On writ of mandamus, the Federal Circuit has vacated N.J. District Court Judge Chesler’s decision to allow confidential documents disclosed in the U.S. patent case to be used in the somewhat parallel actions in Japan and Korea.
The underlying infringement action here involves Nippon Steel suing the Korean company POSCO for infringing its patents covering a grain-oriented electrical steel strip having high magnetic flux density. (See., e.g., Patent No. 7,442,260). Additionally, Nippon Steel sued POSCO in Japan for trade secret infringement and POSCO filed a declaratory judgment action in Korea asking for a no-infringement holding.
In the U.S. lawsuit, the district court entered a discovery protective order that disclosed confidential materials ‘be used by the receiving Party solely for purposes of the prosecution or defense of this action.’ U.S. discovery rules require much more extensive disclosures than do those in Korea or Japan. Thus, when POSCO disclosed “several million pages of documents containing confidential information” in the U.S. lawsuit, Nippon Steel looked to use some of those documents in the foreign courts. In particular, Nippon Steel asked for, and the district court granted, a modification of the protective order that would allow it to use about 200 pages of documents relating to POSCO’s manufacturing process in the foreign court actions. POSCO then petitioned for a writ of mandamus to stop the disclosure.
Here, the district court relied upon the Third Circuit precedent of Pansy v. Borough of Stroudsburg, 23 F.3d 772 (3d Cir. 1994), which holds that a “party seeking to modify the order of confidentiality must come forward with a reason to modify the order. Once that is done, the court should then balance the interests, including the reliance by the original parties to the order, to determine whether good cause still exists for the order.” Based upon that holding, the district court determined that the foreign court proceeding was sufficient justification for the modification.
In its mandamus decision, the Federal Circuit found that Pansy should not be controlling but that the court should also consider 28 U.S.C. § 1782 and Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) when determining whether to allow disclosure of confidential protected information to a foreign court.
Section 1782 provides that a U.S. district court “may order” disclosures for use in a foreign tribunal. In Intel, the Supreme Court recognized that a district court should consider “comity and parity concerns” when deciding whether to grant disclosure. In particular, there is a recognized concern that parties will “abuse” the U.S. discovery process and “attempt to circumvent foreign proof-gathering restrictions.”
On remand, the district court will “conduct the proper assessment giving due consideration to the Intel factors.”
A substantial percentage of the USPTO budget arrives in the form of maintenance fee payments. This is “easy money” for the USPTO because the Office has already done the work of examination. A patent’s term runs 20-years from the effective filing date, not counting provisional or foreign national priority filing and with the addition of any patent term adjustment. They typical result is a term of 17 years post-issuance, give or take. During that time, a patent applicant must continue to pay maintenance fees at regular intervals: due 3 ½, 7 ½, and 11 ½ years from issuance (with an additional six-month grace-period added on).
The chart below shows the percentage of patents whose maintenance fees have been paid at each of the three stages. You’ll see that the vast majority of applicants pay the first maintenance fee (currently set at $1,600 for large entities); More patents drop out as the second maintenance fee is due ($3,600), and fewer than half of the cases see the third maintenance fee paid ($7,400). I expect that a number of factors drive the apparent trends in maintenance fee payments, including the ever-rising cost, the perceived value of future patent right, patent term remaining, general economic outlook, and current access to funds, for example.
The current fees were put into place in March 2013. It is not surprising that the increased price resulted in the diminished number demanded as shown in the chart. Importantly, however, the drop in maintenance fee payments was slight in comparison to the size of fee increase (3rd Fee increased by 50%).
In addition to the revenue generated, a number of folks (often non-patent-holders) see maintenance fees as a costly-screen configured to weed-out relatively worthless patents so as to ease any freedom-to-operate search.
The 2009 Biologics Price Competition and Innovation Act (BPCIA) was created as the Hatch-Waxman Act for Biologics – a mechanism for both protecting innovator investment and for encouraging third-party follow-ons albeit through “biosimilars” rather than “generics.” While parallel in theory to Hatch-Waxman, BPCIA includes many complicating twists that on the already complex innovator-generic dance. In recent oral arguments, Judge Lourie stated that Congress might be awarded “the Pulitzer Prize for complexity or uncertainty” based upon its drafting of the BPCIA.
