Georgetown Rail v. Holland (Fed. Cir. 2017)

In a prior post, I noted that the Federal Circuit initially released this appellate decision under seal but requested that the parties show cause as to why it should remain under seal.  After receiving no objection from the parties, the court has now unsealed the decision.

The case centers on Georgetown’s U.S. Patent No. 7,616,329 which covers a method for inspection of railroad tie-plates and particularly includes automating the examination of misaligned tie plates. 

In 2012 Union Pacific set up a head-to-head challenge between Georgetown and Holland.  Holland got the business then Georgetown sued Holland for patent infringement.  A jury awarded $1.5 million in lost profit damages, and the judge then enhanced the damages by an additional $1 million and awarded a permanent injunction against infringing the patent.

The most important part of the decision is likely the claim construction – particularly the court’s interpretation of the preamble as not limiting.

In relevant parts, Claim 1 of the patent calls for:

1. A system for inspecting a railroad track bed, including the railroad track, to be mounted on a vehicle for movement along the railroad track, the system comprising:

at least one light generator positioned adjacent the railroad track …;

at least one optical receiver positioned adjacent the railroad track …; and

at least one processor for analyzing the plurality of images wherein [the processor uses a particular algorithm]

A lay reading of the claim appears that we have a a three part system ((1) a light; (2) a sensor; and (3) a processor), and the system is “mounted on a vehicle.”

The infringement problem here is that the defendant just the sensing in the field, but then takes the file back to the home office for processing.  Thus, only part of the system is mounted to a vehicle. On appeal here, the Federal Circuit sided with the patentee with a broad clam construction – holding that the claim does not require mounting of the processor.

A patent claim is usually divisible into three distinct portions, the preamble; the transition phrase, and the body.

The preamble is ordinarily seen as an introductory phrase to set the stage, but not actually spelling out or defining any of the actual elements of the invention.  The transition phrase – most commonly “comprising” — signals that the body is coming next.  Finally, the body itself is the heart of a patent claim because it spells out the scope of the invention – its metes and bounds.

Claim preambles though are an oddity of claim construction.  They ordinarily do  not limit claim scope, but sometimes do.  If the preamble merely recites a purpose or intended use, then it is not limiting.

However, a preamble may be limiting if: “it recites essential structure or steps”; claims “depend[] on a particular disputed preamble phrase for antecedent basis”; the preamble “is essential to understand limitations or terms in the claim body”; the preamble “recit[es] additional structure or steps underscored as important by the specification”; or there was “clear reliance on the preamble during prosecution to distinguish the claimed invention from the prior art.”

Slip opinion, quoting Catalina Mktg. Int’l, Inc. v. Coolsavings.com, Inc., 289 F.3d 801 (Fed. Cir. 2002).  The court also likes to talk about how the preamble is limiting when it “breathes life and meaning into the claim.” See In re Wertheim, 541 F.2d 257 (CCPA 1976).

Of course, it is a fairly difficult proposition to know when a preamble providing the breath of life – perhaps akin to knowing when a claim is improperly abstract.  The court has generally accepted that the test is not straightforward. It requires review of the “entire patent” as well as the prosecution history to understand what was “actually invented and intended to encompass by the claim.”  Slip op. See also Applied Materials, Inc. v. Advanced Semiconductor Materials Am., Inc., 98 F.3d 1563, 1572−73 (Fed. Cir. 1996) (whether the preamble constitutes a limitation “is determined on the facts of each case in light of the overall form of the claim, and the invention as described in the specification and illuminated in the prosecution history”); Am. Med. Sys., Inc. v. Biolitec, Inc., 618 F.3d 1354, 1358 (Fed. Cir. 2010) (“there is no simple test” for understanding the import of the preamble, but “we have set forth some general principles to guide th[e] inquiry”).

Here, the court looked to the “context of the entire patent” to reach the conclusion that the “mounted on a vehicle” statement does not provide any structural limitation to the claim scope but instead “is meant to describe the principle intended use of the invention.”  However, the specification notes that the processing “can be performed by another computer system” other than one located on the inspection vehicle.  According to the court, this is a suggestion that the location of the processor is not essential to the invention itself.

