by Dennis Crouch

In its final judgment, the Patent Trial & Appeal Board (PTAB) found against Arctic Cat — finding all of the challenged claims unpatentable.  On appeal, the Federal Circuit has rejected the judgment — holding that the Arctic Cat patent claims should be given priority as of their invention date rather than simply the priority filing date.  This is a case were the patent claims appear valid under pre-AIA law, but would be invalidated if AIA prior art rules applied. 

U.S. Patent Nos. 7,072,188 and 7,420,822, covering an electrical connection box for distributing power in a Recreational Vehicle (RV). These Arctic Cat patents claim a priority filing date of October 29, 2002.  The key prior art reference (Boyd) was filed as a patent application seven months prior – April 1, 2002. Boyd was not yet prior art at the moment it was filed, but did become prior art once the application published in 2003.  The point of publication is the trigger for recognizing a U.S. application as prior art — however, at that point its effective prior art date is set back to the filing date.

This case is a pre-AIA lawsuit and thus 102(e) applies.

A person shall be entitled to a patent unless — (e) the invention was described in — (1) an application for patent, published under section 122(b), by another filed in the United States before the invention by the applicant for patent …

Pre-AIA 102(e) is directly parallel to post-AIA 102(a)(1). A key change in Section 102 was a move toward a filing-date focus and away from an invention-date.  That shift is reflected in comparing these two provisions.  Pre-AIA 102(e) looks for prior art filings from “before the invention” while the post-AIA 102(a)(2) looks for prior art applications filed “before the effective filing date of the claimed invention.”

Under traditional U.S. law, invention is a two step process: (1) conception; and (2) reduction to practice.  The courts treat conception as an important marker and can count as the priority date of invention so long as the inventor acted diligently to reduce the invention to practice.  Here, everyone accepted that Actic Cat’s inventor had conceived of the invention prior to April 1, 2002.  The dispute centered on whether the inventor exhibited “reasonable diligence” up until the application was filed (constructive reduction to practice).

In its ruling, the PTAB held that the inventor lacked diligence. In particular, the inventor could not account for particular reduction-to-practice activities for about three months of the seven-month delay: April 1 – April 29 and also August 16 – October 18.  A quirk of the case is that during those gaps, period Arctic Cat had actually hired Boyd’s employer Tyco to test the invention.  On appeal, the Federal Circuit found sufficient diligence by hiring Tyco to test the idea and persisting in pushing Tyco to complete its testing.

An unusual aspect of the court’s decision here is the way that it appears to focus on whether the PTO provided the required evidence to disprove diligence whereas the diligence question ordinarily focuses on whether there is sufficient evidence to prove diligence.

Lack of diligence cannot be inferred from putting the invention into someone else’s hands for needed testing and awaiting test results for a short period commensurate with the testing need, at least where oversight was diligent. . . There is no substantial evidence of any meaningful inattention to the task of reducing the invention to practice.

The court’s conclusion here is that the inventor was sufficiently diligent in pursuit of reducing the invention to practice and therefore can claim priority back to the proven invention date that predates the asserted prior art.

Derivation: Post-AIA, it is still possible that Arctic Cat would get its patent. In particular, Arctic Cat argues that the asserted prior art (Boyd) included material derived from the Arctic Cat inventor. If correct, then Boyd could be knocked-out under the 102(b)(2) exception.  The PTAB rejected this argument (as it applied pre-AIA) and the Federal Circuit found the question moot based upon the already discussed pre-dating.

= = = =

I mentioned in the introduction that the electric box is designed to be used for a Recreational Vehicle. That statement is included within the claims, but only in the preamble:

1. A power distribution module for a personal recreational vehicle comprising: . . .

Recreational Vehicle is not included elsewhere in the claims and here the court found that it was a non-limiting statement of purpose for an already structurally complete invention. (Noting that “it makes no difference to our conclusion whether the standard from Phillips or a ‘broadest reasonable interpretation’ standard applies to this threshold issue of claim construction.”).

by Dennis Crouch

It appears that the Federal Circuit has sharpened its blades and is now slicing the bologna extra thin.  This results-oriented decision unfortunately shades-facts and provides no clarity in its legal analysis of eligibility. While I agree that this network security invention should be eligible for patenting – the court’s analysis does not provide a convincing foundation for that result. 

SRI International, Inc. v. Cisco Systems, Inc. (Fed. Cir 2019)

At the close of trial, the jury issued its verdict favoring the patentee and awarding $23 million in reasonable royalty damages that were then doubled by the D.Del. Judge Robinson based upon the adjudged willful infringement.  On appeal, a 2-1 Federal Circuit panel has sided with the patentee on eligibility, but rejected the enhanced damages.

The eligibility outcome here fits expectations with the majority opinion penned by Judge Stoll and joined by Judge O’Malley while Judge Lourie stood in dissent.

SRI’s asserted claims are directed to methods of “hierarchical event monitoring” used within a computer network.  U.S. Patent 6,711,615.  The basic approach is (1) using a “plurality of network monitors” to detect “suspicious network activities”; (2) generate a report at the network monitor levele; and (3) a “hierarchical monitor” “automatically receiving and integrating the report.”  The specification makes clear that the “integrating” step might be simply looking for commonalities in the intrusion reports or might further involve “countermeasures.”  The specification does not appear to define “hierarchical monitor” other than contrasting them with peer-to-peer.

In considering the claims, the Federal Circuit found that the focus of the claim is on “providing a network defense system that monitors netowrk traffic in real-time to automatically detect large scale attacks.”

Contrary to Cisco’s assertion, the claims are not directed to just analyzing data from multiple sources to detect suspicious activity. Instead, the claims are directed to an improvement in computer network technology. Indeed, representative claim 1 recites using network monitors to detect suspicious network activity based on analysis of network traffic data, generating reports of that suspicious activity, and integrating those reports using hierarchical monitors. The “focus of the claims is on the specific asserted improvement in computer capabilities”—that is, providing a network defense system that monitors network traffic in real-time to automatically detect large-scale attacks. Quoting Enfish.