Amgen v. Sandoz (Fed. Cir. 2015) offers the Federal Circuit a case of first-impression regarding an important element of the BPCIA – what happens when the biosimilar applicant refuses to play?
Under the BPCIA, the ‘patent-dance’ is kicked-off by the filing of a biosimilar application. Under, the statute, that applications “shall” include a set of disclosures. 42 U.S.C. § 262(l)(2). In a three-way split decision, the Federal Circuit holds that an applicant is not actually required to make the disclosure (i.e., not a “must” requirement) but instead that failure to make the disclosure merely results in the penalty defined by statute – permitting the “reference product sponsor” but not the biosimilar applicant to bring an action of declaratory judgment for infringement based merely upon the filing of the application.
My University of Missouri Law School colleague Erika Lietzen was deeply involved in the legislative negotiations and believes that the decision here is “inconsistent with the intent at the time.”
Judges Lourie, Newman, and Chen all filed separate opinions. Undoubtedly, the case will receive a petition for en banc rehearing as well as a petition for writ of certiorari.
Eligibility Discussion: Christal Sheppard will be visiting the University of Missouri System on Thursday, July 23 at the University of Missouri Kansas City (UMKC) Law School Campus. Sheppard is Director of the Detroit Patent Office. Sheppard along with Prof Chris Holman, Michael Cygan from the PTO’s OPLA, Crissa Cook (Hovey Williams), and Jason Mudd (Erise IP) will be discussing the PTO’s new approach to subject matter eligibility and may delve into the expected new examiner guidance. Pre-register here.
Juice Generation has been seeking a registration on its mark “Peace Love and Juice” for its juice bar business but has been challenged by GSE who holds a family of marks with the phrase “Peace & Love” used in the restaurant business. The question for registration is whether the Juice Bar mark creates a likelihood of confusion with the GSE marks. The Trademark Trial & Appeal Board (TTAB) found that the marks were too similar and thus could not both be registered. On appeal, however, the Federal Circuit has vacated that decision based upon its opinion that the TTAB should more thoroughly reevaluate the strength/weakness of GSE’s marks. In particular, the court found that the TTAB should more fully consider the extent of third-party use of the Peace & Love phrase.
The fact that a considerable number of third parties use similar marks was shown in uncontradicted testimony. In addition, “[a] real evidentiary value of third party registrations per se is to show the sense in which . . . a mark is used in ordinary parlance.” 2 McCarthy on Trademarks and Unfair Competition § 11:90 (4th ed. 2015) (emphasis added). “Third party registrations are relevant to prove that some segment of the composite marks which both contesting parties use has a normally understood and well recognized descriptive or suggestive meaning, leading to the conclusion that that segment is relatively weak.” Id.
In its decision, the Federal Circuit repeatedly emphasized that the strength or weakness of a mark is not a binary question, but rather one that fits on a spectrum of possibilities. Although a weaker mark can be registered and protected, its penumbra of power will be much narrower than would a stronger mark. “The Board here did not conduct an analysis of all evidence relevant to where on that spectrum GS’s marks fall and the resulting effect on the overall likelihood-of-confusion determination.”
The Partnership for American Innovation (Apple, Du Pont, Ford, GE, IBM, Microsoft, Pfizer, etc.) have put together a new, somewhat cheesy, video on how the patent system is driving innovation:
On July 17, 2015, Kara Farnandez Stoll took the oath of office as Circuit Judge of the United States Court of Appeals for the Federal Circuit with a lifetime appointment from the President of the United States.
The court has now returned to its full panel of twelve regular status judges along with six senior-status judges. Of the twelve, seven are Obama appointees.
In my Patent Law Year in Review talk this morning at the Wisconsin Bar Association’s Tenth Annual Door County Intellectual Property Law Academy, I touched briefly on ex parte reexamination filings. With the heavy interest in inter partes reviews, ex parte reexam filings probably haven’t been on most people’s radar. And until recently, data from the past year wasn’t available on the PTO’s website. Recently, though, the PTO updated the data on ex parte reexamination filings (available here: http://www.uspto.gov/learning-and-resources/statistics/reexamination-information). As the below figure shows, although there was a drop-off following the steep increase in the fee for filing ex parte reexamination and launch of inter partes review proceedings, parties are still filing about 50-100 requests for ex parte reexamination per quarter. (For comparison, there are about 400-450 requests for inter partes review filed per quarter).