During prosecution, the patentee also told the examiner that the analyzing and determining steps occur “along the railroad track bed.”  However, the court found those non-limiting because the purpose of the statement was not to overcome prior art involving a distributed processing approach.  “Ambiguous statements made during prosecution, especially those that do not directly distinguish the element claimed as essential for purposes of finding a limitation in the preamble, ‘cannot fairly limit the characteristics of the claim term.’ Grober v. Mako Prods., Inc., 686 F.3d 1335 (Fed. Cir. 2012).

The problem with this entire approach.  Patentees who want clear-cut claim scope use short nonce preambles so that there is never any question about what is or is not limiting.  In my experience, lengthy preambles are instead used strategically to provide ambiguity into the claim scope to make it easier to later argue alternatively for broader or narrower claim scope depending upon situation during litigation.

During prosecution, the examiner should expressly state that “the examiner considers the preamble non-limiting” except in the few cases where preamble is seen as limiting.  However, even this express approach will leave ambiguity as to whether a court will see the preamble as limiting because of the difference between Broadest-Reasonable-Interpretation (BRI) used by the courts and Actual Claim Construction (ACC) used by the courts.

The Federal Circuit has denied Prism Tech‘s petition for en banc rehearing on the question of deference to district court factual-findings that underlay a decision on patent eligibility.  Prism had raised the following question:

This case warrants en banc review because it involves the precedent-setting question of whether this Court should apply a clear error standard of review to a district court’s underlying factual findings regarding patent eligibility under 35 U.S.C. § 101.

In this case, the District Court found the Asserted Claims patent eligible under § 101 and made several factual findings in support thereof. On appeal, the Panel characterized patent eligibility under § 101 purely as an issue of law and applied a de novo standard of review to both the legal issue of patent eligibility and the District Court’s underlying factual determinations. The Panel should have granted deference to the District Court’s factual findings. Failing to do so was inconsistent with precedent of the Supreme Court and this Court that grants deference to subsidiary factual determinations made by district courts in deciding similar questions of law—namely, Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015) (Federal Circuit must review for clear error district court’s subsidiary factual findings regarding claim construction); Mintz v. Dietz & Watson, Inc., 679 F.3d 1372 (Fed. Cir. 2012) (Federal Circuit must review for clear error district court determinations on factual inquiries underlying the obviousness analysis); Alfred E. Mann Found. for Sci. Research v. Cochlear Corp., 841 F.3d 1334, 1341 (Fed. Cir. 2016) (Federal Circuit must review for clear error district court’s subsidiary factual findings regarding indefiniteness).

PrismBrief.    This issue will continue to percolate.

The court also recently denied a somewhat similar petition in GoDaddy.com v. RPost Communications.  That losing patentee’s petition asked whether eligibility a proper invalidity defense even though it is not codified as a defense in 35 U.S.C. §282(b) and whether, at the summary judgment stage, must the district court weigh evidence underlying the eligibility question in the non-movant’s favor?

Finally, the court has also denied the petition in RecogniCorp v. Nintendo Co.  That petition focused on the eligibility of patents relating to the encoding and decoding of data.

By Jason Rantanen

One of my current projects is to create a transparent and user-friendly database of information about Federal Circuit decisions–particularly, its patent law decisions–with a structure that’s useful for empirical researchers and other people who write about the court. If folks are going to throw around numbers about the court, my hope is that they have some grounding in a relatively clear and consistent methodology.

My goal in creating this database is to focus on information that’s of interest to researchers and commentators rather than to create another database for online legal research.  While Westlaw, Lexis, and the various free alternatives are great tools for finding key cases, there are lots of problems with using them for empirical research, not the least of which is the periodically changing nature of their interfaces–changes that make replication of older studies difficult. Also, since their focus is on helping practitioners do legal research, commercial databases tend not to collect and record data in a way that’s useful for empirical work.

I’ve used components of the dataset before, including in PatentlyO posts and an article on dissents at the Federal Circuit, and others have used it in their own projects (Crouch; Gugliuzza & Lemley).  Currently, coded data includes basic information about each decision arising from the district courts and PTO back to 2007, with written opinions going back to 2004.   Fields include information such as document type, precedential status (and Rule 36’s!), panel members, dissents and concurrences, and opinion authors.  I’m interested in crowdsourcing additional fields to code once I’ve published the dataset. Everything’s being done in-house at Iowa–even the R Shiny app that powers the user interface was coded as a project for a graduate statistics consulting class under the instruction of Rhonda DeCook, and my research assistant Louis Constantinou has been a huge help in getting this project finally done.