The majority opinion goes on to justify its conclusions based upon platitudes from the specification — that the invention provides “a framework for the recognition of more global threats to inter-domain connectivity, including coordinated attempts
to infiltrate or destroy connectivity across an entire network enterprise.”

Writing in dissent, Judge Lourie argued that the claims are effectively data collection methods.

The claims here recite nothing more than deploying network monitors, detecting suspicious network activity, and generating and handling reports. The detecting of the suspicious activity is based on “analysis” of traffic data, but the claims add nothing concerning specific means for doing so. The claims only recite the moving of information. The computer is used as a tool, and no improvement in computer technology is shown or claimed. There is no specific technique described for improving computer network security.

Lourie drew a tight analogy to the Electric Power Group eligibility decision that invalidated claims directed toward a “method of detecting events on an interconnected electric power grid in real time over a wide area and automatically analyzing the events on the interconnected electric power grid.”  Seemingly, this case here could also be seen as a close analogy to the court’s recent cases distinguishing between methods of diagnosis and methods of treatment. See Vanda and Natural Alternatives.

The Majority opinion here attempted to distinguish Electric Power Group as in invention “using computers as tools to solve a power grid problem, rather than improving the functionality of computers and computer networks themselves.”  What the majority fails to do here is to point to any particular aspects of the claimed invention that provide anything more than what other panels have identified as abstract ideas – receiving data; reporting data; and correlating data.

= = = =

The appellate panel rejected the willfulness finding and, as a consequence, the resulting doubling of damages.

While the jury heard evidence that Cisco was aware of the patents in May 2012, before filing of the lawsuit, we do not see how the record supports a willfulness finding going back to 2000. As the Supreme Court recently observed, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Halo, 136 S. Ct. at 1933. Similarly, Cisco’s allegedly aggressive litigation tactics cannot support a finding of willful infringement going back to 2000, especially when the litigation did not start until 2012. Finally, Cisco’s decision not to seek an advice-of-counsel defense is legally irrelevant under 35 U.S.C. § 298. . . .

We leave it to the district court to decide in the first instance whether the jury’s presumed finding of willful infringement after May 8, 2012 is supported by substantial evidence.

Although willfulness is missing, the court still affirmed the award of attorney fees to the patentee based dupon Cisco’s litigation tactics.  Judge Robinson had written:

Cisco pursued litigation about as aggressively as the court has seen in its judicial experience. While defending a client aggressively is understandable, if not laudable, in the case at bar, Cisco crossed the line in several regards.

The appellate panel gave deference to district court conclusions on this final point and affirmed the award of fees.

= = = =

Note: In a separate case, Judge Robinson had previously held the claims invalid under 102/103. However, that decision was vacated on appeal SRI International, Inc. v. Internet Security Systems, Inc., 511 F.3d 1186 (Fed. Cir. 2008).  Here, interestingly, Judge Robinson sua sponte issued summary judgment that the claims were not anticipated.  That holding was affirmed here on appeal.

by Dennis Crouch

In Bilski v. Kappos, the Supreme Court issued three separate opinions — although all the justices agreed that physicality — machine-or-transformation — offers at least an important clue for deciding the issue.

1. Five Justice majority opinion: “The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘process.’ . . . [Rather, it is] just an important and useful clue.”
2. Four Justice minority opinion: Arguing that a “business method” is not a “process” under Section 101, and that physicality “is a critical clue” for determining eligibility.
3. Two Justice minority opinion: Explaining their view that only a “few patentable processes lie beyond” the machine-or-transformation test.

In InvestPic, LLC v. SAP America, Inc., No.  18-1199 (Supreme Court 2019), the question of physicality has been raised again. In that case, the patentee argues that the Federal Circuit has again recreated a physicality test for eligibility.

To reach [its conclusion of ineligibility], the Federal Circuit focused exclusively on whether the patent’s claims encompassed an invention in the “physical realm,” a requirement found nowhere in the Patent Act or this Court’s jurisprudence. The claimed novel process here
is a process that can only be performed by a computer; a human cannot perform the process. The Federal Circuit determined that the computer-executed invention does not touch the “physical realm” and therefore held it patent-ineligible.

With that basis, the patentee has asked the Supreme Court for its guidance on the following question:

Does the Federal Circuit’s “physical realm” test contravene the Patent Act and this Court’s precedent by categorically excluding otherwise patentable processes from patent eligibility?

Looking at the Federal Circuit’s decision in this case — it appears that the court has created a dichotomy with the world of ideas fitting into either (1) the physical realm or (2) the realm of abstract ideas.  The following excerpt from the Fed. Cir. decision is on point:

The claims in McRO were directed to the creation of something physical—namely, the display of “lip synchronization and facial expressions” of animated characters on screens for viewing by human eyes. . . . Similarly, in Thales Visionix Inc. v. United States, 850 F.3d 1343 (Fed. Cir. 2017), the improvement was in a physical tracking system. . . . Here, in contrast, the focus of the claims is not a physical-realm improvement but an improvement in wholly abstract ideas—the selection and mathematical analysis of information, followed by reporting or display of the results. . . . Some of the claims require various databases and processors, which are in the physical realm of things. But it is clear, from the claims themselves and the specification, that these limitations require no improved computer resources InvestPic claims to have invented, just already available computers, with their already available basic functions, to use as tools in executing the claimed process.

Note here, that the court did not give itself Bilski-style wiggle-room by suggesting that its physical-realm identity offered a “clue” to eligibility. Rather, the court held that the invention was not in the physical-realm (other than its use of computers) and therefore was abstract.  Now, to be clear, I believe that the InvestPic decision could be interpreted a different way. However, the easiest reading of the case is that the court meant what it said – the claim is directed either to something abstract or something physical.

