkable just a few years ago. It is critical that the Federal Circuit take the opportunity in one of these pending cases to provide meaningful guidance on the proper scope and contours of patent subject matter eligibility applied to software related technology. Even more importantly, the Supreme Court should agree to hear the Sequenom case and clarify (or revise) its Mayo/Alice test to ensure that meritorious inventions in life sciences and software remain patentable. While I don’t believe it is yet time to take legislative action, recent calls for the abolition of Section 101 entirely and dissatisfaction with application of the Mayo/Alice test is reaching a critical level. These key cases offer a significant opportunity to establish much-needed clarifications. Should this opportunity be missed, it is hard to see how Congressional action can be avoided.

Patent Applications and Grants Holding Steady for FY 2016

By Jason Rantanen

We’re now halfway through financial year 2016, and so far patent application and grant numbers are looking similar to the past few years.  The below graph shows the number of UPR patent applications filed over the past several fiscal years (which run from October 1 to September 30), along with a simple projection of the applications for FY 2016.  The vast majority of these are utility patent applications.

Patent Application data

On a month-over-month basis, this fiscal year is following the same trajectory as 2013, 2014 and 2015.

UPRs per month

Patent grants also look similar to the past few fiscal years.  If current trends continue, we may see a slight increase over FY 2015.  (Note that the numbers in the below chart are for the fiscal year; Dennis’s post from the other day is on a calendar year basis.)

Patents Granted Through March 2016

Design Patentees

Design patents continue to be a popular protection scheme for developers of consumer products and screen displays. Top ten assignees thus-far in 2016 with most recent examples:

  1. Samsung (Toner Cartridge)  [Samsung has 4x more design patents than any other assignee on the list]
  2. LGE (Mobile telephone)
  3. Apple (Mobile telephone)
  4. Microsoft (Icon)
  5. Ford (Truck Grille)
  6. Google (Screen display for Maps)
  7. Nike (Tights)
  8. Jaguar & Land Rover (Rims)
  9. 3M (clip)
  10. P&G (sanitary napkin)
  11. Tencent (screen display)

New Old Patents

So far in 2016, the USPTO has issued three patents that claim priority pre-GATT.  These three are grandfathered in under the old 17-year-from-issuance patent term because they were filed before June 8, 1995.

  1. John Harvey’s Signal Process Patent No. 9,294,205 is one of dozens held by the company claiming priority back to a 1981 filing. The patents are owned by Personalized Media Communications.  PMC is an active plaintiff in the Eastern District of Texas.
  2. Dr. Robert Gallo and Flossie Wong-Staal received another patent relating to their discovery that HIV is the cause of AIDS. U.S. Patent No. 9,309,574 claims priority back to a 1985 filing and relates to the creation of an immortal cell line that reproduces HIV. At the time, Gallo worked at the National Cancer Institutes and the patent rights are held by the U.S. Government.
  3. Finally, U.S. Patent No. 9,294,184 has issued to Lockheed Martin covering covers a repeater that receives and transmits polarized RF signals. The application was originally filed in 1973 but was held under a secrecy order until 2010.  From 2010 until 2015 the case awaited examiner action that finally arrived with a notice of allowance.


DTSA Moving Forward

The House Judiciary Committee has taken the next major step toward implementation of the Defend Trade Secrets Act of 2016 (DTSA).  In an unopposed voice vote the committee has approved the text of the already-passed Senate version (S.1890). DTSA would create a federal civil remedy for trade secret misappropriation.  Next step – is passage by the full House. President Obama has indicated his support as well.

From the committee:

Trade secrets are an increasingly important form of intellectual property that have become more vulnerable to theft as a result of our globalized economy. While current federal law protects other forms of intellectual property by providing access to federal courts for aggrieved parties to seek redress, there is no federal option to do so for trade secret theft. The bipartisan Defend Trade Secrets Act seeks to change that by allowing companies to seek civil penalties in order to protect their businesses from those engaging in economic espionage. S. 1890 gives American innovators a powerful new tool which will help them compete in an ever-evolving global market.

At Mizzou, we’re planning our symposium for next academic year that will focus on implementation of the new federal cause of action.

Nationalizing Trade Secret Law

by Dennis Crouch

Defend Trade Secrets Act: The House Judiciary Committee is moving forward with the Defend Trade Secrets Act (DTSA) with a discussion of the bill (H.R. 3326) and its Senate companion (S. 1890) that was unanimously passed by the U.S. Senate.  The House and Senate versions were originally identical, but a set of amendments were added to the Senate version before its passage that both improved the language and reduced some potential negative impact of injunctive-relief associated with employee mobility. [See Pooley].  There is a strong possibility that the Senate version will be accepted by the House and passed with overwhelming majority.  Rep. Goodlatte (R-VA) is pushing the Bill through the Judiciary Committee (of which he is Chair).  Ranking Member Conyers (D-MI) is one of 155 co-sponsors of the legislation.  The Intellectual Property Owners Association (IPO) has announced its “strong support” for the bill.

Nationalizing Contract Law?: It is interesting that congress is moving forward so quickly with nationalizing the traditional state-law claim of trade secret misappropriation.  Most trade secret cases involve an underlying breach of contract between the parties.  The current bill would implicitly have courts rely upon local contract law to determine the scope of rights of the parties before then determining whether a federal claim of trade secret misappropriation exists.