I’ll be rolling out the web-based portal in the near future, but in the meantime I’ve had requests for some of the data–particularly an update on the court’s use of Rule 36 summary affirmances.   Those charts are below.  The basic methodology employed in creating these charts is described in my earlier post on Federal Circuit appeals and decisions.

Finally, since the purpose in creating this database is to share it, students or other researchers who are interested in drawing from it for their own work are welcome to email me before it goes public.  Basically, it’s a starting point that’s flexible enough to allow future researchers to do their own coding without having to redo basic information about each decision.

Given the increase in appeals from the PTO over the past few years, this graph is not all that surprising–but it’s still quite dramatic.  As of mid-2017, the number of decisions in appeals arising from the PTO has exceeded the number of decisions from the district courts for the first time in the history of the Federal Circuit to my knowledge.

The following two charts are updated versions of figures from my post from last summer on types of Federal Circuit decisions.

Amgen v. Hospira (Fed. Cir. 2017)

The dispute here falls under the Biologics Price Competition and Innovation Act of 2009 (BPCIA), which can be loosely described the Hatch-Waxman equivalent for large-molecule biologics.

Particularly, BPCIA creates an abbreviated approval pathway for products that are “biosimilar” to an already FDA-approved biological drug product.  Unfortunately, the actual statute is a complete mess – being both unduly complex and unduly vague.  That said, the Supreme Court used nice words in its recent decision: “The BPCIA sets forth a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of infringement.” Sandoz, Inc. v. Amgen, Inc., 137 S. Ct. 1664 (2017).

The setup in this particular mandamus action is that the patentee Amgen was seeking discovery on exactly how Hospira’s biosimilar was going to be produced – information included within its aBLA applicant to the FDA.  However, the district court refused discovery since the requested information was “irrelevant to the asserted patents” in the case.  Amgen argued that the discovery was necessary to see if they might need to assert further patents.

Ordinarily there is no direct appeal of discovery orders since they are mere interlocutory orders rather than final judgments. Here, Amgen petitioned for a writ of mandamus. However the Federal Circuit has rejected that petition – finding that it lacked jurisdiction in the case.  The court went on to note that the BPCIA permits Amgen to disclose any patent it believes “could be reasonable asserted” and thus perhaps should have included a longer list, which then would have opened discovery further.

In PatentDocs, Andrew Williams explains the potential impact here:

More importantly . . . the Court suggested that if a patent was not included in its paragraph (l)(3)(A) list, even if there was no reason to suspect that it might be relevant to the present case, the BLA holder could be precluded under 35 U.S.C. § 271(e)(6)(C) from ever asserting that patent (depending on what “under this section” turns out to mean).  Of course, this could lead to the unintended (or maybe intended) consequence of overly long patent lists containing every conceivable patent that could be related to the manufacture of biologics in situations when inadequate information has been provided.

[LINK]

Visual Memory v. NVIDIA (Fed. Cir. 2017)

In a split opinion, the Federal Circuit has sided with the patentee and reversed a the district court judgment that Visual Memory’s patent claims improperly encompass an abstract idea.  The opinion filed by Judge Stoll was joined by Judge O’Malley.  Judge Hughes wrote in dissent.

Claim 1 of asserted U.S. Patent No. 5,953,740 is directed to a “computer memory system” that includes a “main memory” and also a “cache” both connected to a bus that can then be connected to a processor.  The inventive element, is that the cache’s operation is programmable – allowing it to work efficiently with different processors.  The claim particularly requires “a programmable operational characteristic of said system determines a type of data stored by said cache.”  In the words of the court, “the memory system is configured by a computer to store a type of data in the cache memory based on the type of processor connected to the memory system.”

Claim 1. A computer memory system connectable to a processor and having one or more programmable operational characteristics, said characteristics being defined through configuration by said computer based on the type of said processor, wherein said system is connectable to said processor by a bus, said system comprising:

a main memory connected to said bus; and

a cache connected to said bus;

wherein a programmable operational characteristic of said system determines a type of data stored by said cache.