In addition to the Bilski analogy above, this case here also runs parallel to Vanda where the court created the if-then rule that treatment claims are eligible.  The petition here also provides a list of Federal Circuit cases that the patentee identifies as not grounded in precedent:

• Intellectual Ventures I LLC v. Capital One Bank, 792 F.3d 1363 (Fed. Cir. 2015) (using a § 101 analysis as a proxy for the independent § 112 inquiry);
• Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1336 (Fed. Cir. 2016) (looking to whether a software program improves computer capabilities);
• Exergen Corp. v. Kaz USA, Inc., 725 F. App’x 959, 966 (Fed. Cir. 2018) (finding a patent eligible in part because it took “years and millions of dollars” to invent).

The problem for the patentee in this case are the claims themselves.  Claim 1 of U.S. Patent 6,349,291 (as modified by reexamination and certificates of correction) reads as follows:

A method for calculating, analyzing, and displaying investment data comprising the steps of:

(a) selecting a sample space, wherein the sample space includes at least one investment data sample;

(b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in sample selection in a resampling process; and

(c) generating a plot of the distribution function.

The idea here is good — use a bootstrapping method to determine an appropriate predictive distribution of investment data rather than rely upon a predetermined distribution (such as the normal distribution).  However, the abstract idea analysis here could look a lot like it did in Bilski.

[Read the Petition Here]

by Dennis Crouch

Hikma Pharmaceuticals USA Inc., et al. v. Vanda Pharmaceuticals Inc., No. 18-817 (Supreme Court 2019)

In this case, the Supreme Court has requested input from the U.S. Government — requesting the views of the U.S. Solicitor General (CVSG).  The SG’s office will likely submit its brief in December 2019 — so we have a nice wait on this question presented:

The question presented is whether patents that claim a method of medically treating a patient automatically satisfy Section 101 of the Patent Act, even if they apply a natural law using only routine and conventional steps.

Although Hikma did not declare all method-of-treatment claims automatically patent eligible. It appears that the court has doubled-down in Natural Alternatives Int’l. Inc. v. Creative Compounds, LLC (Fed. Cir. 2019) (“These are treatment claims and as such they are patent eligible.”).

The court is also awaiting the views of the SG in HP v. Berkheimer on the question of the extent that eligibility is based upon a questions of fact. Berkheimer has become standard Federal Circuit law — as the court explained recently in Natural Alternatives: “Eligibility under § 101 is a question of law based on underlying facts.”

by Dennis Crouch

Sprint Communications Co., L.P. v. Time Warner Cable, Inc. (Fed. Cir. 2019) (Modified Opinion)(Original Opinion)

In its original decision in the case, a 2-1 appellate panel upheld a jury’s $140 million verdict in favor of the patent holder Sprint.  Time Warner petitioned for rehearing on two grounds: (1) damages apportionment; and (2) written description requirement. In response, the appellate panel has slightly modified its original opinion — but only to better explain its damages decision. As such, the $140 million verdict remains.

On apportionment, Time-Warner argues that the jury was able to rely upon a prior-verdict for damages calculation that did not correctly perform any apportionment to account for the unclaimed portions of its VoIP technology.  In the revised opinion here, the court explained its position:

1. The “Georgia-Pacific factors, under proper instructions embody[] apportionment principles.”
2. Here, Sprint’s expert did address apportionment and told the jury that damages should be attributed only to “incremental profits are attributable to the patents in suit.”  Further, the jury instructions indicated that damages should be based upon the value added by the patented features.
3. Finally, the court noted that Sprint did not propose alternative jury instructions.

Written Description: The divide between the majority opinion (Judges Bryson and Chen) and the Dissent (Judge Mayer) is based upon the second issue — written description.

The Patent Act requires a “written description of the invention, and of the manner and process of making and using it.” 35 U.S.C. 112(a).  Judge Mayer concluded in dissent that description in the specification does not support the full-breadth of the asserted claims.

Here, the accused infringing systems are Voice-over-Internet-Protocol (VoIP) systems. The claims are not directed to internet protocol (IP) but rather use the broader category of “packet communication.”  Why not claim IP?: the original specification does not mention internet protocol but instead is directed toward a separate packet-communication form known as asynchronous transfer mode (ATM).  ATM was popular legacy telecommunications systems, but is being largely replaced by IP.  Although ATM and IP both involve packet communications, they are quite different in how they work.  For instance, ATM creates a virtual circuit / fixed call path while IP does not.

For Judge Mayer, the bulk of the specification is focused on the virtual circuits with no disclosure of other packet networks. He concludes that “the specification’s disclosure makes sense only in the context of ATM technology.”  As such, the claims that cover non-ATM IP-switching are not supported by the written description.

The majority disagreed with Judge Mayer and found sufficient support (giving deference to the jury’s implicit fact finding).  In its analysis, the majority first noted that IP technology “is not expressly excluded” by the specification and that the specification is not expressly limited to ATM:

[T]he specification refers to “[b]roadband systems, such as Asynchronous Transfer Mode (ATM),” a formulation that strongly suggests that the patents are not limited to ATM technology.

In addition, Sprint presented evidence that a person of skill in the art would understand the disclosure to — especially the term “broadband” — to include IP.

For the majority, the evidence here was enough to allow the patent to remain valid.  Even if the result is uncomfortable, it is easier to see after considering the level of deference.  The court should only overturn the jury verdict if the only reasonable conclusion is that invalidity was proven with clear and convincing evidence.

by Dennis Crouch

The decision here is an important case adding substantial nuance to the product and law of nature exceptions.

Natural Alternatives Int’l. Inc. v. Creative Compounds, LLC (Fed. Cir. 2019)

Earlier this week I wrote about a separate Natural Alternatives reexamination appeal pending before the US Supreme Court on the issue of improper priority claims.

The case at hand focuses on patent eligibility.  Natural Alternatives sued Creative for infringing six of its patents covering various forms of the naturally-occurring compound beta-alanine and its use as a muscle-building supplement.  The district court dismissed the lawsuit on the pleadings for lack of eligibility — finding that the claims were directed toward a product of nature (beta-alanine) and a law of nature (that taking beta-alanine in sufficient quantities builds muscle).