I’d also like to give a shoutout for the assistance I received from calling the PTO’s ex parte reexamination hotline (571-272-7703). It’s always great when a helpful voice is on the other end of the line.
The first chart below shows one view of how patent prosecution pendency is generally improving. In particular, the chart shows the percentage of patents that took more than three years from filing to issuance. As is apparent, that percentage has plummeted in President Obama’s patent office (Kappos-Rea-Lee). Unlike a few years ago, most US patents now issue within three years of filing (not counting priority claims).
The second chart tells a different story by looking at the oldest prosecution files and seeing that those have grown substantially over this same time period. In particular, the second chart shows the percentage of patents that took more than seven years to issue (filing date to issue date). For the most part, these long-pendency prosecutions involved PTAB appeals.
The chart above comes from the interesting new article from Kirti Gupta and Jay P. Kesan of Qualcomm and Univ of Illinois respectively titled Studying the Impact of eBay on Injunctive Relief in Patent Cases. You’ll note little measurable difference in the rate at which either permanent or preliminary injunctions are granted pre or post eBay.
The pair explain the result as one of self-selection — i.e., folks with little chance of success post-eBay didn’t even seek injunctive relief. Supporting that contention, the article reports a significant drop post-eBay in the percentage of cases where injunctive relief was sought.
For the past 15 years, the US patent classification system has fallen on hard times as more searchers move toward non-structured “Google style” searching. Now, however, a global cooperative led by the EPO and USPTO are moving forward with a the Cooperative Patent Classification (CPC) that offers some promise both for better classification and for more cross-border standardization.
In turn, Google has released a new version of its patent search capabilities — by indexing both its patent documents and its non-patent “Google Scholar” documents according to CPC standards.
For Google, this is not just about their core business of improving search. Indeed, Google is a major player in the U.S. patent system, both as a patent owner and as a defendant in patent infringement lawsuits. In a blog post, Google’s Allen Lo (Deputy GC for patents) and Ian Wetherbee (Google Patents developer) rightly argue that better search leads to better patents. It will be interesting to see whether the improved Google Search makes an impact.
In this decision, the Court of Appeals for the Tenth Circuit (10th Cir.) has held that it has jurisdiction over an appeal of a would-be patent case because the complaint was amended prior to final judgment to drop the patent claim.
Federal Circuit jurisdiction over patent appeals is an exception to the usual rule that district court decisions are appealed to the respective regional circuit court of appeal. Under pre-AIA statute, the Federal Circuit takes jurisdiction over appeals of final decisions in “any civil action arising under any Act of Congress relating to patents.” 28 U.S.C. 1338; 28 U.S.C. 1295. So called “arising-under” jurisdiction is a term of art in civil procedure and follows the “well-pled complaint rule” by requiring the patent law question appear on the face of the plaintiff’s complaint as outlined in the Supreme Court’s 2002 decision on point. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 534 U.S. 826 (2002).
The question here though was – what happens when the patent claim appears in original complaint but not the amended complaint. The 10th Circuit panel decided that the amendment robbed the Federal Circuit of Jurisdiction:
Section 1295(a)(1) might seem to deprive this court of jurisdiction because a claim for patent infringement was included in Predator’s original complaint. . . . But at the time of Cogswell’s notice of appeal, the most recent complaint was Predator’s fourth amended complaint, . . . which did not contain a patent-infringement claim. And it is that complaint which governs our jurisdiction.
In a parallel situation, the Federal Circuit also held that it lacked lacked jurisdiction over an appeal where the patent claim had been voluntarily dismissed without prejudice prior to final judgment. Gronholz v. Sears, Roebuck & Co., 836 F.2d 515 (Fed. Cir. 1987). In Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002), Justice Stevens wrote a concurring opinion also arguing for the same result – that “if the only patent count in a multicount complaint was voluntarily dismissed in advance of trial, it would seem . . . clear that the appeal should be taken to the appropriate regional court of appeals rather than to the Federal Circuit.”