After Visual Memory sued NVIDIA, the defendant filed a R.12(b)(6) motion to dismiss for failure to state a claim. In granting that motion, the district court ruled that the patent was directed to the “abstract idea of categorical data storage” – something humans have been doing for many years.  In Alice Step 2, the court found that the cache, bus, and processor were all conventional and the claimed “programmable operational characteristics” were merely vaguely described “generic computer elements. Quoting Intellectual Ventures v. Capital One, 792 F.3d 1363, 1367 (Fed. Cir. 2015).

On appeal, the court began with a strawman conclusion that “none of the claims recite all types and all forms of categorical data storage.”  Of course, none of the Supreme Court abstract idea cases involve claims that entirely covered the scope of the stated abstract idea.

The meat of the court’s argument is also its conclusion:

As with Enfish’s self-referential table and the motion tracking system in Thales, the claims here are directed to a technological improvement: an enhanced computer memory system.

As in those cases, the court here looked to the specification to find particular technological improvements that underlay the invention.  Here, for instance “[t]he specification explains that multiple benefits flow from the ’740 patent’s improved memory system.”

Judge Hughes dissent agrees that the key inventive element is that the claims require the potential for a change in the type of data stored in cache depending upon the processor connected.  However, Judge Hughes points out that the claims do not spell out details of that process but rather “the patent lacks details about how” this so-called inventive element is actually achieved.

I disagree, therefore, with the majority that combining the black box of a “programmable operational characteristic” with conventional computer equipment constitutes a specific improvement in computer memory systems. Because the ’740 patent does not describe how to implement the “programmable operational characteristic” and requires someone else to supply the innovative programming effort, it is not properly described as directed to an improvement in computer systems.

Hughes in Dissent. The majority responds to Judge Hughes by arguing (1) the patent application includes an appendix of 200+ pages of computer code for actually implementing the process; and (2) the fact that the patent might not enable the invention is not a 101 issue – it is an enablement issue. [I leave off the third argument that was weaker.]

The decision here is obviously panel dependent, meaning that the area remains in flux and disruption.

= = = = =

200 pages of code: Neither party appeared to have any real problem with fact that the decision was on the pleadings prior to any discovery or weighing of facts at issue in the case.  However, the majority highlight the 200+ pages of computer code submitted with the application with a suggestion that those pages might include further descriptive information.  That possibility then, according to the court, should preclude a judgement on the pleadings since “all factual inferences must be drawn in favor of the non-moving party.  I think the court is onto something here, although any serious consideration of this approach must also include the higher “plausibility” requirement when making those inferences.

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Get a Job doing Patent Law                  

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Daily Fact: According to the USPTO’s most recent Official Gazette, the slowest technology center is 3680 – Business Methods with a 41 month backlog from filing to initial office action.  The fastest is 1620 – Organic Chemistry with < 18-month delay.  An important caveat to these numbers is that it includes RCE reworks which substantially reduce the delay of O-Chem.

by Dennis Crouch

The chart below shows the number of utility patents issued each fiscal year going back to 1980.  FY2017 has 7-weeks remaining. If issuances remain steady, then we’ll see a substantial increase in the number of patents issued over FY2016.  Importantly, the increase is not due to increased new application filing but instead reflects the PTO continuing to work through its backlog of pending cases.

AIA America v. Avid Radiopharma (Fed. Cir. 2017)

In a short opinion, the Federal Circuit has ruled that the factual basis an attorney fee award need not be decided by a jury — affirming a $4 million fee award that followed a jury trial on the sole issue of whether the plaintiff (AIA) owned the asserted patents. U.S. Patent Nos. 5,455,169 and 7,538,258.

The U.S. Constitution provides

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

[UPDATE – Fixed an error – I had previously suggested that the mark at issue was a product design mark, it is not]

Romag Fasteners v. Fossil is a rare infringement case that involves allegations of both patent and trademark infringement.  The important aspect of the Federal Circuit’s decision here harmonizes the attorney fee requirements for trademark and patent cases.

A jury sided with Romag – finding that Fossil’s magnetic snaps infringed both the asserted patent and trademark (product design). (U.S. Patent No. 5,722,126 and U.S. Trademark Reg. No. 2,095,367).