On appeal the Federal Circuit has sided with the patentee.  In an opinion written by Judge Moore and joined by Judge Wallach, the court explained that we shouldn’t take the law-of-nature prohibition too far since “[w]e live in the natural world, and all inventions are constrained by the laws of nature.”

The decision here adds an important nuance to Vanda and CellzDirect.  In particular, the court explains that an important clue of eligibility for treatment claims is whether “homeostasis is overcome” in a way that leads to “specific physiological benefits.” This physiological impact tells us that the invention here is a treatment claim — that is therefore patent eligible.

The claims … they require that an infringer actually administer the dosage form claimed in the manner claimed, altering the athlete’s physiology to provide the described benefits. These are treatment claims and as such they are patent eligible.

One element of this case that could be distinguished from ordinary treatment claims is that the purpose of taking beta-alanine is to alter the body’s operation away from normal whereas most drug treatments are in pursuit of normalcy.

The court considered the fact that beta-alanine occurs in nature and is very longstanding part of the human diet. In the end, however, the court found that the law “expressly permits patenting a new use of an existing product.”  Here, the patentee argues that “the quantities being administered” do not exist in nature.

At this point in the analysis, claim construction became important.  At the pleadings stage, the district court agreed to follow the patentee’s proposed construction that would require that the dosage “elevate beta-alanine above natural levels to cause an increase in the synthesis of beta-alanylhistidine in the tissue.”

Looking at the product claims, the following claim is perhaps the broadest:

1. A human dietary supplement, comprising a beta-alanine in a unit dosage of between about 0.4 grams to 16 grams, wherein the supplement provides a unit dosage of beta-alanine.

In similar fashion to the method claims, the district court followed the patentee’s claim construction that a “human dietary supplement” should be construed as excluding “natural or conventional food” that “is manufactured.”

Although the appellate court found the claims ineligible even under this construction, the appellate panel sided with the patentee — finding that the not-natural and manufacture construed limitations sufficient to take the patents outside of the law of nature and product of nature exceptions.

Although beta-alanine is a natural product, the Product Claims are not directed to beta-alanine. A claim to a manufacture or composition of matter made from a natural product is not directed to the natural product where it has different characteristics and “the potential for significant utility.” See Diamond v. Chakrabarty, 447 U.S. 303, 310 (1980).

Judge Reyna wrote in dissent — arguing that the majority’s eligibility analysis relied upon a faulty claim construction “that improperly imports limitations into the claims and is contradicted by the written description.”

Sophos, Inc. v. RPost Holdings (Fed. Cir. 2019) (RmailSophos)

The two paragraph decision in this case is designed to serve as a reminder that patent validity/infringement is considered on a claim-by-claim basis.

RPost sued Sophos alleging infringement its U.S. Patent No. 8,504,628.  However, during the litigation RPost filed infringement contentions that focused only on claims 14, 19, 24, 26, 27 and 30.  In its invalidity argument, Sophos directed its attention only to these asserted claims.  However, the district court wrote more broadly “that the ‘628 patent is invalid.”

On appeal, the Federal Circuit has affirmed the summary judgment of invalidity with the caveat that the district court’s opinion should be limited only to the asserted claims.

We agree that the asserted claims are anticipated by Dickinson and affirm the invalidity of the asserted claims on that basis. However, the district court’s Memorandum and Order granting summary judgment contained language suggesting that all claims of the ’628 patent are invalid. See J.A. 42 (“[T]he Court concludes that the ’628 patent is invalid.”) The parties agree that the district court’s judgment of invalidity must be limited to the asserted claims. Accordingly,

IT IS ORDERED THAT:

1. The judgment of invalidity of claims 14, 19, 24, 26, 27 and 30 of the ’628 patent is affirmed.

2. The case is remanded for the district court to revise its judgment to clarify that the declaration of invalidity is limited to claims 14, 19, 24, 26, 27, and 30 of the ’628 patent.

In this particular case, the patent challenger Sophos agreed that they had only challenged the asserted claims. Thus, this decision cannot be seen as creating any strict limit on challenging claims not pursued in the infringement contentions.

Congratulations to Scott Boalick and Jacqueline Bonilla for their appointments as Chief Judge and Deputy Chief Judge for the Patent Trial and Appeal Board. Judges Boalick and Bonilla have already been doing the work since September 2018 in their roles as Acting Chief and Deputy Chief.  Earlier this year, Dir. Iancu also appointed Thomas Krause as USPTO Solicitor.  These three individuals are each highly qualified with deep intellectual property and government experience.

These appointments round-out Dir. Iancu’s top staff so that all leadership team members are in permanent positions rather than temporary “acting” appointments.

by Dennis Crouch

Two patent cases are pending before the Supreme Court on their merits:

• Return Mail, Inc. v. United States Postal Service, No. 17-1594 (Can a US Gov’t entity petition for AIA review?)
• Iancu v. NantKwest, Inc., No. 18-801 (Are attorney fees automatically shifted in Section 145 Civil action to obtain patent?)

The final pending petition regarding PTAB reviewability focuses on sovereign immunity:

• Saint Regis Mohawk Tribe. et al. v. Mylan Pharmaceuticals, Inc., et al., No. 18-899 (May tribal sovereign immunity may be asserted to bar IPR review of patents owned by the tribe?)

I mentioned the Berkheimer eligibility case above. An important follow-on case is TS Patents.

• TS Patents LLC v. Yahoo! Inc., No. 18-1114 (Is a R. 12(b)(6) dismissal for lack of eligibility appropriate when the complaint and patent both assert novel technical improvements?)

by Dennis Crouch

Patent families generally require a chain of copendency.  A later filed application may claim the same priority of an earlier-filed application so long as the later is filed while the earlier is still pending (not yet patented, abandoned, or otherwise terminated).  This pending Supreme Court petition focuses on the situation where the earlier-filed application is amended to alter its priority claim — and asks What happens to the later-filed application’s priority claim.