However, the majority opinion in Holmes Group leaves the question open — expressly indicating that “this case does not call upon us to decide whether the Federal Circuit’s jurisdiction is fixed with reference to the complaint as initially filed or whether an actual or constructive amendment to the complaint raising a patent-law claim can provide the foundation for the Federal Circuit’s jurisdiction.” (note 1).
An odd element of this result is that the appellate jurisdiction of a multi-claim case will be malleable up until final judgment.
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AIA Changes to Jurisdiction: The AIA amended the jurisdiction statutes to (1) ensure district court’s have jurisdiction over all cases involving “any claim for relief” arising under the US patent laws; and (2) provide the appellate court with jurisdiction when cases either “arise under” the patent law or where a party “has asserted a compulsory counterclaim arising under” the patent law. These changes were seen as overruling the prior rule from Holmes Group that the existence of a patent law counterclaim in the answer-pleading (rather than claim in the complaint).
These changes don’t appear to directly impact the outcome except that the language “has asserted” could suggest that jurisdiction is created if the patent counterclaim is ever asserted (even if later dropped). And, that difference in language seems to me to suggest that Congress was thinking about the scope of the original complaint defining appellate jurisdiction – though quite implicitly.
In any event, the policy goal behind all of this is to maintain a single appellate court for deciding patent issues, and the outcome decided by the 10th Circuit here very much continues that goal.
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Predator v. Gamo began when Predator filed its patent infringement lawsuit against Gamo, asserting infringement of U.S. Patent No. 6,526,893 (covering a lead air-rifle pellet with polymeric tip) along allegations of trade dress and copyright infringement. Fairly soon thereafter, a glaring problem emerged with the patent claim. One of the listed co-inventors (Lee Phillips) came forward claiming that he retained partial ownership of the patent rights. At that point, the patentee voluntarily dismissed the patent claim in order to to fight a state-court battle over patent ownership, which then became more complicated when Gamo purchased Phillips purported interest and intervened in the state court action.
With the state-court case going south (including a failed motion to recuse that judge), the patentee returned to Federal Court with a motion to supplement and amend its complaint — by both reviving its original infringement complaint and adding a challenge to Gamo’s claimed ownership rights. However, the district court refused to permit the changes and also awarded $10,000 in sanctions against Predator’s attorney John Cogswell for improperly gaming the system, the district court awarded $10,000 in sanctions. Cogswell then appealed that ruling to the 10th Circuit Court of Appeals.
After determining that it had jurisdiction (as discussed above), the court then reversed the lower court’s sanctions order — finding that Predator had properly justified its delay in seeking to add the claims and thus were not sanctionable.
Ironically, if, on remand the district court reconsiders and allows the complaint to be amended again to add the patent claim then suddenly apparent appellate jurisdiction would shift again to the Federal Circuit.
Acting in bi-partisan fashion, leadership in the House of Representatives has reportedly removed Rep. Goodlatte’s Innovation Act (H.R. 9) from House Floor consideration for this summer – indicating that the bill is not yet ready for a consensus vote. (Summer session typically runs through the end of July with a break for the month of August).
Some amount of opposition had been building within Congress, including a joint press conference yesterday that included U.S. Representatives John Conyers (D-Mich.), Thomas Massie (R-Ky.), Bill Foster (D-Ill.), and Scott Peters (D-Calif.) as well as Senators Chris Coons (D-Del.) and David Vitter. In their press release, the group wrote that “H.R. 9 is strongly opposed by inventors, small businesses, venture capitalists, startup communities, and manufacturing, technology, and life sciences companies.”
A compromise bill has some chance this fall and we can expect more aggressive PR campaigns showing the woes of patent trolls as well as the benefits of patent-driven innovation.
Ex Parte Appeals: PTO Deputy Director Russ Slifer writes on the new expedited appeal program. Slifer writes that the “current average pendency of an ex parte appeal at the PTAB is approximately 30 months” while the goal for the expedited program is 6-months.
Enhanced Patent Quality: Valencia Martin Wallace is the PTO’s Deputy Commissioner for Patent Quality and is spearheading the Office’s Enhanced Patent Quality Initiative. Wallace reports that the PTO received more than 1,100 comments and suggestions with regard to the initiative. More to come on that front.