The jury returned a verdict for Romag, finding that Fossil had engaged in patent and trademark infringement. The district court granted fees related to the patent portion of the case but denied fees on the trademark side.  On appeal, the Federal Circuit has vacated that judgment.

Lanham Act and Patent Act provide identical language for awardinging reasonable attorney fees to the prevailing party in exceptional cases: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”  35 U.S.C. 285; 15 U.S.C. 1117(a).  Based upon the identical language of the statutes, the appellate court here ruled that the Supreme Court’s Octane Fitness approach to fees in patent cases also applies in Trademark cases.  The Second Circuit had previously (pre-Octane Fitness) required “evidence of fraud or bad faith.” Under Octane Fitness, that requirement is unduly strict and improper.  All of the other Circuit courts who have considered the issue agree with the Federal Circuit that Octane Fitness applies to TM cases under Section 1117(a). Because the court applied the incorrect standard, this TM portion of the case was remanded to determine whether fees are appropriate.

On the patent side, the appellate panel also found “several errors” by the district court – and thus vacated that grant of fees.  These errors include (1) a misstatement as to the timing of the defendant’s withdrawal of its defenses and that those defenses were pursued  in order to “prolong litigation;” (2) no conclusion as to the actual merit of the withdrawn defenses; (3) misstatements regarding prior court ruling on the inadequacy of the rejected indefiniteness defense as “woefully inadequate; and (4) failure to consider the totality of the circumstances, including the plaintiff’s bad-faith of waiting until just before Black Friday to file its case and request a TRO.  Coming together, these issues require vacatur of the fee award on the patent side.

On remand, the district court will be asked to again reconsider an award of fees to the successful plaintiff Romag.

The Majority opinion was penned by Judge Dyk and joined by Judge Hughes.  Judge Newman dissented-in-part. “I do not discern where, or how, the district court abused its discretion, for the district court reasonably observed that this case ‘stood out from the others,’ in the words of Octane Fitness, concluding that Fossil ‘aggressively pursue[d] invalidity counterclaims in an attempt to prolong litigation and exponentially increase the cost and risk of pursuing a lawsuit.'” Newman in dissent.

= = = = =

For me, an interesting aspect of the case here involves the correct level of granularity for the “prevailing party” finding.  The court here divides of the portions of lawsuit between the various doctrines — patent; trademark; CT state unfair competition; etc.  For each, the court determined the ‘prevailing party’ and apportioned fees accordingly – even though the losing party had won on some smaller issues.  At this point, I do not believe that the Federal Circuit has strictly adopted this approach – rightly so because there is almost always overlap.  Here, for instance, the TM discovery was almost certainly overlapping with the patent discovery.

= = = = =

I have not examined the full history here, but the Trademark appears to cover the product design, which is also to the subject of the patent.  TrafFix? The mark covers ROMAG.

Personal Audio v. Electronic Frontier Foundation (EFF) (Fed. Cir. 2017)

On appeal, the Federal Circuit has sided with the USPTO — affirming the IPR final judgment of unpatentability of Personal Audio’s US Patent No. 8,112,504.  The patent claims a system for “disseminating media … episodes in a serialized sequence.”

The most interesting question addressed by the court is whether the original Inter Partes Review (IPR) Requester – EFF – has standing to to participate as a party.  The problem for standing is that EFF is a public-interest organization that promotes online civil liberties.  EFF was not threatened by the ‘504 patent, but instead filed the IPR petition as part of its general public interest campaign against “stupid patents.”  EFF thus doesn’t appear to meet the “case or controversy” standard required by Article III of the U.S. Constitution.

The Federal Circuit decided a somewhat similar standing question in Consumer Watchdog v. Wisconsin Alumni Research Foundation, 753 F.3d 1258 (Fed. Cir. 2014).  Consumer Watchdog also involved a public-interest organization challenging a patent via AIA-Trial. Standing wasn’t a problem for the trial itself since the PTAB is not an Article III court – and so the constitutional requirement didn’t apply.  However, the Federal Circuit dismissed Consumer Watchdog’s appeal (it lost the case at the PTAB) on standing grounds.

EFF case has a slightly different posture since it won at the PTAB – with the patent being held invalid.  The appellant Personal Audio clearly has standing since its patent has been judged unpatentable, and the question is whether EFF has standing to participate as an appellee despite its lack of a direct interest in the outcome.  For the Federal Circuit, that posture makes the difference:

Here, the party invoking judicial review is Personal Audio; it is apparent that Personal Audio, on cancellation of its patent claims by the PTAB, has experienced an alteration of “tangible legal rights . . . that is sufficiently ‘distinct and palpable’ to confer standing under Article III.” Virginia v. Hicks, 539 U.S. 113, 121 (2003) (internal citations omitted). With Article III satisfied as to the appellant, EFF is not constitutionally excluded from appearing in court to defend the PTAB decision in its favor.

The court then went on to side with EFF and PTAB on the merits – confirming the claims as unpatentable.

I would suggest that the Federal Circuit’s decision on the standing issue here does not fully explore the somewhat complex precedent on the standing issue.  In particular, the court wrongly focuses its standing decision on the position of the appellant.  The Supreme Court has explained several times that all parties must have an ongoing case-or-controversy:

[T]he opposing party also must have an ongoing interest in the dispute, so that the case features “that concrete adverseness which sharpens the presentation of issues.”

Camreta v. Greene, 131 S. Ct. 2020, 2028 (2011) (quoting Los Angeles v. Lyons, 461 U.S. 95, 101 (1983)).  I’ll note here that my reading of Camreta and Lyons is that both are addressing the Constitutional requirement – thus the AIA statutory statement allowing parties to appeal is inapplicable.

The Federal Circuit relied upon another line of Supreme Court cases – notably ASARCO Inc. v. Kadish (1989).  In that case we similar situation where the petitioner was clearly harmed by a lower state-court decision but the respondent probably did not itself have sufficient case-or-controversy standing.  In its decision on the case, the Supreme Court began with a recitation of standing – noting that the petitioner’s harm was sufficient: “We determine that petitioners have standing to invoke the authority of a federal court and that this dispute now presents a justiciable case or controversy for resolution here.”  ASARCO.  The problem with this holding is that it speaks  only to the case as a whole rather than standing of the particular party.

In re i.am.symbolic, LLC (Fed. Cir. 2017)

will.i.am of the Black Eyed Peas (and solo) has a registered mark on his professional name, but is now seeking a mark of more biblical proportions: “I AM.”

Actually, his company i.am.symbolic already has registered the mark “I AM” for all sorts of clothing in class 25, but is now seeking to register the mark in other classes including cosmetics, sunglasses, and jewelry.  The problem for will.i.am is not the Talmud, but instead the “I am” mark owned by beeline group that sells sunglasses, jewelry as well as registrations of the same mark owned by others.

The key question for rejecting a registration is whether the use of the mark would create a likelihood of confusion.  Although will.i.am is a well-known music group front man, he is not widely known simply as “i.am.” According to the court, the application offers no meaningful limitation on the mark so as to more directly tie that link (such as indicating the i.am mark will always be used in conjunction with the will.i.am mark).   Although the mark registration indicated that the goods would be used in ways “associated with . . . will.i.am,” the court found that the limitation was not meaningful.

will.i.am argued that the court should consider the peaceful coexistence of the mark owners.  On appeal, the Federal Circuit limited that doctrine to non-identical cases and cases where a large number of products were using similar marks (such as “paw prints on clothing”). See Jack Wolfskin Ausrustung Fur Draussen GmbH & Co. KGAA v. New Millennium Sports, S.L.U., 797 F.3d 1363, 1373–74 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 982 (2016);

Guest Post by Saurabh Vishnubhakat, Associate Professor of Law and Associate Professor of Engineering, Texas A&M University.  This post is based on a new paper forthcoming in the Seton Hall Law Review.  Read the draft at https://ssrn.com/abstract=2992807.

We tend to think of the different patentability requirements as separate hurdles to be cleared.  To be patentable, an invention must reflect eligible subject matter (§ 101).  It must be new (§ 102), nonobvious (§ 103), adequately disclosed (§ 112), and so on.  A quick review of patent doctrine makes it clear, however, that patent law’s separate statutory requirements reflect similar, overlapping concerns.

Subject-matter eligibility, in fact, overlaps with all the other major requirements.  For example, one way to understand why natural products and natural laws are ineligible for patenting is that they are not truly innovative.  The concern about innovation is one that the novelty and nonobviousness doctrines also share.  Similarly, one way to understand why abstract ideas are ineligible is that the patentee might preempt the full scope of an idea without disclosing all possible instantiations of the idea.  The concern about preemption and proportional patent scope is one that the enablement and written description doctrines also share.