Natural Alternatives v. Iancu (Supreme Court 2019)

I have been following the Natural Alternatives cases for the past several years.  Natural’s patents cover a dietary supplement containing free beta-alanine.

1. A human dietary supplement comprising … beta-alanine [or amide thereof] that is not part of a dipeptide, polypeptide or oligopeptide.

U.S. Patent No. 8,067,381.

The particular issue in the pending petition here focuses on priority claims.

When is priority established for a patent application under the Trade-Related Aspects of Intellectual Property Rights (TRIPs) so that a Patent Owner can change priority in one application without affecting the priority of applications that have already established priority?

In this case, the patent at issue is the eighth in a long series of U.S. patent applications claiming priority back to an original UK application. For each patent in the chain, a new application was filed just before the prior patent’s issuance.  In each instance, the new application also included a claim to priority to all of the prior applications in the chain.

However, just before the fifth application issued, its priority claim was amended to “delete its claim of benefit from the fourth through first applications in the series back to the 1996 British application’s filing date and, instead, claimed benefit solely of a provisional application filed in 2003.”  Thus, for the fifth application, the applicant gave up the 1996 filing date in favor of the 2003 date — with the result of extending the 20-year timeline.  The problem for the patentee here is that the reduced priority claim in the fifth application also limited the chain of priority for the sixth, seventh, and eighth patent.

In a reexamination, the USPTO rejected the eighth patent after finding that the first patent in the series counts as prior art.  That holding was affirmed by the Federal Circuit.  To be clear, although the sixth application correctly established priority when filed, the priority claim of the sixth was undermined when the prior-filed application (the fifth) was amended.

In its petition, the patentee argues that this “nunc pro tunc” result is improper.

The Federal Circuit’s holding means this disclaimer occurs even when the later-filed application was filed before the priority claim was disclaimed. This departure from the normal tenets of property law is illogical.

The traditional property law law discussed here is the “vesting” of the priority claim — that the patentee argues occurs as soon as it is properly claimed.

This is an interesting decision here that should certainly offer pause to anyone considering priority-claim schemes.

Guest post by Jonathan Stroud (Unified Patents) and Saurabh Vishnubhakat (Texas A&M Law). 

After a long wait, the Federal Circuit last month decided Momenta Pharms. v. Bristol-Myers Squibb Co. (Fed. Cir. 2019), dismissing Momenta’s appeal of an adverse PTAB decision based on standing and mootness concerns.  (The PTAB had instituted Momenta’s petition for inter partes review of Bristol-Myers Squibb’s patent on certain formulations of an immunosuppressive agent, but ultimately sustained the patentability of all the challenged claims.  Momenta, a biosimilar applicant, had sought inter partes review preemptively, with no prior infringement suit by BMS.)  The Federal Circuit’s conclusion that Momenta lacked Article III standing has important implications for access to appeals in unsuccessful PTAB challenges.

Building on Professor Crouch’s initial analysis of the Momenta decision, we explore the Federal Circuit’s developing case law on what counts as an adequate injury for a petitioner to have appellate standing from a PTAB decision.  Of particular interest is the persistent ambiguity about how potential future patent infringement and the PTAB estoppel provisions of the AIA affect standing to appeal.

The Stakes of Appellate Standing

Article III standing applied on appeal has always imposed an asymmetric burden on the system for administrative patent revocation.  Patent owners who appeal can almost always show the requisite injury for standing in the form of adverse effects on some or all of their patent rights.  Unsuccessful petitioners, meanwhile, may not be able to show enough injury through potential patent infringement.  Ironically, this especially true of those very parties who benefit the most at the margins from having access to administrative review—precisely because they could not otherwise have established standing to seek declaratory relief in federal court.

In effect, the more proactive and preemptive a challenge might be, the less likely that party is to be able to prove standing on appeal, adding another reason not to act until after litigation has begun.  The asymmetry of this burden is especially salient in domains like pharmaceutical drugs and biosimilars, where the incentive to test the validity of patents has important social consequences, and the complexities of those decades-long disputes create fact patterns that can be difficult to unpack.

The Momenta Appeal

At the time of its 2015 petition for inter partes review, Momenta was working with Mylan to develop a biosimilar counterpart to Orencia®, the branded biologic drug whose active ingredient was covered by the BMS patent.  Momenta’s plan was to enter the market as a biosimilar applicant under the Biologics Price Competition Act of 2009 (more detail here), which provides a pathway to generic competition for complex biologic drugs akin to the “Hatch-Waxman” Act provisions that govern small-molecule generic drug approval.  Momenta first sought inter partes review of the ‘239 patent covering a formulation of Orencia®.

Unsuccessful in inter partes review, Momenta appealed the decision in early 2017.  One major issue in the case (which one of us has discussed here in greater detail) was whether Momenta, who had no active district court litigation against BMS and had faced no direct threats of infringement and had not yet manufactured a competing product, had standing to maintain its appeal.

Momenta argued in briefing and at oral argument that the inter partes review was akin to an expensive “freedom-to-operate” action that resulted in immediate harm, presenting a “fork in the road” in its development process.  Momenta concluded that losing the ability to appeal would force it to abandon its research efforts and leave millions of dollars wasted.  BMS replied that any such harm was speculative and that the case law does not support Momenta’s standing.

In late 2018, almost a year after the oral argument concluded—but shortly before the Federal Circuit issued its opinion last month—Momenta sent a letter notifying the court that Momenta had initiated a conversation with Mylan “to exit [Momenta’s] participation in the development of M834, a proposed biosimilar of ORENCIA®.”  Thus, Momenta no longer had the same interest in the appeal.  BMS pushed to have the case dismissed as moot, though Momenta countered in a series of further letters that it still had a stake in the case and standing to appeal, noting that “[t]he concreteness of that stake is bolstered by the estoppel provision [of 35 U.S.C. § 315(e)], which the Board’s adverse decision already triggered.”