Patent Public Advisory Committee (PPAC): The Department of Commerce and USPTO are seeking nominations to fill vacancies on the PTO’s official advisory board known as PPAC. (Fed. Reg. Notice). Nominations can be sent to PPACnominations@uspto.gov. For some reason, the USPTO continues to reject my nomination – Dennis.
In this follow-up to Versata v. SAP (Versata I), the Federal Circuit holds that a district court has no jurisdiction over a direct challenge the PTO’s decision to institute a covered business method (CBM) review. This particular appeal stems from a laterally-filed E.D. Virginia lawsuit filed by Versata against the USPTO immediately after the USPTO’s decision to institute the CBM review. In the case, the patentee asked the court to set aside the PTAB’s decision to institute. The district court dismissed that case for lack of subject matter jurisdiction and failure to state a claim based upon the AIA’s express statement that the decision on whether to institute is not appealable and because of the detailed scheme for review provided by the statute.
In affirming the district court’s judgment against the case, the Federal Circuit failed to address a core statutory question – in particular, the statute indicates that the decision is “nonappealable,” but says nothing expressly about the collateral civil action filed by the patentee here.
Offering a tone of assurance, the Federal Circuit suggests that the lack of appellate review of the interlocutory institution decision is largely remedied by the broad review of a PTAB decision on the merits of a review proceeding.
[I]n Versata I we highlighted the fundamental importance of judicial review of agency action, both as a matter of historic case law as well as of statutory law. The importance of judicial review was recognized by the district court when it noted that an adequate remedy lay in appeal to the Federal Circuit, an appeal expressly provided in the AIA at the final written decision stage. We have thus acknowledged the balance Congress struck between its desire for a prompt and efficient review process at the USPTO, on the one hand, and, on the other, the necessary recognition of the traditional role of judicial review of agency action. In Versata I we found that balance carefully crafted, and consistent with the roles the Constitution assigns to the Judicial and Executive Branches.
This appeal was handled by the same panel that heard Versata I, and again Judge Plager wrote the majority opinion that was joined by Judge Newman. Judge Huges concurred in the results without opinion — apparently disagreeing with the majority’s statements regarding the importance of judicial review.
Although it received a somewhat favorable claim construction ruling and won a summary judgment challenge, the patentee (SFA) dropped its case against Newegg and issued a covenant not to sue the erstwhile defendant based upon what SFA termed “business reasons.” Rather than simply walking away, Newegg demanded attorney fees to compensate for its costs defending against what it termed a “frivolous and abusive lawsuit.”
On appeal here, the Federal Circuit has affirmed the lower court’s denial of fees under Section 285 of the Patent Act. That provision states that a district court “may award reasonable attorney fees to the prevailing party” in “exceptional cases.” In its 2014 Octane Fitness decision, the Supreme Court interpreted an “exceptional case” to be one that:
stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.
Exceptionality appears to be implicitly linked to reasonableness — at least insofar that a showing that your actions were “reasonable” will avoid an exceptional case award. In practice, the determination of an exceptional case is done on a case-by-case basis, “considering the totality of the circumstances.” Id. In its parallel 2014 Highmark decision, the Supreme Court also held that the district court’s determination regarding exceptional case awards should be given deference on appeal.
Not Reviewing a Double Mistake: As I mentioned, the district court’s claim construction and summary judgment denials both favored the patentee. In arguing that SFA’s case lacked substantive merit, Newegg provided the following logical chain of reasoning: (a) if the district court had not erred in its claim construction, (b) it would have held the claims invalid as indefinite (c) therefore showing that SFA’s case lacked substantive merit. On appeal, the Federal Circuit refused to follow the bait and instead found that a fee-award petition does not open the door to re-litigating all underlying substantive issues decided by the district court. Rather, according to the court, the review of a fee-award petition should focus only on “whether the district court abused its discretion when it found that the party’s litigating position was not so meritless as to ‘stand out’ from the norm and, thus, be exceptional.” Likewise, the Court wrote that district court need not revisit its prior decisions when judging a fee award motion.