Given this overlap, subject-matter eligibility could theoretically be used in place of various other patentability requirements.

How These Overlaps Show Up in Examination

As it turns out, this is not just a theoretical possibility.  Evidence for these overlaps is pronounced in actual patent examination.  Because compact prosecution pushes examiners to identify all grounds for rejection together (rather than raise them piecemeal across multiple Office actions), it is possible to learn how frequently a given invention presents multiple patentability problems.

A new, fairly large dataset (800 randomly selected patents) of USPTO records reveals that subject-matter ineligibility does overlap substantially with other statutory requirements in examiner Office actions.  More than six times out of seven, an invention that was rejected for ineligibility under Section 101 was also rejected on at least one other ground.

How These Overlaps Show Up in Litigation

These overlaps have also become very interesting to courts because they seem to offer a shortcut for deciding patent validity more quickly and more cheaply: by using subject-matter ineligibility at the pleading stage.  Litigation data on motion practice in patent cases bears this out.  Early in litigation, when decision costs have not yet accrued, motions to dismiss and motions for judgment on the pleadings are based primarily on ineligibility under Section 101.  By contrast, among motions for summary judgment following discovery, subject-matter ineligibility plays a much smaller role as other, more fact-intensive patentability doctrines can now be argued.

Conversely, the points at which subject-matter ineligibility is argued are spread fairly evenly across motions to dismiss (34%), motions for judgment on the pleadings (27%), and summary judgment (39%).  The five other major patentability requirements—utility, novelty, nonobviousness, enablement, and written description—come up almost exclusively at summary judgment.

Why Courts Like Section 101 As a Shortcut—and Why It’s a Problem

Using subject-matter eligibility early can be attractive to a court.  Deciding a patent’s validity at all can be costly.  Claim construction, discovery, jury trials—the list of decision costs goes on.  Deciding validity incorrectly can be costly, too.  Failing to strike down an invalid patent tends to distort the market today and enable abuses such as nuisance litigation.  Meanwhile, wrongly striking down a valid patent tends to undermine incentives for future investment in research and commercialization.

A court that invests more resources in a decision is less likely to make a mistake, but this only helps to a point.  If the next dollar spent on reaching a good decision saves less than a dollar of error cost, the overall expenditure is actually a waste.  The lesson, then, is not to minimize decision cost alone or minimize error cost alone but to minimize the sum of decision cost and error cost.  (This insight is at least as old as Judge Frank Easterbrook’s 1984 paper on decision and error in antitrust cases.)

Problems arise in the patent context when judges who want to conserve resources today cut too many corners and underestimate their likelihood of errors.  The costs from those errors, after all, lie in the future and are easy to miss.  Judges in patent cases have begun relying on a style of decision-making that is quite similar to antitrust law’s distinction between per se rules and the rule of reason.

An antitrust rule that says a certain economic practice is per se invalid is cheap to administer but, like many bright-line rules, can lead to errors.  The rule of reason is more likely to result in a correct decision about the economic conduct in question, but will require more judicial resources.  Per se rules of antitrust should only be used, therefore, for types of economic conduct that are well-understood and very reliably harmful.

Subject-matter eligibility is becoming a sort of per se shortcut for patent invalidity, in contrast to more costly inquiries like nonobviousness or enablement analogous to the rule of reason.  The historical lesson of antitrust, though, has been that per se rules should be used very sparingly because a wide range of economic practices may prove to have procompetitive effects.  This does not mean the conduct is definitively legal under the antitrust laws—or that a given patent is definitively valid.  It simply means that more information and more careful judicial consideration are needed before an accurate decision can be reached.

Until now, the use of subject-matter eligibility at the pleading stage may be conserving decision costs, but without sufficient regard for error costs in decisions on patent validity.  In my paper, I discuss problems with the current approach and propose three ways to guard against this irresponsible borrowing from antitrust.

We’re now approaching the end of FY2017 (Sept 30, 2017), and the USPTO is very likely to end up spending well more than it collects in fees.  The chart below is just through June 30 (Q3), but look fairly harsh with a several hundred million dollar gap between income and spending.  PTO Finance Chief Tony Scardino suggest that the gap will be almost – but not quite – be eliminated by the end of the Fiscal Year.  However, its not clear to me how that might happen without dramatic changes.

[USPTO Finance Update]

by Dennis Crouch

In Amdocs v. Openet Telecom, a Federal Circuit panel reversed the lower court’s ineligibility finding over a vigorous dissent.  Judges Plager and Newman versus Judge Reyna.  Claim 1 of the disputed business-software patent is shown below.

1. A computer program product embodied on a computer readable storage medium for processing network accounting information comprising: computer code for receiving from a first source a first network accounting record; computer code for correlating the first network accounting record with accounting information available from a second source; and computer code for using the accounting information with which the first network accounting record is correlated to enhance the first network accounting record.

U.S. Patent No. 7,631,065.

Although the Federal Circuit walked through its Alice/Mayo analysis, I expect that a more infringer-friendly panel would have almost certainly sided with the district court. Now, Openet has petitioned the Supreme Court for writ of certiorari – arguing that the Federal Circuit improperly reached beyond the clearly overbroad claims when making its decision.

Question presented:

Whether the Federal Circuit erred by looking beyond the claims to the patent specification to assess patent eligibility?

The case here is interesting. Rather than pushing back against Alice and Mayo as many patent attorney suggest, the petitioner here argues that the Federal Circuit is subverting those cases to find claims eligible when they clearly are not.  It is possible that the Supreme Court could simply issue a one-line opinion: “Vacated, see Alice/Mayo.”   I would look for several amicus briefs on each side of this one.

The unfortunate aspect of this case for most patentees is that it is another business method case — business method patents are unlikely to see friendly eyes from the Supreme Court.

[Petition][Federal Circuit Opinion]

A third petition for writ of certiorari to the United States Supreme Court has now been filed stemming from the Federal Circuit’s Rule 36 Debacle.  Despite the need for clear guidance on the implementation of AIA Trials, most such appeals are being decided by the Federal Circuit without any opinion.  I have argued that the process violates a provision of the Patent Act that requires an the court to issue an opinion in cases on appeal from the Patent & Trademark Office.

In Leak Surveys, Inc. v. FLIR Systems, Inc. (Supreme Court 2017), the petitioner explains the problem:

The Federal Circuit is the only avenue for appealing a PTAB decision that extinguishes a patent property right. But as the record of this case demonstrates like few others, the Federal Circuit’s excessive invocation of Rule 36 in PTAB appeals serves to undermine the public’s confidence that the Federal Circuit is providing meaningful and even-handed judicial review of the PTAB, but within the confines of the Federal Circuit’s limited appellate jurisdiction to review
patent validity decisions that the PTAB is  authorized by statute to make in the first instance.

The petitioner asks three questions:

1. Does the Federal Circuit … exceed the scope of its limited appellate jurisdiction when it affirms a PTAB … decision that rests upon a plain and egregious error…?

2. On appeal of an IPR decision by the PTAB to invalidate a patent or patent claim, when is the Federal Circuit required to provide a statement of its reasons for affirming – in order to safeguard constitutional limits on the Federal Circuit’s administrative appellate jurisdiction (S.E.C. v. Chenery Corp., 318 U.S. 80 (1943)), and/or to comply with statutory requirements such as 35 U.S.C. §144 and 5 U.S.C. §§ 702, 704, and 706.

3. On appeal of an IPR decision by the PTAB to invalidate a patent or patent claim, when does the Federal Circuit violate a patent owner’s constitutional due process rights by considering and affirming based on arguments that were not previously considered by the PTAB, and/or for reasons apart from those stated by the PTAB itself in its written decision?

Briefing will continue over the next couple of months.

[Read the petition here: Petition for Writ_Leak Surveys v. Flir Systems].

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Note: Celgard’s parallel petition remains pending with PTO’s response due August 21, 2017 (being handled by USDOJ Solicitor’s Office).  Of course, these cases will be moot if the Supreme Court favors the patentee in Oil States.  Finally, folks interested in Oil States might want to attend Duke Law’s upcoming symposium (in Washington DC) focusing on the question: Is Administrative Review of Granted Patents Constitutional? (Funded through Corporate Sponsors).