The Federal Circuit held that the case was largely moot given those recent developments, and dismissed the appeal.  As one of us wrote recently, this case “shows the difficult position the court and parties are put in when standing is raised based on proactive business decisions revolving around patent challenges, and also demonstrates how principles of mootness and ripeness bleed into the standing inquiry easily.”

The Potential for Infringement as an Injury

For five years now, the Federal Circuit has been actively exploring the boundaries of Article III standing on appeal from administrative action.  For instance, in 2014 in the inter partes reexamination context, the court in Consumer Watchdog v. Wis. Alumni Research Found. explained that appeals based on vague public interest concerns in invalidating the patent, without a particularized or personal injury, is not enough. There, WARF had obtained a patent related to human embryotic stem cell cultures, and Consumer Watchdog challenged the patent as ineligible subject matter.

On appeal, however, Consumer Watchdog framed its argument in terms that the patent helped “loot taxpayer funds and force research overseas” and that a challenge benefited the public at large.  As the party “seeking to invoke federal jurisdiction,” Consumer Watchdog bore the burden of establishing Article III standing, which included proving that it suffered an “injury in fact.”  The court found it had not alleged facts sufficient to demonstrate such an injury.

In the 2017 Phigenix v. Immunogen case, Phigenix filed an inter partes review but failed.  On appeal, Phigenix alleged harm apart from the threat of direct patent infringement—namely, that the existence of the patent was preventing others from taking a license to patents owned by Phigenix.  This blocking effect, the argument went, caused economic harm that is cognizable in standing.  The court allowed that alternative forms of economic harm were permissible and accepted the legal framework, but ultimately held that Phigenix had failed to meet its burden.

The court suggested that arguing possible or speculative future economic interest based on conclusory expert declarant testimony was not necessarily enough.  The Phigenix decision also laid out the burdens of production and persuasion for appellate standing, suggesting that the requirements apply only to the party seeking to invoke the court’s jurisdiction: the appellant.  It also allowed that such evidence can be produced for the first time on appeal.

On the other hand, in the nonprecedential PPG Industries v. Valspar Sourcing, the Federal Circuit found sufficient economic harm to establish standing on appeal from inter partes reexaminations.  The PPG opinion held that PPG’s launched product and customer inquiries suggested a concrete stake in the outcome and noted that “[t]his stake is enhanced by the ‘estoppel provisions contained within the inter partes reexamination statute.’”

As for standing arguments related to infringement potential itself, the Federal Circuit JTEKT v. GKN Automotive has explained that there may be certain situations in which a PTAB petitioner has no infringing product on the market at the relevant time but may still be able to show Article III standing.  However, in such situations, the petitioner must establish “concrete plans for future activity that creates a substantial risk of future infringement.”  On that case’s own facts, JTEKT had sold no infringing goods, had not finalized its product design, and had not shown any concrete plans for future activity that would run afoul of GKN’s patent rights.  The court similarly concluded in RPX v. ChanBond that petitioner RPX was not engaged in any activity that even potentially infringed the patent being challenged.  This necessary specificity of future plans means that PTAB challenges even from direct market competitors may ultimately lack standing to support an appeal.

For direct competitors, however, standing to appeal may still be available where the parties are engaged in a live commercial dispute presenting a “significant risk” of infringement based on “significant involvement in research and commercial activities” involving the subject matter of the patent.  As the Federal Circuit held in DuPont v. Synvina, evidence showing that the petitioner in that case had an operating facility capable of infringing a method of manufacture  was enough to confer standing.

Understood in this context, Momenta is a dispute in which the patent challenger was engaged in likely-infringing activity at the outset, but lost its direct stake through an “intervening abandonment of the controversy” by ending its collaboration with Mylan on an Orencia® biosimilar.  The case is notable both for its high stakes on appeal and the fact that the biosimilar applicant was clearly engaged in an expensive, years-long dispute over a billion-dollar biologic product.

Although Momenta may still be able to receive royalties on any relevant biosimilar that Mylan may later develop, the court found this to be the sort of speculative future economic interest that proved inadequate in Phigenix.  As in ChanBond, the lack of any current activity that might potentially infringe undermined Momenta’s argument for revived standing, and the lack of any concrete plans going forward meant that the safety valves of JTEKT or DuPont were of little help.  In the end, the Momenta decision dodged the more contentious issue of just how much investment, how much potential for future infringement, and how much certainty there must be about that future harm, are ultimately enough to confer Article III standing.

Estoppel as an Injury

Throughout most of these cases, there has also been a thread of discussion about whether the strong statutory estoppel of 35 U.S.C. § 315(e), applied after the final written decision issues in an inter partes review, constitutes an independent injury capable of sustaining standing.  It is unclear whether the presence of estoppel “bolsters” or supports a finding of injury or is simply irrelevant.  The court seems to have entertained the middle road in Momenta, never finding that estoppel alone could constitute injury, but with appellants arguing that it supports their overall arguments about the existence of a genuine Article III case or controversy.

The “petitioner” estoppel of § 315(e) estoppel has two prongs.  One applies back to the PTAB itself; the other, to outside forums.  The plain language of the statute bars the maintenance of either another PTAB proceeding or an argument in a federal-court or ITC action that a patent is invalid based on any ground that was actually raised or reasonably could have been raised in the initial inter partes review.  Moreover, estoppel applies not only to the petitioner but also to their real parties in interest and privies.

Running through the various opinions on standing is an argument that the legal detriment of estoppel is at least a factor in, if not a deciding vote for, finding standing on appeal.

In Altaire Pharms. v. Paragon Bioteck, a case where the court found standing in a post-grant review, the court pointed to estoppel as compounding the harm.  As previously noted, the court found in the non-precedential PPG Industries case that the petitioner’s “stake is enhanced by the ‘estoppel provisions contained within the inter partes reexamination statute.’” And in Momenta, the appellant argued that that “[t]he concreteness of that stake is bolstered by the estoppel provision, which the Board’s adverse decision already triggered,” citing 35 U.S.C. § 315(e).