Nuisance Fee Litigation Not Necessarily Unreasonable: Following the holding of Eon-Net v. Flagstar, 653 F.3d 1314 (Fed. Cir. 2011), Newegg argued that SFA’s practice was abusive “by exploiting the high cost to defend complex litigation to extract a nuisance value settlement.” (quoting Eon-Net). On appeal, however, the appellate panel found that the district court had not abused its discretion in failing to find unreasonable conduct.
We agree with Newegg … that a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285. And, we agree with Newegg, moreover, that to the extent the district court’s opinion in this case can be read to discount the motivations behind a patentee’s litigation history, the district court was wrong. The problem with Newegg’s request that we reverse the district court’s exceptional case determination on these grounds, however, is its failure to make a record supporting its characterization of SFA’s improper motivations.
In particular, SFA was able to point to some larger settlements and other cases that it had not (yet) settled.
Here, the Federal Circuit repeated its prior holdings that a repeated pattern of filing lawsuits and then settling for only a “nuisance” amount (<10% of expected litigation costs) provides evidence of exceptionality. The problem was simply that the defendant did not prove-up that pattern in this case. Apparently it is acceptable and reasonable to have some nuisance-settlement cases as long as the patentee is willing to push its case to the merits in other cases.
Totality of Circumstances: Although the appellate court walked-through the two factors of (1) low-merit case and (2) litigation misconduct, it also recognized that the test is a totality-of-the-circumstances test. However, the unstated conclusion from the case is that the case cannot be exceptional unless at least one of the factors shows unreasonable behavior.
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One problem with the current patent system is that valid but low-value patents are fairly worthless, and this decision only exacerbates that problem. Take the example of a valid patent covering an improvement that incrementally adds only $500,000 in value to a product’s entire market. And, assume that market is split among five competitors. The sequential settlements of $100,000 are all “nuisance level,” but they are also all at the correct market level. Now, Despite what you might conclude from the decision’s language, I don’t believe that the court here is trying to say that a patentee would act unreasonble wrong in this situation by filing and settling these cases. However, the language is loose enough to support a defendant who mounts such a case. (And, I recognize that my hypothetical is not exactly parallel to the facts at issue in the SFA case.)
One solution to this problem is to have more focus on potential damage awards early-on in a case in order to form realistic limits that, in turn, should tend to limit reasonable litigation expenditures.
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Mark Lemley argued the case before the Federal Circuit for Newegg, although he was apparently not on the original appellant brief. John Edmonds appeared on behalf of SFA.
Judge O’Malley penned the opinion that was joined by Judges Clevenger and Hughes.
Over on the main page, Dennis has done a good job laying out the court’s “analysis” in Versata v. SAP of whether section 101 is a defense to invalidity. The court recognized that, by the text of the statute, it is not.
But, it reasoned that because, today, section 101 challenges are a cottage industry, that that interpretation must be wrong. It cites to dicta from old Supreme Court cases. And, it says basically, “well, people are doing it so it must be right.”
Um, wrong: See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says. Courts can get something wrong for a long time; a judge’s Constitutionally required job is not to continue the nonsense; it is to stop it.
The fact is that no court has ever actually analyzed whether 101 is a defense, particularly after 1952, when (I believe) Congress meant to get rid of this “inventive concept” and other nonsense that courts had, previously, read into the word “invention” in what was then 101. Congress put all of those odd requirements into the objective section 103. But… the point is: no court has analyzed the text — about whether “eligibility” is a defense to any infringement suit (and obviously not in CBM proceedings), and when this court did, it recognized the text did not support Section 101 as an invalidity defense.
That should have been the end of the inquiry, absent (a) an absurd result; (b) ambiguity; or (c) some other narrow exception to ignoring the plain text. But the panel went further, and suggested that some sort of history precluded giving the statutory text its plain meaning. (I wrote a book on statutory interpretation; I won’t bore you with the details.)
Let’s go past the text and look for some strong reason to ignore its plain meaning. What is this evidence?
Courts sometimes use the purpose of a statute to interpret it. Likewise, they look at legislative history to discern meaning or to find purpose. What if there was some huge committee report droning on about 101 and so on? We should likely take that into account.
But it’s not there.
The legislative history shows that the purpose CBM was adopted to address shortcomings with the PTO’s ability in the late 1990’s to find prior art, and that was Congress’s intent. The House report makes clear that the purpose was to deal with the perception that in the late 1990’s, the PTO had not found the best prior art to apply under sections 102 and 103:
A number of patent observers believe the issuance of poor business-method patents during the late 1990’s through the early 2000’s led to the patent ‘‘troll’’ lawsuits that compelled the Committee to launch the patent reform project 6 years ago. At the time, the USPTO lacked a sufficient number of examiners with expertise in the relevant art area. Compounding this problem, there was a dearth of available prior art to assist examiners as they reviewed business method applications. Critics also note that most countries do not grant patents for business methods.
The Act responds to the problem by creating a transitional program 1 year after enactment of the bill to implement a provisional post-grant proceeding for review of the validity of any business method patent. In contrast to the era of the late 1990’s-early 2000’s, examiners will review the best prior art available….
H. Rep. 112-98, at p. 54 (June 1, 2011) (emphases added). Thus, the committee report shows that the purpose of the amendments adding CBM is consistent with the statute’s plain text: to allow people to bring CBM to show that the invention was not new or would have been obvious in light of “the best prior art available.” The report emphasized the lack of “a sufficient number of examiners with expertise in the relevant art area.”
Conversely, nothing in the House report mentions the failure to recognize “abstract ideas” or the failure to properly apply Section 101. Further, it is absurd to suggest that in the late 1990s lack of access to prior art or lack of sufficient examiners with familiarity with prior art had any impact on the ability to determine what is a “law of nature,” or “abstract idea,” or the like. Indeed, courts are doing this now on 12(b)(6) motions based on their own “evidence”(?) of what is known, etc.
So, so far: purpose and history, based on the “good” legislative history (committee reports and such usually get more weight than other stuff), 101 is not a defense.
What about random statements of legislators? Once you get into random statements, the legislative history of the AIA on this transitional program is, like almost all legislative histories in this granular level, murky. I have reviewed the remarks made on the Floor of the Senate, and there is no doubt that a few members of Congress mentioned business method patents. A fair reading is that at least some members of Congress thought the source of the problem to be addressed was with “abstract” patents, while others believed the failure to consider the most pertinent prior art was the source of the problem.
I have also considered other aspects of the legislative history that this panel didn’t cite. For example, then-Director Kappos observed: “a key House Committee Report states that ‘the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282.’ H.R. Rep. No.112-98, at 47 (2011).” Yet, it is undeniable – and the Versata court held — that the text of the adopted statute points to only two subsections of Section 282, and so this sentence from that report flatly contradicts the enacted statute. (It accurately reflects the text at the time Kappos spoke; but Congress didn’t adopt it.) A sentence in a committee report that directly contradicts the enacted language does not control. As with most bills, the legislative history of the AIA contains many statements that are not the law, and a few that contradict the enacted statute.
Others have pointed to this statement from a senator from Arizona, Senator Kyl: “section 101 invention issues” were among those “that can be raised in post-grant review.” 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011). Relying on this statement for the proposition that eligible subject matter is covered by the text is doubly problematic. Foremost, “section 101 invention issues” is not in the enacted text, as the Versata court correctly held. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator’s statement as having been enacted into federal law. Doing so jeopardizes the Constitutional requirements of enactment and presentment. This is especially true where, as here, that statement contradicts the plain text as well as other more weighty evidence of legislative intent. Those sources – which, if entitled to any weight — are entitled to more weight than one Senator’s floor statement – contradict Senator Kyl’s subjective interpretation of the statute. Again, however, I believe none of this matters here.
So, at best, there is some slight indication that a few members of Congress thought that “abstract” patents (whatever that might mean”) is the problem.
But it is long-settled there has to be some reason, much stronger than a few random statements, to ignore the plain text of an enacted statute. What controls is the language Congress enacted, not our speculation about the intent of a handful of elected representatives.
Let’s go further.
Sometimes courts interpret statutes in light of existing case law, and that’s what the Versata court relied upon. Well, what about case law, and the notion this court adopted that there’s some sort of “long-standing” understanding that 101 is a defense. This is weird: despite the plain language, and despite Congress knowing that 101 should be a defense, it did not list it. Think about judicial activism for a moment.