In JTEKT, on the other hand, the panel rejected appellant’s argument that inter partes review estoppel constituted a separate injury in fact, an issue the appellant there has raised in a petition for certiorari to the Supreme Court.  RPX Corp. argued something similar in their opposition to the motion to dismiss their appeal, and have likewise made that argument the basis of a petition for certiorari, which, it should be noted, has drawn a “call for the views of the Solicitor General” from the high Court.

These arguments appear to be grounded in Justice Kennedy’s concurrence in Lujan, where he noted that “Congress has the power to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before.”  But few actual cases exist holding that a statute itself creates standing, and it seems clear that the Federal Circuit, at least, is unconvinced that this argument holds water, certiorari petitions or no.

The Federal Circuit’s conclusion in Momenta that estoppel cannot constitute an injury-in-fact when Momenta “is not engaged in any activity that would give rise to a possible infringement suit” is potentially far-reaching.  Standing to appeal depends on whether there is adequate injury-in-fact at the time of appeal—but estoppel, of course, lasts indefinitely.  This is a significant disparity for petitioners, one that doubles down on the asymmetric burden that petitioners already face with regard to Article III standing.

Implications for Biosimilars

Although the opinion did not address it, it is noteworthy that Orencia® is listed in the Purple Book, which identifies what biological products the FDA has determined to be “biosimilar to or interchangeable with a reference biological product.”  In another PTAB appeal decided just a few weeks prior to Momenta, the Federal Circuit in Amerigen Pharms. v. UCB Pharma (Fed. Cir. 2019) held that the listing of a patent in the FDA Orange Book (a Paragraph III certification) can constitute an injury sufficient to support Article III standing.

Accordingly, appellants confronted with administrative challenges prior to open district court litigation may be left scratching their heads and wondering just when standing kicks in and whether it continues through the life of any given appeal.  That makes challenging biologics patents especially fraught with uncertainty.  It also pushes would-be PTAB petitioners toward later or more reactive filing of inter partes review petitions rather than early filing of post-grant review or inter partes review challenges prior to a district court litigation.  Given the complex regulatory schemes at work, it seems likely that these parallel proceedings will even further complicate ANDA and ABLA-related litigation and the related approval processes rather than streamline them.

Conclusion

We conclude that the Momenta decision has ultimately done little to ease concerns about who does and does not have standing to appeal.  It is an important development in the ongoing evolution of Article III standing for appeals from PTAB trials, to be sure, as well as an informative survey of the relevant case law.  Still, it may have created further confusion by injecting the issue of mootness into the debate.  While courts have no control over the parties’ positions or the status of any particular appeal, the Federal Circuit’s decision making seems to reflect some discomfort with taking evidence on appeal in the first instance—as, for example, the D.C. Circuit does.  This reluctance has led to longer briefing schedules and more complicated and uncertain appellate fact patterns.  The weight of that uncertainty ultimately falls upon the parties and Federal Circuit panels themselves.

= = = =

Prof. Saurabh Vishnubhakat is an Associate Professor at the Texas A&M University School of Law and the Texas A&M Dwight Look College of Engineering, and is a former USPTO advisor.  Mr. Jonathan Stroud is Chief Intellectual Property Counsel at Unified Patents Inc., an Adjunct Professor at American University Washington College of Law, and a former USPTO examiner.  The arguments presented here are the authors’ and should not be imputed to Unified Patents, the USPTO, or to any other organization.

Guest Post by David O. Taylor, Associate Professor of Law at SMU Dedman School of Law. Professor Taylor recently drafted an article summarizing the results of a survey of venture capitalists and private equity investors. The survey explores how the Supreme Court’s recent patent eligibility cases have influenced firm decisions to invest in companies developing technology. -Jason

Numerous inventors, lawyers, companies, industry groups, professors, and judges have decried the Supreme Court’s recent patent eligibility cases—particularly its 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and its 2014 decision in Alice Corp. v. CLS Bank International. These cases replaced the longstanding patent eligibility standard with a new one requiring, in particular, a so-called “inventive concept.”

Building upon judges’ views that they are bound by the Supreme Court’s new standard and their concerns that that standard is having devastating consequences, the American Intellectual Property Law Association and the Intellectual Property Owners Association believe the situation is so untenable that they have proposed that Congress overturn that standard.

Others, however, disagree. They effectively ask: To what extent have the Court’s cases shifting eligibility law actually impacted decisions to invest in the development of technology? Moreover, exactly how have these cases actually impacted investment decisions? And to the extent these cases have had a significant impact on investment decisions, has that impact proven to be positive or negative in the sense of increased or decreased investment?

Existing literature provides surprisingly little data even to begin to answer these questions. And, make no mistake, these questions are fundamental, and the accuracy of their answers is important. Answers to these questions will either support congressional intervention in the law of patent eligibility or counsel against it. Thus, the questions ought to be asked and—more importantly—answered by reference to hard data rather than gut feeling or prognostication. Quite literally, future innovation—perhaps even lifesaving innovation—hangs in the balance.

And so that is exactly what I have done: gathered data to help begin identifying accurate answers to these questions. In particular, I have conducted a survey of 475 venture capital and private equity investors to study the impact of the Court’s eligibility cases on their firms’ decisions to invest in companies developing technology. This survey is the first of its kind, and the data it has provided is sorely needed.

In an article summarizing my findings, I present detailed results of the survey and identify and consider four principal findings.

First, the investors who responded to the survey overwhelmingly believe patent eligibility is an important consideration when their firms decide whether to invest in companies developing technology. Indeed, overall 74% of the investors agreed that patent eligibility is an important consideration in firm decisions whether to invest in companies developing technology; only 14% disagreed. Likewise, investors reported that reduced patent eligibility for a technology makes it less likely that their firm will invest in companies developing that technology. For example, overall 62% of the investors agreed that their firms were less likely to invest in a company developing technology if patent eligibility makes patents unavailable, while only 20% disagreed. These results, while perhaps not surprising, nonetheless confirm one of the central premises upon which the patent system rests: that patents help to spur investment in development of technology.

Second, reduced patent eligibility correlates with particular investment behaviors in particular industries. Investors overwhelmingly indicated, for example, that the elimination of patents would either not impact their firm’s decisions whether to invest in companies or only slightly decrease investments in companies developing technology in the construction (89%), software and Internet (80%), transportation (84%), energy (79%), and computer and electronic hardware (72%) industries. But investors, by contrast, overwhelmingly indicated that the elimination of patents would either somewhat decrease or strongly decrease their firm’s investments in the biotechnology (77%), medical device (79%), and pharmaceutical industries (73%). Thus, according to these investors, on average each industry would see reduced investment, but the impact on particular industries would be different. And the life sciences industries would be the ones most negatively affected.

Third, the Supreme Court’s eligibility cases have impacted many firms’ investments and, more significantly going forward, their firm’s investment behaviors. Almost 40% of the investors who knew about at least one of the Court’s eligibility cases indicated that the Court’s decisions had somewhat negative or very negative effects on their firm’s existing investments, while only about 15% of these investors reported somewhat positive or very positive effects. On a going forward basis, moreover, almost 33% of the investors who knew about at least one of the Court’s eligibility cases indicated that these cases affected their firms’ decisions whether to invest in companies developing technology. These investors reported primarily decreased investments, but also shifting of investments between industries. In particular they identified shifting of investments out of the biotechnology, medical device, pharmaceutical, and software and Internet industries. Again, the life sciences industries represent the most negatively affected of all industries.

Fourth, investors familiar with the Supreme Court’s eligibility cases indicated different changes in firm investment behavior as compared to investors without this familiarity. As discussed above, about 33% of investors with this familiarity reported that these cases impacted their firms’ investment behavior, with these investors reporting shifting of investments away from the software and Internet industry along with the biotechnology, medical device, and pharmaceutical industries. Investors without familiarity with these cases, by contrast, overwhelmingly reported that decreased availability of patents since 2009 (prior to the Supreme Court’s eligibility cases) has not impacted their firms’ changes in investment behavior. Indeed, a full 95% indicated no impact on any change in their firm’s investments. Moreover, investors without familiarity with these cases indicated more often, as compared to investors with familiarity, that their firms have shifted investments into the software and Internet industries as compared to all other industries. In short, eligibility knowledgeable investors report the Supreme Court’s cases have resulted in reduced investment in software and the Internet, while unknowledgeable investors report increased investment in software and the Internet over the same time period. As investor’s transition from non-knowledgeable to knowledgeable (once they learn about the Court’s cases and their impact on patent eligibility), investment in software and the Internet will seemingly decrease. Thus, the life sciences industries are by no means the only industries impacted by the Court’s cases.

The results of the survey provide critical data for an evidence-based evaluation of competing arguments in the ongoing debate about the need for congressional intervention in the law of patent eligibility. Proponents of reform will no doubt tout the results of the survey as representing a clarion call for reform. The best that can be said by those that prefer the status quo is that most investors do not report changing their investment decisionmaking based upon the Supreme Court’s eligibility decisions. A significant part of this group of investors, however, represents those uninformed about the Court’s cases.

The reality is that the results of the survey highlight the importance of patent eligibility and the negative impact of the Supreme Court’s eligibility cases generally on investment, but particularly in the most important areas of technological development in terms of its impact on public health: the biotechnology, medical device, and pharmaceutical industries—the life sciences industries. That said, it is important to highlight that the results show the Court’s decisions have negatively impacted each and every area of technological development studied.

As a consequence, the results do support the idea that the time has come for Congress to at least consider overturning the Supreme Court’s new eligibility standard to prevent additional lost investment in technological development in the United States. Indeed, given the results of the survey, it seems likely that the Supreme Court’s eligibility decisions have resulted in lost investment in the life sciences that has delayed or altogether prevented the development of medicines and medical procedures.

Research funding disclosure: I prepared this Article supported by grants from Microsoft Corporation, the Tsai Center for Law, Science and Innovation, and the Clark J. Matthews, II Faculty Research Endowment Fund.

In Ex parte Alder (Appeal No. 2017-4809) (PTAB 2019), the PTAB recently found the claimed “snoring detection device” ineligble as directed to the abstract idea of “detecting snoring.”

1. A snoring detection device comprising:

a sensor configured to detect sounds during a breathing cycle; and

a processor configured to: [1] detect a noise level during an inspiration phase of the breathing cycle with said sensor; [2] detect a noise level during an expiration phase of the breathing cycle with said sensor; [3] determine an occurrence of a snore based on a difference in the noise levels detected during inspiration and expiration, the difference comprising a subtraction of the noise level during expiration from the noise level during inspiration.

Alder.  This case followed the other recent PTAB decisions regarding the 2019 Eligibility Guidelines.  In particular, the decision recites elements of the guidelines but then makes no real effort to actually apply the guidelines to the case-at-hand. Rather, the decision follows the usual approach of drawing analogy to the various appellate and Supreme Court cases to find the closest thread.

[Updated to correct typo in name – Alder not Adler]

by Dennis Crouch

The Supreme Court has granted writ of certiori in Iancu v. NantKwest Inc. on the question:

Whether the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompasses the personnel expenses the United States Patent and Trademark Office incurs when its employees, including attorneys, defend the agency in Section 145 litigation.

When an examiner refuses to allow an applied-for patent, the applicant can appeal to the USPTO’s internal administrative board (PTAB). If still unsuccessful, the applicant then has a choice of either (1) filing a civil action in federal court or (2) appealing directly to the Court of Appeals for the Federal Circuit. 35 U.S.C. § 145.

The provision authorizing the civil action ends with the statement:

All the expenses of the proceedings shall be paid by the applicant.