And let’s be real here.
First, post-1952 it was not until Myriad that there was a challenge in the Supreme Court to an issued patent based on 101. All the others were fights with the PTO. No one in Myriad litigated whether 101 was a defense in terms of section 282. It’s not, as even this panel recognized.
So, saying there’s some long-standing line of cases from the Supreme Court is simply wrong: there’s now two cases, one just decided (Alice). Further, we all know that 101 defenses were about as rare as a blue zebra until a few years ago.
But maybe there is some long-standing interpretation, even in dicta?
Wrong. If you read the authority relied upon by the court, they don’t support the this “history” at all — instead they undermine it.
Foremost, the Supreme Court case relied upon is Graham v. John Deere Co., 383 U.S. 1 (1966). That famous case about Section 103 had nothing to do with whether “eligible subject matter” was a condition for patentability, and did not decide that issue. Instead, in dicta analyzing the “condition for patentability” in Section 103, the court noted:
The Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103. The first two sections, which trace closely the 1874 codification, express the ‘new and useful’ tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. The pivotal section around which the present controversy centers is § 103 . . . .
383 U.S. at 12-13.
That statement actually undermines the argument that “eligible subject matter” is a condition for patentability.
Here’s why:
Graham explains that the Patent Act of 1793 had only two conditions for patentability: utility and novelty (both of which were once in the same statute, a precursor to sections 101 and 102). Id. at 10 (“Although the Patent Act was amended, revised or codified some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”). The Graham Court recognized that in 1952 Congress had added a third condition, non-obviousness. See id. at 14 (“Patentability is to depend, in addition to novelty and utility, upon the ‘non-obvious’ nature of the ‘subject matter sought to be patented’ to a person having ordinary skill in the art.’”) (quoting Section 103).
So… the Graham case suggests — if anything, as it is dicta — that “eligible subject matter” is not a condition for patentability. If Graham stated that utility, novelty, and non-obviousness were the three conditions for patentability, then the Court’s statement that there are “three conditions” means “eligible subject matter” is not one: if “eligible subject matter” were also a condition for patentability, then there would be four, not three, conditions.
The panel also cites dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008). Although the merits of a Section 101 issue was decided in Dealertrack, the patentee did not contend that Section 101 was not a statutory defense, and the court did not decide that issue. Further, dicta in that case traces directly back to the dicta from Graham. So, there is no long line of cases that, somehow, Congress knew about and intended to adopt.
Worse, there is loose language in other cases saying exactly the opposite, that only 102 and 103 are conditions of patentability (i.e., are consistent with the plain text.). For example, the Federal Circuit has stated: “The two sections of part II that Congress has denominated ‘conditions of patentability’ are § 102 . . . and § 103 . . . .” Myspace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260-61 (Fed. Cir. 2012). The Supreme Court made essentially the same observation in Diamond v. Diehr, 450 U.S. 175, 190-91 (1981).
So… in fact there is no case law supporting this history, and instead the “case history” is, at best, split and unclear.
The important fact to me is that none of these casesparse the statutory text, or examine the purpose and legislative history of the AIA discussed here. Ignoring the actual text in favor of what courts have said a statute says is obviously incorrect. In that regard, the Supreme Court has overridden judicial interpretations of statutes that failed to adhere to the text, and has done so even after decades of having lower courts adhere to those incorrect constructions. See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says.
To sum up, absent some good reason to ignore the plain text, in my opinion random statements from one or two legislators and dicta in cases does not control. Dicta in cases that do not analyze the statutory text do not control. A committee report that flatly contradicts the enacted text does not control. And one Senator’s opinion is not enacted statutory text.
I understand why the panel did what it did. But the Constitution is more important than judicial politics.
Finally, let’s be real again: if you look at what Congress did in 1952, it was to get rid of this subjective nonsense. I strongly believe that then Chief-Judge Rader’s opinion, and “additional views” in CLS Bank v. Alice (which, textually, this panel confirmed in holding 101 is not even a listed defense) need to be raised and litigated. Statutes should matter.
(You can find the original version of this, with citations and footnotes at:
