Tag Archives: Abstract Idea

Federal Circuit: Now is Not the Time to Judge the Constitutionality of the First-to-File Patent Regime

July 1, 2014PatentAbstract Idea, Subject Matter Eligibility, Trade SecretsDennis Crouch

By Dennis Crouch

MadStad Enginering v. USPTO (Fed. Cir. 2014)

In 2012, MadStad and its owner Mark Stadnyk filed a declaratory judgment lawsuit against the USPTO alleging that the new first-to-file regime implemented by the America Invents Act of 2011 (AIA) was unconstitutional. See Crouch, Constitutional Challenge to the First-to-Invent Rule
(2012), and Crouch, Constitutionality Question Looms as USPTO Implements Regime that favors a “Filers” over “Inventors”
(2013). In discussing the case, I wrote:

MadStad’s basic argument is that when the U.S. Constitution speaks of exclusive rights for “inventors” it should be interpreted to mean “first and true inventor.” Under this analysis, the AIA fails because it purposefully rewards the first-to-file a patent application rather than the first-to-invent.

Further, MadStad argues that the new law allows non-inventors to obtain patents on inventions that they learned-of because the law no longer requires that the applicant be an inventor.

Rather than reaching the merits of MadStad’s allegations, the district court rejected the case for lack of standing. The Federal Circuit has now affirmed that decision — holding that MadStad’s potential injury due to the legal change is too speculative. MadStad’s alleged injuries due to the change are creative, but ultimately the court determined that they lacked sufficient concreteness. The alleged injury included increase cost of computer security to avoid hacking that – if not blocked – could result in stolen ideas that the thief could patent under the new regime. A second alleged injury is increased time and effort to file additional patent applications before the invention’s value is properly understood.

The key precedent relied upon by both the Federal Circuit and the District Court is the secret FISA court case of Clapper v. Amnesty International USA, __ U.S. __, 133 S. Ct. 1138 (2013). In that case Amnesty Int’l did not have proof that the NSA was tapping its conversations (because the activity is secret) and the Supreme Court held that the threat was too speculative. In my view, the direct applicability of Clapper here is somewhat attenuated because it is clear that MadStad’s new patent applications would be governed under the new regime and the separation-of-powers issues are not so great.

Next steps: Regardless of the merits of this decision, by now there should be at least some patent applications that have been rejected due under the new first-to-file regime that would not have arguably been patentable under the old regime. Applicants injured in that way would certainly have standing to bring this challenge.

= = = = =

The decision by Judge O’Malley also includes an interesting discussion of Federal Circuit Jurisdiction. The law provides that the Federal Circuit has jurisdiction over appeals that arise under the patent law statutes. Here, however, the claim is based upon the U.S. Constitution.

PTO Issues Alice-based Examination Instructions

June 25, 2014PatentAbstract Idea, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

Today, the patent office issued new instructions (download: PTO Alice Instructions) for patent examiners to follow when examining claims for compliance with Section 101. This practice is similar to those it followed after the Court issued other substantive patent law opinions. One important component of the new instructions are that they make it clear that going forward, the PTO will be applying the Mayo v. Prometheus framework to all types of inventions:

[T]he following instructions differ from prior USPTO guidance in two ways:

1) Alice Corp. establishes that the same analysis should be used for all types of judicial exceptions, whereas prior USPTO guidance applied a different analysis to claims with abstract ideas (Bilski guidance in MPEP 2106(1I)(B)) than to claims with laws of nature (Mayo guidance in MPEP 2106.01).

2) Alice Corp. also establishes that the same analysis should be used for all categories of claims (e.g., product and process claims), whereas prior guidance applied a different analysis to product claims involving abstract ideas (relying on tangibility in MPEP 2106(Il)(A)) than to process claims (Bilski guidance).

In addition, the PTO provides a bit of guidance for determining whether a claim will fail one of the two steps. For the first step (determine whether the claim is directed to an abstract idea), the memorandum provides four examples of abstract ideas referenced in Alice:

Fundamental economic practices;
Certain methods of organizing human activities;
“[A]n idea of itself; and
Mathematical relationships/formulas

If an abstract idea is present in the claim, the examiner should proceed to the next step, determining whether any element or combination of elements in the claim sufficient to ensure that the claim amounts to significantly more than the abstract idea itself. Examples of limitations that may be sufficient to qualify as “significantly more” include:

Improvements to another technology or technical fields;
Improvements to the functioning of the computer itself;
Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.

Examples of limitations that are not enough to qualify as “significantly more” include:

Adding the words “apply it” (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer;
Requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry.

Read the entire memorandum here: PTO Alice Instructions. Thanks to David Taylor at SMU Law for sending me a copy of the memo.

Hindsight in 101 Jurisprudence: an early morning half-baked thought or an insight?

June 25, 2014PatentAbstract Idea, Subject Matter EligibilityDavid

Dennis is on vacation and said I could post so I’m running with it!

The analysis everyone suggests is right under 101 (recall I don’t think it’s an invalidity defense; not sure what impact, if any, it has on patentability) goes something like this:

Is the claim “directed to” some natural law/natural thing/abstract idea?

If so, there must be more than ‘conventional’ application of it.

Applying that to a lot of medical method claims (Ariosa v. Sequenom is discussed by others below), the problem is that, before the discovery of the natural thing/idea/law, no one knew that you could apply anything to do whatever the claim says. Nothing was “conventional” with respect to the newly discovered thing/law/idea.

By asking what’s conventional, we are importing hindsight.

Thoughts, or am I not yet awake and Dennis should come back and get this ship righted?

One last thought for those of you who think “invention” has meaning beyond 103. I think the legislative history is beyond clear, as is the statute, but here’s a committee report:

“The major changes or innovations in the title consist of incorporating a requirement for invention in § 103 and the judicial doctrine of contributory infringement in § 271.”

The Three Faces of Prometheus: Alice and Generic Application

June 24, 2014PatentAbstract Idea, Federal Circuit En Banc, obviousness, Subject Matter EligibilityJason Rantanen

Today continues our mini-symposium on Alice v. CLS Bank with a guest post by Jeffrey A. Lefstin, Professor at the University of California, Hastings College of the Law.

Alice Corp. marks the Supreme Court’s eighth subject-matter eligibility case since the 1952 Act. Without question, the most problematic aspect of the Supreme Court’s § 101 jurisprudence has been discerning the actual test for patent-eligibility. In Mayo v. Prometheus, the Court purported to establish a general framework for subject-matter eligibility: that to be patent-eligible, a claim must include an “inventive concept” beyond an underlying fundamental principle, such as a law of nature, natural phenomenon, or abstract idea. The Court’s omission of significant reference to Mayo in Association for Molecular Pathology raised some doubt as to whether Mayo defined a universal test for eligibility under § 101. Yet Alice Corp. appears to confirm that Mayo is a universal framework for discriminating between ineligible principles and patent-eligible applications.

Mayo’s ambiguity led to the Federal Circuit’s fracture when it heard CLS Bank en banc. Mayo suggested three possible tests for patent-eligibility, without committing definitively to any one of them: inventive application, pre-emption, and “more than just apply it.” Justice Thomas’s opinion in Alice does not expressly commit to a single interpretation of Mayo. Yet Thomas’s presentation of Mayo, his framing of the Court’s prior precedent, and his application of Mayo to Alice’s claims all indicate that Alice endorses the last aspect of Mayo: that a claim must do more than set forth a fundamental principle and add a generic instruction to “apply it.” If this interpretation is correct, then Alice may in the long run be more significant for fields such as biotechnology, where Mayo’s “inventive application” aspect has cast doubt on the patent-eligibility of many discovery-based inventions.

Mayo’s first test of patent-eligibility is a test for inventive, or non-obvious, application of a fundamental principle. Drawing from Flook, where Justice Stevens wrote that “conventional and obvious” post-solution activity cannot transform an unpatentable principle into a patentable process, and Funk Brothers, where Justice Douglas held that a composition of matter was not patentable because the patentee’s application was “a simple step” once his discovery was assumed away, Justice Breyer invalidated Prometheus’s claims because the steps of the claimed method beyond the underlying natural law were merely “well-understood, routine, conventional activity already engaged in by the scientific community.” Breyer contrasted those steps with the additional steps claimed in Diamond v. Diehr, which in context were not “obvious, already in use, or purely conventional.” The Mayo Court drew support for this test from the Court of Exchequer’s 1843 opinion in Neilson v. Harford, where the patent was said to have been sustained because the patentee implemented his newly discovered principle “in an inventive way.”* This view of Mayo – that obvious applications of fundamental principles are not patent-eligible – was the one taken by the Northern District of California in the Ariosa v. Sequenom litigation, where Judge Ilston invalidated Sequenom’s claims largely because once Sequenom’s discovery of cell-free fetal DNA in the maternal bloodstream was assumed to be known, the application in the form of a test for fetal abnormalities required only routine and well-known methods of DNA amplification.

The second test of eligibility suggested by Mayo is a test of pre-emption. The Court explained that subject-matter exclusions were grounded in pre-emption, echoing Benson’s concern that patents should not monopolize “the basic tools of scientific and technological work.” Mayo seemed to state that pre-emption was analytically secondary to categorical exclusion: the concern that Prometheus’s claims would tie up too much future use of the underlying natural laws “simply reinforces our conclusion” that the claimed processes were not patent-eligible. Yet Breyer’s opinion intertwined pre-emption with inventive application as a criterion for patent-eligibility: Diehr was described as a case where the patentee had not sought to pre-empt the use of the Arrhenius equation. While the patentee in Flook had failed to “limit the claim to a particular application,” the supposedly unconventional steps in Neilson had “confined the claims to a particular, useful application of the principle.” This interpretation of Mayo was followed by the majority of the Federal Circuit when it heard CLS Bank en banc. Both Judge Rader and Judge Lourie rejected the notion that Mayo’s “inventive concept” demanded “inventiveness” in the sense of a non-obvious application. And while they disagreed on the proper framework, both Judge Lourie and Judge Rader founded their analyses on the question of whether Alice’s claims would pre-empt every practical application of the underlying abstract idea.

But Mayo suggests a third test beyond inventive application or pre-emption: that a claim must represent more than a mere direction to apply a fundamental principle. According to Justice Breyer, one could not transform a law of nature into a patent-eligible application by simply disclosing the law of nature, and adding the words “apply it;” Einstein or Archimedes, for example, could not have patented their famous discoveries by merely appending an instruction to apply them. This aspect of Mayo has received the least attention in subsequent cases and commentary. And yet in Justice Thomas’s opinion in Alice, it is this aspect of Mayo that becomes the core of the doctrine.

In Alice’s framework, once it has been determined that a claim is drawn to an abstract idea, ‘step two’ of the Mayo test is to determine whether it contains an “inventive concept” sufficient to transform the claim into a patent-eligible application. But in contrast to Flook and Mayo, “inventive concept” in Alice bears little trace of “inventiveness.” Justice Thomas does describe the computer implementation in Alice as “conventional.” But nowhere does he label it non-inventive, and the word obvious is conspicuously lacking from the opinion. And while Alice hardly addresses the Federal Circuit’s opinions at all, it may be significant that Thomas never contradicts Judge Lourie’s and Judge Rader’s rejection of “inventiveness” as an aspect of “inventive concept” in their CLS Bank opinions.
The contrast between Alice and Mayo is most apparent in their treatment of Diehr. In Mayo, the claims in Diehr represented an inventive application of the Arrhenius equation, and were not “obvious, already in use, or purely conventional.” But in Alice, the claims in Diehr were sustained not because they were non-obvious, but because “they improved an existing technological process,” and achieved a result the industry had not been able to obtain. Likewise, in Mayo, the failing of the Flook claims was that the steps of the claim were well-known, conventional or obvious; in Alice, while Thomas notes that the Flook implementation was purely conventional, Flook primarily stands for the proposition that limitation to a particular technological environment does not render an abstract idea patent eligible.

As for pre-emption, which intertwined so closely with inventive application in Mayo, is hardly present for ‘Mayo step two’ in Alice. Again the characterization of precedent is telling: in Mayo, the claim in Benson was vulnerable because it was “overly broad.” In Alice, Benson requires a “new and useful” – but not inventive – application of an idea for patent eligibility, but the lesson of Benson is that simply implementing a principle on a computer is not a patentable application.

For Justice Thomas, the ‘step two’ inquiry involves neither inventiveness nor pre-emption, but revolves around Mayo’s proscription against “more than just apply it.” Alice follows Flook and Mayo in holding that “conventional” activity cannot transform a principle into a patent-eligible application, but in Alice “conventional” seems to connote generic more than it connotes obvious. Thus Thomas introduces ‘step two,’ the search for an inventive concept, by invoking the third aspect of Mayo: patent-eligible application requires more than a statement of the abstract ideas plus the words ‘apply it.’ And while Thomas notes that the measuring steps in Mayo were “well known in the art,” he again quotes the ‘more than apply it’ language from Mayo to establish that those steps adding nothing of significance to the underlying natural law.

Most significantly for the Alice analysis, Thomas ends his summary of Mayo by quoting language that played little role in Mayo itself: it was not that conventional steps cannot supply an ‘inventive concept,’ but “conventional steps, specified at a high level of generality” (emphasis added) could not supply an inventive concept. For it is genericness, not lack of invention or pre-emption, that dominates the remainder of Thomas’s opinion. His summary of the Court’s § 101 jurisprudence touches upon the notion of pre-emption, but emphasizes above all else the requirement of “more than generic” application:

These cases demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea “while adding the words ‘apply it’” is not enough for patent eligibility. Nor is limiting the use of an abstract idea “‘to a particular technological environment.’ ” Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to “implemen[t]” an abstract idea “on . . . a computer,” that addition cannot impart patent eligibility. This conclusion accords with the pre- emption concern that undergirds our §101 jurisprudence. Given the ubiquity of computers, wholly generic computer implementation is not generally the sort of “additional featur[e]” that provides any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.”

(citations omitted).

Similarly, Alice’s application of the test to the claims in suit emphasizes “more than apply it” and generic application; the question for Justice Thomas “is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” Thomas does describe the functions performed by the computer as “routine, conventional, and well-known in the field,” but his characterization serves to support the conclusion that the claimed steps do nothing more than define generic computer implementation. And taken as a whole, the claims at issue fail not because they lack inventiveness, nor because they reach too broadly, but because they amount to “’nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer.

So Alice may fail to provide clear boundaries for the eligibility of computer-implemented inventions. But it could clarify something more important. As I have described in a recent paper, the actual test for patent-eligibility in cases like Neilson v. Harford, and in American jurisprudence for the next century, was a requirement that the patentee claim a specific mode of application of a fundamental principle, rather than a generic claim to the principle as applied. If Alice does indeed endorse the third aspect of Mayo, then the test for patent-eligibility is not a question of non-obvious application, nor a question of pre-emption, but a question of whether the claim does significantly more than state a fundamental principle coupled with an instruction to “apply it.” Embracing that aspect of Mayo could signal a return to the historical standard of patent-eligibility.

*As I discussed in a previous post, the Court’s reliance on Neilson in Mayo and Flook was entirely misplaced. The patent in Neilson was sustained not because the patentee’s implementation was inventive, but precisely because it was entirely conventional and well-known in the art.

The Supreme Court’s Alice Decision on Patent Eligibility of Computer-Implemented Inventions: Finding an Oasis In the Desert

June 23, 2014PatentAbstract Idea, anticipation, obviousness, Subject Matter Eligibility, Supreme Court, USPTO DirectorJason Rantanen

Guest Post by Donald S Chisum, Director of the Chisum Patent Academy and author of Chisum on Patents.

In Alice (June 19, 2014), the Supreme Court held that the two step framework for determining the Section 101 patent-eligibility of a patent claim, which the Court previously articulated in the 2012 Mayo decision on the patentability of a diagnostic method, applied to computer-implemented inventions. Thus, one determines: (1) does the claim recite an ineligible concept (natural phenomena, natural law or abstract idea), and (2) if so, does the claim recite sufficient additional elements to make the claim one to an application of the concept, rather than to the concept itself?

On Mayo step one, Alice held that the claims at issue were to an abstract idea, an “intermediated settlement.” On step two, it held that “merely requiring generic computer implementation” did not “transform that abstract idea into a patent-eligible invention.” Thus, claims to a method, a computer system configured to carry out the method, and a computer-readable medium containing program code for performing the method all fell invalid under Section 101.

I considered but then reconsidered entitling this comment “Alice in Wonderland.” For, indeed, the Supreme Court’s chain of decisions creating a judicial exception to the statute defining patent eligible subject matter (35 U.S.C. § 101) and holding unpatentable claims to algorithms and abstract ideas, stretching from Benson in 1972 to Alice in 2014, is wondrous. But I will not here review the “big picture,” including the fundamental flaws in the chain; I and others have already done that.

Instead, my focus is on the “small picture,” the every day problem: does the Alice opinion provide some meaningful guidance to fill the near void left by the Court in its prior Mayo and Bilski decisions? Those decisions provided no definition of an “abstract idea” (or “law of nature”) and little direction on, precisely, how much “more” was required for the transformation.

The Court’s fuzz left stranded in a desert of uncertainty an array of feet-on-the-ground decision makers, from inventors to rights owners to patent professionals drafting and amending claims to examiners to PTO officials to licensing negotiators to litigators to district court judges to federal circuit judges to treatise authors.

Positive news. At least on first analysis of Alice, I find some additional guidance, perhaps enough to lead us toward an oasis in the desert.

In particular, the Alice opinion supports the following proposition: a novel and unobvious solution to a technical problem is not an “abstract idea,” and a claim drawn to such a solution, even if broad, is not subject to the Mayo framework (though, of course, it is subject to scrutiny for disclosure support).

The Alice opinion does not state the proposition directly. The Court expressly indicated that it did not need to “delimit the precise contours of the `abstract ideas’ category” because the concept at issue was so similar to that in Bilski. But the proposition is fairly inferred from the Court’s rejection of the patent owner’s argument that the intermediated settlement concept in its claims was not an “abstract idea” within the implicit exception to Section 101 and from its novel description of the prior Diehr decision.

Based on prior Supreme Court cases and language in Mayo, the patent owner argued that the definition of “abstract ideas” for Section 101 was: “preexisting, fundamental truths that exist in principle apart from any human action.” The Court disagreed because that definition did not fit Bilski, which held that risk hedging was an abstract idea. Hedging was a “longstanding commercial practice” and a “method of organizing human activity,” but not a “truth” about the natural world that “always existed.” Hedging and the similar concept of intermediated settlement were abstract ideas because they were “fundamental economic practices.”

Thus, concepts that constitute abstracts ideas fall into two categories. First are mathematical equations, mathematical formulae and algorithms (at least ones of a mathematical nature, and, I would emphasize, not all algorithms are mathematical or numerical). Second are methods of “organizing human activity,” at least if they constitute a fundamental economic practice “long prevalent in commerce.”

What’s left out of the “abstract idea” category? The Court in Alice declined to say explicitly, but there are hints in its discussion of the 1981 Diehr decision in connection with the second Mayo step. The Court noted that Diehr had held a computer-implemented process for curing rubber was patent eligible, not because it involved a computer but rather because “it used that equation in a process designed to solve a technological problem in `conventional industry practice.” It reiterated: “the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer.” In contrast, the claims in Alice did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.”

The Court had discussed and distinguished the Diehr case before, in both Bilski and Mayo, but never on the basis that Diehr entailed a technological improvement. Thus, the Alice discussion of Diehr in terms of a solution to a technical problem is important new ground.

Hence there are strong grounds for the proposition that a patent claim reaches a safe harbor from Section 101 abstract idea scrutiny, including the Mayo second question for an “inventive concept,” if the claimant establishes that the claim is directed to a solution of a technological problem. This definition of abstract idea as excluding applied technology accommodates the case law treating pure mathematical statements, economics and finance, and schemes of a non-technical character (“methods of organizing human activity”) as “abstract ideas” that must be include additional elements to achieve patent eligibility (Mayo step two).

Is this shift in focus to “technological” an oasis of greater clarity? No doubt there will be arguments about what is technological and what is not. But there are at least three advantages to the verbal change. First, technology is the historic core of the patent system, especially given the Constitutional phrase “useful Arts,” which is 18th century terminology for “technology” in 21st century terminology. Thus, an inquiry about the technological is much less of an alien intruder than prior Supreme Court language about the abstract idea exception to Section 101. Second, evaluating the Section 101 abstract idea prohibition in terms of technological versus non-technological conforms to the language Congress used in Section 18 of the America Invents Act in setting up special PTO review of business method patents. Finally, a technology test aligns the United States standard with the language used in Europe and elsewhere to address exceptions to patent eligible subject matter.

SCOTUSblog symposium on Alice v. CLS Bank

June 22, 2014PatentAbstract Idea, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

SCOTUSblog is publishing a series of essays on Alice v. CLS Bank. Current participants include:

David Kappos – Supreme Court leaves patent protection for software innovation intact

From the perspective of the parties involved, this week’s Alice Corp. v. CLS Bank decision held that a process that lessens settlement risk for trades of financial instruments is too abstract for patenting. However, to the leagues of interested onlookers holding their collective breath across our country and indeed around the world, the Supreme Court’s unanimous ruling subtly conveyed a much more significant judgment: software, as a class, is every bit as worthy of patent protection as any other medium in which innovation can be practiced.

Robert Merges – Go ask Alice — what can you patent after Alice v. CLS Bank?

Those of us who sweat in the clammy gymnasia of patent law have been waiting – with a mix of excitement, dread, and cynical disregard – for the Alice v. CLS Bank decision. The idea was, when the Court took the case, that we would finally have an answer to the question whether software can be patented under U.S. law. To say we did not get an answer is to miss the depth of the non-answer we did get. Reading the opinion reminds me of a famous passage in The Hitchhiker’s Guide to the Galaxy. Acolytes wait at the feet of a giant supercomputer, which 7.5 million years before had been asked “What is the meaning of life?” Finally, after eons of waiting, the computer spoke. Its answer was: “42.” The acolytes went forth, armed with this non-answer. And life went on. So it is with us, in the patent field. We have met our “42,” and its name is Alice. Now life must go on.

Justin Nelson – For patent litigants, Court affirms status quo

The reaction from patent litigants to the Supreme Court’s decision yesterday in Alice Corp. v. CLS Bank was one big shrug. The decision was exactly as expected. While the Court made clear that abstract ideas remain unpatentable, it “tread[ed] carefully” in construing patentability. Indeed, the most notable part of the decision was that it shied away from any grand pronouncements. Rather, it relied heavily on prior cases such as Bilski v. Kappos, Mayo Collaborative Services v. Prometheus Laboratories, Inc., and Association for Molecular Pathology v. Myriad Genetics. As the Court correctly concluded, “[i]t follows from our prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea.” Yet it went no further than necessary: “[W]e need not labor to delimit the precise contours of the ‘abstract ideas’ category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.”

Sandra Park – The Supreme Court as promoter of progress

Yesterday’s Supreme Court decision in Alice Corp. v. CLS Bank International revisits a fundamental question about our patent system: which patents promote the progress of science?

There’s also a detailed analysis and commentary by John Duffy that begins:

Although Alice Corp. v. CLS Bank was identified by this website and many other commentators as a major case on patent law, the Supreme Court’s unanimous resolution of the case does little to change, or even to clarify, pre-existing law. The case becomes the fourth Supreme Court decision since 2010 to hold patent claims invalid based on judicial exceptions to patentability. While Alice Corp. is only an incremental addition, the continuation of that larger trend is hugely important because, as the Court itself acknowledges, the judge-made doctrine in this area has the potential to swallow all of patent law.

Alice v. CLS Bank: Claims Invalid Under Section 101

June 19, 2014PatentAbstract Idea, First to Invent, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

Alice Corporation Pty. Ltd. v. CLS Bank International (2014)

Download opinion here: Alice v CLS

This morning the Supreme Court issued its opinion in Alice, unanimously affirming the Federal Circuit and finding all claims drawn to patent ineligible subject matter under Section 101. Justice Thomas wrote for the opinion for the Court. It begins:

The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea. We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.

The opinion includes both the actual language of representative claims (in a footnote) and the court’s interpretation of them (in the body of the opinion). The latter is primarily what the court focuses on:

In sum, the patents in suit claim (1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims). All of the claims are implemented using a computer; the system and media claims expressly recite a computer, and the parties have stipulated that the method claims require a computer as well.

The Court next summarizes the long-standing nature of the law of nature, natural phenomena, and abstract ideas exception to patent eligibility, and reiterates that these exceptions are driven by a concern about pre-emption, balanced against caution in allowing the exceptions to swallow all of patent law:

Accordingly, in applying the §101 exception, we must distinguish between patents that claim the “‘buildin[g] block[s]’” of human ingenuity and those that integrate the building blocks into something more, Mayo, 566 U. S., at ___ (slip op., at 20), thereby “transform[ing]” them into a patent-eligible invention, id., at ___ (slip op., at 3).

Next comes the first key part: the Court reiterates the framework described in Mayo v. Prometheus, including the inventive concept language:

In Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___ (2012), we set forth a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts. First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. Id., at ___ (slip op., at 8). If so, we then ask, “[w]hat else is there in the claims before us?” Id., at ___ (slip op., at 9). To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Id., at ___ (slip op., at 10, 9). We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id., at ___ (slip op., at 3).3

Applying this framework, the Court first found the claims directed to an abstract idea.:

On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent in our system of commerce.’”

It then concluded that the claims also failed the second step: “the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent eligible invention.”

Here’s the second piece of key language, which relates to the computer-implemented nature of the claims:

These cases [Mayo, Flook, Benson, and Diehr] demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea “while adding the words ‘apply it’” is not enough for patent eligibility. Mayo, supra, at ___ (slip op., at 3). Nor is limiting the use of an abstract idea “‘to a particular technological environment.’” Bilski, supra, at 610–611. Stating an abstract idea while adding the words“apply it with a computer” simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to“implemen[t]” an abstract idea “on . . . a computer,” Mayo, supra, at ___ (slip op., at 16), that addition cannot impart patent eligibility.

It is irrelevant that a computer is a physical object:

There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept. Such a result would make the determination of patent eligibility “depend simply on the draftsman’s art,” Flook, supra, at 593, thereby eviscerating the rule that “‘[l]aws of nature, natural phenomena, and abstract ideas are not patentable,’” Myriad, 569 U. S., at ___ (slip op., at 11).

Applying this standard, the Court concluded that the claims at issue here did nothing “more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” Slip Op. at 14.

Note that the Court’s ruling applies to the method claims, the computer system claims, and the computer-readable medium claims. Here’s the third bit of key language; I predict it’s going to tie folks in knots:

As to its system claims, petitioner emphasizes that those claims recite “specific hardware” configured to perform“specific computerized functions.” Brief for Petitioner 53.But what petitioner characterizes as specific hardware—a“data processing system” with a “communications controller” and “data storage unit,” for example, see App. 954,958, 1257—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims. See 717 F. 3d, at 1290 (Lourie, J., concurring). As a result, none of the hardware recited by the system claims “offers a meaningful limitation beyond generally linking ‘the use of the [method] to a particular technological environment,’ that is, implementation via computers.”

Put another way, the system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer;the system claims recite a handful of generic computer components configured to implement the same idea. This Court has long “warn[ed] . . . against” interpreting §101“in ways that make patent eligibility ‘depend simply on the draftsman’s art.’”

Justice Sotomayor, joined by Justice Ginsburg and Breyer, agreed that the method claims here were drawn to an abstract idea, but concurred to express agreement with Justice Stevens’ view in Bilski that a “claim that merely describes a method of doing business does not qualify as a‘process’ under §101.”

SmartGene v. Advanced Biological Laboratories

May 26, 2014PatentAbstract Idea, Affirmed Without Opinion, Federal Circuit En Banc, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

Earlier this month, I posed a question relating to the patent eligibility of the following claim:

A method for guiding the selection of a therapeutic treatment regimen for a patient with a known disease or medical condition, said method comprising:

(a) providing patient information to a computing device comprising:

a first knowledge base comprising a plurality of different therapeutic treatment regimens for said disease or medical condition;

a second knowledge base comprising a plurality of expert rules for evaluating and selecting a therapeutic treatment regimen for said disease or medical condition;

a third knowledge base comprising advisory information useful for the treatment of a patient with different constituents of said different therapeutic treatment regimens; and

(b) generating in said computing device a ranked listing of available therapeutic treatment regimens for said patient; and

(c) generating in said computing device advisory information for one or more therapeutic treatment regimens in said ranked listing based on said patient information and said expert rules.

This claim was a real one, from a real case. It’s Claim 1 from U.S. Patent No. 6,081,786, and in a January 2014 nonprecedential opinion the Federal Circuit affirmed a district court’s ruling that it and claims from related patent No. 6,188,988 were ineligible for patent protection under 35 U.S.C. § 101. Here’s the core of the court’s reasoning:

The district court correctly held that the claim 1 method falls outside the eligibility standards of section 101 as that provision has been construed. This conclusion follows from CyberSource Corp. v. Retail Decisions, Inc., where, based on earlier precedents, this court held that section 101 did not embrace a process defined simply as using a computer to perform a series of mental steps that people, aware of each step, can and regularly do perform in their heads. 654 F.3d 1366, 1373 (Fed. Cir. 2011); see also In re Grams, 888 F.2d 835, 840-41 (Fed. Cir. 1989); In re Meyer, 688 F.2d 789, 794-95 (C.C.P.A. 1982). As CyberSource explains, those precedents rest on Supreme Court decisions indicating that section 101 covers neither “mental processes”—associated with or as part of a category of “abstract ideas”—nor processes that merely invoke a computer and its basic functionality for implementing such mental processes, without specifying even arguably new physical components or specifying processes defined other than by the mentally performable steps. See Gottschalk v. Benson, 409 U.S. 63, 67-68 (1972); Parker v. Flook, 437 U.S. 584, 589 (1978).

***

The Supreme Court’s post-CyberSource decision in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), reinforces the application of Cyber-Source to decide the present case. The Supreme Court in Mayo, though addressing a case involving the “law of nature” exclusion from section 101, recognized that “mental processes” and “abstract ideas” (whatever may be the precise definition and relation of those concepts) are excluded from section 101. See 132 S. Ct. at 1289, 1293, 1297-98 (quotation marks omitted). Whatever the boundaries of the “abstract ideas” category, the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options. Mayo demanded that, when a claim involves an abstract idea (or, in Mayo itself, a law of nature), eligibility under section 101 requires that the claim involve “enough” else—applying the idea in the realm of tangible physical objects (for product claims) or physical actions (for process claims)—that is beyond “well-understood, routine, conventional activity.” 132 S. Ct. at 1294, 1298, 1299. The claim here does not do so. It calls on a computer to do nothing that is even arguably an advance in physical implementations of routine mental information comparison and rule-application processes. In this context, the concern about preempting public use of certain kinds of knowledge, emphasized in Mayo, is a grave one. See id. at 1301-02.

Our decisions since Mayo do not undermine Cyber-Source or its application here…..

You can read the entire opinion here: SmartGene v ABL.

ABL has since filed a petition for certiorari, as well as an amicus brief in Alice v. CLS. Its position is that SmartGene should be GVR’d regardless of the outcome in Alice v. CLS (which might issue as soon as tomorrow). From the introduction:

Judge Pauline Newman recently characterized the Federal Circuit as being in a state of jurisprudential “deadlock,” making patent eligibility under 35 U.S.C. § 101 a question “whose result will depend on the random selection of the panel.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1280 (Fed. Cir. 2013) (hereinafter CLS Bank) (en banc) (Newman, J., dissenting), cert granted, Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 734 (2013) (hereinafter Alice). No better case illustrates the panel-dependent crapshoot that Section 101 jurisprudence has become than this one. Although it is impossible to predict the Court’s forthcoming opinion in Alice, there is little doubt that it will significantly impact the law in this area and break the deadlock in the Federal Circuit.

The decision below is a prime example of the
current dysfunctional state of the law in the Federal Circuit.

You can read the petition here: ABL v. SmartGene petition for writ of certiorari.

Guest Post: Are APIs Patent or Copyright Subject Matter?

May 12, 2014PatentAbstract Idea, Copyright, Enablement, Licenses, Subject Matter Eligibility, Trade Secrets, VenueDennis Crouch

Guest Post by Pamela Samuelson, Richard M. Sherman Distinguished Professor of Law at Berkeley Law School. I asked Professor Samuelson to provide a discussion of the recent Federal Circuit decision in Oracle v. Google. DC.

Application programming interfaces (APIs) are informational equivalents of the familiar plug and socket design through which appliances, such as lamps, interoperate with the electrical grid. Just as a plug must conform precisely to the contours of the socket in order for electricity to flow to enable the appliance to operate, a computer program designed to be compatible with another program must conform precisely to the API of the first program which establishes rules about how other programs must send and receive information so that the two programs can work together to execute specific tasks.

No matter how much creativity might have gone into the design of the existing program’s interfaces and no matter how many choices the first programmer had when creating this design, once that the API exists, it becomes a constraint on the design of follow-on programs developed to interoperate with it. Anyone who develops an API is, in a very real sense, designing that aspect of the program for itself and for others.

One of the many errors in Judge O’Malley’s decision in the Oracle v. Google case was her insistence that the merger of idea and expression in computer program copyright cases can only be found when the developer of an API had no choice except to design the interface in a particular way. If there is any creativity in the design of the API and if its designer had choices among different ways to accomplish the objective, then copyright’s originality standard has been satisfied and not just the program code in which the API is embodied, but the SSO of the API, becomes copyrightable. Indeed, harkening back to an earlier era, Judge O’Malley repeated the unfortunate dicta from the Apple v. Franklin case about compatibility being a “commercial and competitive objective” which is irrelevant to whether program ideas and expressions have merged.

The Ninth Circuit in the Sega v. Accolade case, as well as the Second Circuit in Computer Associates v. Altai, have rejected this hostility toward achieving software compatibility and toward reuse of the APIs in subsequent programs.

Although purporting to follow Ninth Circuit caselaw, Judge O’Malley in Oracle v. Google ignored some key aspects of the holding in Sega. Accolade reverse-engineered Sega programs in order to discern the SSO of the Sega interface so that it could adapt its videogames to run on the Sega platform. The principal reason that the Ninth Circuit upheld Accolade’s fair use defense as to copies made in the reverse engineering process was because “[i]f disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work—aspects that were expressly denied copyright protection by Congress,” citing § 102(b). To get the kind of protection Sega was seeking, the Ninth Circuit said it “must satisfy the more stringent standards imposed by the patent laws.”

Judge O’Malley in Oracle also ignored the Ninth Circuit rejection of Sega’s claim that Accolade infringed based on the literal copying of some Sega code insofar as that code was essential to enabling the Accolade program to run on the Sega platform. That Sega code might have been original in the sense of being creative when first written in source code form, but by making that code essential to interoperability, the expression in that program merged with its function, and hence Accolade’s reproduction of it was not an infringement.

The SSO of the Sega interface was almost certainly creative initially as well. Yet, once that interface was developed, it was a constraint on the design choices that Accolade and other software developers faced when trying to make videogames to run on Sega platforms. The Second Circuit similarly rejected Computer Associates’ claim that Altai had infringed the SSO of its program interface and suggested that patents might be a more suitable form of legal protection for many innovations embodied in software.

Under Sega and Altai, the SSO of APIs are not within the scope of copyright protection for computer programs. Subsequent cases—at least until the Federal Circuit decision in Oracle v. Google—have overwhelmingly endorsed this approach to compatibility issues in software cases.

Perhaps Judge O’Malley was worried that if she did not extend copyright protection to the Java APIs in Oracle v. Google, there would be too little intellectual property protection available to computer programs. After all, she was one of the Federal Circuit judges who would have upheld all of the patent claims for computer-implemented inventions in the CLS Bank v. Alice Corp. case that is now pending before the U.S. Supreme Court. She joined an opinion that warned that if courts struck down the claims in CLS Bank, this mean that hundreds of thousands of software and business method patents would be invalidated. Given the Supreme Court’s skepticism about the Federal Circuit’s rulings on patentable subject matter, there is reason to think that at least some software patents may indeed fall when the Court issues its opinion in Alice. Would such invalidations affect the scope of copyright protection for software?

In the most expansive interpretation of software copyright law since Whelan v. Jaslow, Judge O’Malley in Oracle v. Google endorsed dual protection for APIs from both copyright and patent law. This ignored an important statement from that court’s earlier ruling in Atari Games v. Nintendo that “patent and copyright laws protect distinct aspects of a computer program.” The Oracle opinion instead invoked the dicta from Mazer v. Stein that “[n]either the Copyright Statute nor any other says that because a thing is patentable it may not be copyrighted.”

While it may have been true that the statuette of a Balinese dancer in Mazer was eligible for both copyright as a sculpture and a design patent for an ornamental design of an article of manufacture (as a lamp base), nothing in that decision or any other has upheld utility patent and copyright protection in the same aspect of the same creation, and it seems unlikely that the Supreme Court would abrogate the longstanding tradition tracing back to Baker v. Selden that copyrights protects expression in works of authorship and patents protect utilitarian designs.

In “The Strange Odyssey of Software Interfaces as Intellectual Property,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1323818, I traced the tortuous evolution of the law in relation to the protection of software interfaces. At first, they were not treated as intellectual property at all. Firms published APIs so that others would make programs to run on their computing systems. As firms recognized that they could license interface information to generate revenues, APIs were protected as trade secrets. In the mid- to late 1980s, some argued that the “structure, sequence, and organization” (SSO) of APIs should be protected by copyright law, but by the early 1990s, courts decided they were unprotectable elements of programs, more suited to patent than to copyright protection. And so firms began patenting interface designs, as well as continuing to license them as trade secrets.

If Judge O’Malley’s opinion in the Oracle v. Google case is to be believed, APIs have migrated back into copyright’s realm big time. Unless overturned by the Supreme Court or repudiated or distinguished in subsequent cases, the Oracle decision may well reignite the software copyright wars that so many of us thought had died out after the Sega, Altai, and their progeny.

More on Claiming Clones: Products of Nature and Source Limitations

May 9, 2014Guest Post, Patentable Subject MatterAbstract Idea, anticipation, obviousness, Subject Matter EligibilityJason Rantanen

Guest post by Dr. Jeffrey A. Lefstin, Professor of Law, University of California, Hastings College of Law

Jason’s excellent post on Roslin summarized the case and raised the question of whether the Federal Circuit paid insufficient attention to the inherent differences conveyed by the ‘clone’ limitation of the claims. In this post I address two other issues in Roslin: the Federal Circuit’s interpretation of Ckakrabarty and Funk Brothers, and Roslin’s consistency with Federal Circuit precedent holding that structural or functional differences between natural and synthetic products must be defined in the claims.

Unaltered by the hand of man: Judge Dyk’s opinion in Roslin unfortunately perpetuates the view, now found in the PTO’s Myriad guidelines, that Chakrabarty requires a claimed invention to be “markedly different” from a natural product for patent-eligibility under § 101. Myriad itself imposed no such requirement: the Court found BRCA cDNAs patent-eligible without determining that they were “markedly different” from natural sequences. And though Myriad reiterated the “markedly different” language from Chakrabarty, Chakrabarty’s discussion of ‘products of nature’ was entirely dictum. Only the question of whether living organisms were patent-eligible was before the Court in Chakrabarty; the ‘product of nature’ rejection in the case had not been sustained by the Patent Office Board of Appeals.

The Chakrabarty Court noted the claimed bacteria differed markedly from natural bacteria by way of distinguishing the case from Funk Brothers.[1] As Paul Cole’s recent post notes, the patentee had discovered that certain strains of bacteria could be mixed together without inhibiting their nitrogen-fixing capability. Justice Douglas regarded this compatibility as the unpatentable discovery of a natural phenomenon; the claims were unpatentable because the patentee’s application – a mixed inoculant – was “a simple step” once the underlying discovery was assumed away.

As I discuss in a recent article, Funk was nonetheless very much a patent eligibility case. It reflects Douglas’s view – shared by Justice Stevens in Flook, and Justice Breyer in Mayo – that obvious applications of scientific discoveries or abstract ideas are not patent-eligible “inventions” within the meaning of the statute.

Whether or not we share that view, understanding it shows us that Funk was an ‘inventive application’ case, not a ‘product of nature’ case. Douglas made no reference to the ‘product of nature’ doctrine, nor to the recent cases embodying it.[2] Instead, Douglas emphasized the lack of change in the bacteria to establish that the mixed inoculant was obvious (once the patentee’s discovery was assumed away). Under the old doctrine of ‘aggregation,’ it was not invention to combine old elements where the elements were unchanged, and no new function arose from their combination. It was therefore not inventive for the patentee in Funk to combine old bacteria without changing their structure or function.

But just as many combinations of old elements become patentable when a new function emerges, the mixed inoculants of Funk would have been patentable — even if the bacteria remained unchanged — had the mixed inoculant acquired new functions not performed by its constituent bacteria. If Funk Brothers instead stood for the proposition that a combination is unpatentable if its constituents are ‘unaltered by the hand of man,’ then a very large number of inventions become patent-ineligible. An artificial structure like an arch, formed by piling stones atop each other, would be ineligible unless the stones themselves were altered by the hand of man. Even as ardent a skeptic of the patent system as Justice Douglas would not have gone that far.

Source limitations and expressly claimed distinctions: The second difficulty with Roslin is its demand that the ‘marked differences’ between the natural organism and the invention must be expressly claimed. As Jason discussed, the applicant in Roslin argued that cloned animals differ from their natural counterparts at least in having mitochondrial DNA derived from the egg donor, rather than the animal which donated the somatic nucleus. The Federal Circuit rejected such arguments because neither the difference in mitochondrial DNA, nor any functional consequence of that difference, was recited in the claims.

However, the same argument, albeit in the context of § 102, was before the Federal Circuit in the extensive litigation over Amgen’s recombinant erythropoietin (EPO) patents. Much like Roslin, Amgen had claims to a ‘copy’ of natural product: in that case EPO produced by mammalian cells in culture. While Amgen’s synthetic EPO differed in glycosylation from the natural product, several of the claims in the case recited only the non-natural source of the EPO, not the structural differences. The Federal Circuit recognized that the novelty of the synthetic EPO claims depended on whether synthetic EPO differed from natural EPO. Yet the court found novelty based on the unclaimed structural and functional differences between natural and synthetic EPO, which were demonstrated in part by the specification and prosecution history, and in part by testimony at trial. Amgen Inc. v. F. Hoffman-LaRoche Ltd, 580 F.3d 1340, 1370 (Fed. Cir. 2009). In effect, the court held that the structural and functional differences characterizing the synthetic product were inherent in the source limitations. (The court did not inquire whether all synthetic EPO molecules falling within the scope of the claims would display similar differences in glycosylation.)

Thus under Amgen, a source limitation alone (such as ‘non-naturally occurring’ or ‘purified from mammalian cells grown in culture’) may establish novelty of a product. Assuming the ‘clone’ limitation in Roslin to require derivation from nuclear transfer, then it serves as a source limitation as well. Since Roslin cannot overrule Amgen, we seem to be in a regime where differences between natural and synthetic products may be unclaimed yet confer novelty under § 102, but must be explicitly claimed to establish ‘marked difference’ under § 101. Of course, if Roslin is correct, that doctrinal inconsistency is less significant than the consequence that Amgen-type claims – and perhaps a wider category of product-by-process claims involving natural products – are now ineligible under § 101.

[1] In Chakrabarty, the Commissioner never suggested that the claimed bacteria were unpatentable under Funk, nor even raised the case. Rather, Chakrabarty argued that if living organisms were not patent-eligible, the Court would have said so in Funk.

[2] In particular, the General Electric and Marden cases denying patentability to purified tungsten, uranium, and vanadium. The defendant had urged General Electric upon the Funk court in its brief.

Funk Brothers v Kalo – Eligibility or Unobviousness?

May 7, 2014Obviousness, PatentAbstract Idea, anticipation, obviousness, Subject Matter EligibilityDennis Crouch

Guest post by Paul Cole, European Patent Attorney, Partner, Lucas & Co; Visiting Professor, Bournemouth University, UK.

New patent eligibility guidance issued by the USPTO (Andrew Hirshfeld, 4th March) will be the subject of a discussion forum this Friday 9^th May.

Since the Kalo case, 333 U.S. 127 (1948) has been discussed in recent Supreme Court opinions including Chakrabarty, Myriad, and Mayo and is proposed to form the subject of an example forming part of that guidance, reflection on the true legal basis of the opinion is timely. Despite dicta in Chakrabarty and Myriad it is arguable that when viewed in its timeframe Funk concerned unobviousness not eligibility. If that view is correct, then the Kalo fact pattern should not be used as an eligibility example under current law.

The Kalo appeal was from a lengthy and careful opinion by Judge Walter C. Lindley in the Court of Appeals for the 7^th circuit, 161 F.2d 981 (1947). At first instance the claimed subject matter which related to a composite culture of mutually non-inhibitive bacteria for inoculation of leguminous plants was held to be a product of nature and hence not patent-eligible. Judge Lindley reversed this finding in the following terms:

The mistake of the District Court, we think, lay in its conclusion that this did not amount to patentable invention within the meaning of the statute. Though the court recognized the value of Bond’s work, it thought that he had merely discovered a law of nature, whereas in fact the evidence is clear that what he discovered was that certain existing bacteria do not possess the mutually inhibitive characteristics which had previously prevented a successful commercial composite inoculant and that those uninhibitive species may be successfully combined. It was this contribution of noninhibitive strains which successfully combine that brought about a new patentable composition. This was application of scientific knowledge to things existing in nature and the utilization of them in a desirable composite product which had not been previously achieved but which he did achieve and of which the public now has the benefit.

We think this is clearly within the decisive definitions of patentable invention… Bond taught the method by which the composite is to be made and claims the product composed by that method, namely, a composite inoculant, comprised of different species of bacteria in sufficient numbers of each species. The noninhibitive property of bacteria was not previously known and when Bond discovered it and taught a successful composition of noninhibitive strains in combination of elements in one inoculant operating successfully on several different groups of legumes, he did much more than discover a law of nature. He made a new and different composition, one contributing utility and economy to the manufacture and distribution of commercial inoculants.”

A reader of Lindley is bound to wonder why such a conventional and straightforward opinion should have been selected for certiorari. An explanation of the significance of new effect in established patent law can be found as long ago as 1822 in Evans v Eaton 20 U.S. 356 (1822) and its evidential nature was explained by Justice Bradley in Webster Loom v Higgins105 US 580 (1881), subsequently approved e.g. by Justice Brown in Carnegie Steel v Cambria Iron Co 185 US 402 (1902):

It may be laid down as a general rule, though perhaps not an invariable one, that if a new combination and arrangement of known elements produce a new and beneficial result, never attained before, it is evidence of invention.

The majority opinion of the Supreme Court Kalo decision was authored by Justice William O. Douglas.

His starting position was that a law of nature cannot be monopolised and he recognised the existence of the relevant non-inhibitory bacterial strains as an example of such a law. He went on to hold that invention must come from the application of the law of nature to a new and useful end and that the aggregation of select strains of the several species into one product was an application of the newly discovered natural principle. He acknowledged that there was advantage in the combination because the farmer need not buy six different packages for six different crops. He could buy one package and use it for any or all of his crops. The packages of mixed inoculants held advantages for dealers and manufacturers by reducing inventory problems, and the claimed subject-matter provided an important commercial advance.

Against this strong evidential background what was the basis for his reversal? A key to his reasoning may be found in his earlier opinion in Cuno Engineering Corp. v. Automatic Devices Corp., 314 U.S. 84 (1941) that (as the law then stood) novelty and utility were necessary but not sufficient requirements for patentability. In addition the claimed subject-matter had to reach the level of inventive genius that the Constitution authorized Congress to reward.

Several reasons supported the conclusion that the Kalo invention did not meet the standard of inventive genius. Each of the species of root nodule bacteria contained in the package infected the same group of leguminous plants that it always infected. No species acquired a different use. The combination of species produced no new bacteria, no change in the six species of bacteria, and no enlargement of the range of their utility. Each species had the same effect it always had. The bacteria performed in their natural way. Their use in combination did not improve in any way their natural function. They served the ends nature originally provided, and acted quite independently of any effort of the patentee. The claimed inoculant was not the product of invention unless invention borrowed from the discovery of the natural principle itself. It was hardly more than an advance in the packaging of the inoculants. Packaging was a simple step once the discovery had been made and all that remained were the advantages of the mixed inoculants themselves which were not enough.

The Funk opinion, amongst others, was relied on in Chakrabarty for the proposition that laws of nature, physical phenomena, and abstract ideas are not patent-eligible. As to the patentability of the Chakrabarty microorganism it was distinguished on the facts.

In Myriad Justice Thomas treated Funk as a patent-eligibility case, observing that the Bond composition fell squarely within the law of nature exception because the patent holder did not alter the bacteria in any way. Arguably such a position is inconsistent with the finding of Justice Douglas that the claimed product was an application of the principle discovered by Bond and hence implicitly patent-eligible. Classification of Funk as an unobviousness opinion accords with the reasoning of Justice Douglas whereas classification as an eligibility opinion is difficult to reconcile with his reasoning, especially against the background of his explicit reference to Cuno.

The USPTO example takes the position that the bacteria in Funk were not changed in any way, but that position is factually untrue. The naturally occurring bacteria have been the subject of a selection process to identify those strains that do not interfere, and the non-interfering strains have been cultivated and mixed. The claimed composition does not occur in nature, is produced by human intervention and has new utility. It is far from clear that the decision that was reached in 1948 would have been reached under the law as it exists post-1952 since the “flash of genius” test was rejected by Congress in favour of § 103.

For the above reasons it is submitted that the wiser course would be to delete Example D from the USPTO guidance.

Guest Post by Prof. Sichelman: Stop Bashing Academics: Why Mark Lemley, Peter Menell, and Rob Merges are Highly Qualified to Teach and Write about Patent Law

April 17, 2014PatentAbstract Idea, AIA Trials, Claim Construction, Federal Circuit En Banc, Licenses, PGR, Subject Matter Eligibility, USPTO DirectorJason Rantanen

Guest Post by Prof. Ted Sichelman, University of San Diego, School of Law

Recently, Hal Wegner has been circulating and commenting upon the qualifications of patent law professors. For example, he lists whether patent law professors at the Top Ten IP programs as ranked by US News & World Report are licensed to practice at the USPTO, have an “understanding” of international/comparative patent law, or clerked at the Federal Circuit (see below). According to Wegner, these “credentials” are “particularly” and “uniquely” valuable (in some cases, “essential”) for professors to make “optimum” patent policy reform proposals, especially those concerning PTO practice and international harmonization.

(To provide some background, I provided Wegner a list of names of all professors in the U.S. who currently teach and write about patent law at US News ranked and unranked IP programs, with the understanding that he would circulate the list to his readers. After I sent Wegner my list, without my input, he annotated it (along with other names) with various credentials and provided commentary and alternative lists, such as the one reproduced below. Because I believe Wegner’s analysis is flawed—and given my initial participation—I feel personally obligated to respond.)

Notably absent on Wegner’s list above are any professors from Stanford, Berkeley, and George Washington (GW), the top ranked IP programs in the nation. (The same holds true for many other schools, both in and outside of the top 10. I focus on the top three schools to underscore the problems with Wegner’s approach.) Rather than effectively denigrate these programs, Wegner should have recognized the transformative role that these schools have played historically (for GW) and more recently (for all three schools) in elevating patent law to a prominent place in the academy and developing unparalleled educational opportunities for future patent professionals and scholars.

Importantly, an unintended implication of Wegner’s discussion is that patent law professors without the stated qualifications—particularly, a patent bar registration number—are unfit to teach and write about patent law more generally. For instance, on his e-mail blog, Greg Aharonian recently circulated the comments of an anonymous patent lawyer who referred to Stanford’s Mark Lemley as “one of a small army of law school academics that have built very successful . . . careers studying intellectual property law, especially patent law, albeit without ever actually having practiced before a patent office, done research, or even studied science or engineering.”

These sorts of criticisms are misguided. First, many patent law professors have extensive patent litigation experience, including on-going experience as “of counsel” lawyers, experts, and consultants. Although having patent prosecution experience is clearly beneficial for teaching and writing about patent law, patent litigation is as well and should not have been disregarded. For instance, Wegner and Aharonian presumably know well that Mark Lemley is a partner at a top-tier IP litigation boutique, Durie Tangri, and spends numerous hours on real-world matters. In fact, he has argued or is scheduled to argue three Federal Circuit patent cases so far this year, has argued before the Federal Circuit eleven times (in addition to four arguments in the regional circuits), and has represented another ten parties on briefs in the court. Additionally, he has been counsel for a party in the Supreme Court twice in patent cases (both patentees, incidentally). Lemley has been the lead author or co-author on 40 amicus briefs in the Supreme Court and the courts of appeals. And if that were not enough, his articles have been cited nine times in Supreme Court opinions and 145 times by courts overall. Finally, he’s conducted extensive empirical analyses of USPTO and judicial practice in many academic papers. (Ah, I forgot to mention that he’s represented parties in 85 cases in the district courts, too.)

So Lemley clearly is highly qualified (in fact, uniquely qualified) to write about and teach patent law. Nonetheless, Lemley often is maligned by practitioners because of a proposal he made (along with now Federal Circuit Judge Kimberly Moore) about a decade ago to restrict continuation practice. Yet, regardless of whether you agree with his views—and I often disagree with him—he’s clearly well-situated to write about and suggest reforms concerning PTO practice, the Federal Circuit, the Supreme Court, and the Patent Act more generally. In this regard, Lemley has written over 125 articles, many of them offering outstanding suggestions to reform the patent system, such as his idea for “gold-plated” patents. Lemley should not be unfairly singled out for one unpopular proposal or simplistic mischaracterizations of his views.

In a response to e-mails Wegner received asking why patent litigation was not listed in his chart, including one of my own, he responded that while patent litigation “may well be the best practice background for a patent academic . . . . no patent faculty seeking to make an optimum contribution to patent policy or harmonization can do so without someone on the faculty having expertise in international/comparative and Agency practice.” Wegner’s position is too sweeping. Although it is certainly useful to have faculty members who have prosecution experience—and Wegner’s criterion of simply having a patent bar number is in any event not too indicative of such experience—it isn’t necessary to have such experience to make outstanding policy proposals, even when it comes to PTO practice. Indeed, only a few judges at the Federal Circuit itself would meet such criteria. It seems hard to fathom that Wegner believes that the Federal Circuit cannot make an “optimum” contribution to patent policy, including practices at the PTO, given their lack of such credentials. The same should hold true for academics. And to go one step further—as does the anonymous lawyer’s blanket assertion on Aharonian’s e-mail blog that a professor cannot sucessfully “study,” write about, or presumably teach patent law without having worked as a patent prosecutor or an engineer—is simply preposterous.

Second, many patent law professors, such as UC Berkeley’s Peter Menell and Rob Merges (also absent on Wegner’s chart)—in addition to having extensive prior and on-going experience as experts and consultants in patent litigation matters—have spent numerous hours writing casebooks and patent law practice guides. Rob Merges and John Duffy’s Patent Law and Policy is the leading patent law casebook, and contains extensive commentary from its authors. Merges is also co-founder and Senior Policy Advisor of Ovidian LLC, a Berkeley-based consulting and informatics company specializing in assessing and valuing patent portfolios. That experience is invaluable for the next generation of patent law professionals working in the emerging patent “marketplace.” Finally, because Berkeley—like GW and Stanford—offers separate courses in patent prosecution and patent litigation taught by prominent practitioners, it is hard to see how its students are not getting broad, deep, and practical exposure to patent law.

After co-founding the Berkeley Center for Law & Technology (BCLT) in 1995, Peter Menell soon began working with a team of top patent and other IP litigators to provide an annual four-day intensive training program on IP law and case management for federal judges, as well as numerous other national and regional events. That work led to the development of the Patent Case Management Judicial Guide, a comprehensive treatise that has been referred to as “the bible” for judges and litigators. Menell has also worked with district courts on the development and revision of patent local rules and filed amicus briefs in important IP cases. He also served as one of the PTO’s inaugural Edison scholars. His empirical research on patent claim construction with Jonas Anderson, a former BCLT Fellow—in which they reviewed every claim construction order issued by the Federal Circuit since 2000—was cited numerous times in the Federal Circuit’s recent en banc Lighting Ballast decision. Any comprehensive evaluation of patent law programs would value these qualifications.

The same holds true for professors who write about specific topics in patent law, but do not teach it. For instance, Berkeley’s Pam Samuelson is a world-renowned copyright expert and a winner of the “genius” grant from the John D. & Catherine T. MacArthur Foundation. She occasionally writes about software patents, including for her column in the Communications for the Association for Computing Machinery (ACM) journal, which is mainly read by software and computer science professionals. As Professor Samuelson’s work shows, one need not be an expert on every nuance of the patent system, especially the nitty-gritty of prosecution, to make sound reform proposals.

Other academics are permanent and full-time but not on the “tenure-track.” For example, BCLT Executive Director Robert Barr—who directs the Berkeley IP program and organizes numerous IP events there—is former chief patent counsel at Cisco, is licensed to practice before the PTO, and has long been a leader in the Silicon Valley and national patent law community. Along with John Whealan—former Solicitor at the PTO and another highly-regarded national leader in patent law who directs GW’s IP program—Wegner left Barr off the list.

Finally, many patent law professors have significant industry experience. For example, blog commenters on a recent Patently-O post of mine referred to me as “ivory tower” and as having “a lack of ‘real world’ experience.” In fact, before becoming a law professor, in addition to practicing patent litigation for four years, I founded three tech companies, raising nearly $5 million in financing, including being CEO of Unified Dispatch, a software company that makes innovative speech recognition systems for ground transportation companies. At Unified Dispatch, I designed and oversaw most of the company’s software products, which included writing detailed specifications and managing programmers and other engineers, and was the lead inventor on several patent applications and one patent. As part of that process, I also managed our outside patent counsel for several years during prosecution. Before attending law school, I earned an M.S. in Physics. Since becoming a patent law professor, I’ve consulted and served as an expert on an-going basis in patent litigation matters and related projects. So not only is the “ivory tower” label is inaccurate, it also misapprehends the often close ties between academia and practice.

The same sorts of backgrounds and relevant experience hold true for many other academics who teach and write about patent law. For example, Donald Chisum—yes, the author of the leading patent law treatise—is not registered to practice before the USPTO (he majored in philosophy). Granted, practicing before the PTO is helpful to writing about PTO practice, but would anyone doubt that Chisum is sufficiently knowledgeable to do as much?

I commend Hal Wegner’s efforts in calling attention to the patent law programs and scholars (which is why I assisted him in the process). There are clearly limitations to the US News ranking system, and I agree it’s valuable to see the credentials of those teaching at patent law programs across the country. However, it was irresponsible for him to omit the founders and leaders of many of the most important IP programs on his list of academics with “practical experience” in “key areas” merely because they don’t have a patent bar reg #, don’t have a deep understanding of comparative patent law, didn’t clerk for the Federal Circuit, or aren’t technically “tenure-track.” Patent litigation, industry experience, and other credentials are just as relevant.

Even more troubling is Wegner’s assertion that having someone on the faculty with one of his criteria is “essential” for making “optimum” policy proposals. And most troubling is that Wegner provides fodder for commenters such as those on Aharonian’s e-mail blog that professors without such credentials cannot successfully write about or apparently teach patent law more generally, not to mention commenters on this blog calling professors like me “ivory tower,” when it is simply not the case. Wegner and the commenters should do their homework. Otherwise, their “analysis” remains at best misguided and at worst scapegoating.

Berkeley and Stanford serve—and, historically, GW has served (and soon again will serve)—as model programs for training patent practitioners, scholars, and judges. The same holds true for many law schools I have omitted in this short blog post. Rather than denigrate these schools, Wegner would have done better to highlight the tremendous value offered to students and the patent law community more generally from this talented and highly qualified group of scholars.

Patenting a Data Structure?

April 7, 2014PatentAbstract Idea, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

Digitech v. Electronics v. Imaging (Fed. Cir. 2014)

Today, the Federal Circuit held oral arguments in this Section 101 case involving Digitech’s U.S. Patent No 6,128,415 that claims a “device profile” and a “method of generating a device profile.” The invention is basically the idea of tagging images with particular information about the camera and its color/spatial image qualities. Asserted claims:

1. A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:

first data for describing a device dependent transformation of color information content of the image to a device independent color space; and

second data for describing a device dependent transformation of spatial information content of the image in said device independent color space.

10. A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:

generating first data for describing a device dependent transformation of color information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;

generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and device response characteristic functions; and

combining said first and second data into the device profile.

The district court found that the “device profile” was merely a bit of data that did not fit within the literal requirements of the statute that an eligible invention must be “a process, machine, manufacture, or composition of matter.” The district court also concluded that the method claim encompassed an abstract idea.

Mark Lemley argued on behalf of the accused infringers and the court seemed agree with many of his arguments – especially with the notion that a claim to a data structure (claim 1) is not itself patentable. The method step involved more questioning and Judge Moore rightly challenged Lemley’s argument that “A method of generating an unpatentable idea is itself unpatentable.” Later, Lemley pulled-back from that statement somewhat and instead more particularly argued that mere generation and transformation of data should be unpatentable either as not-a-process or else unduly abstract.

Two potentially interesting questions for the case: (1) how to treat expert testimony stating that claims require technologically sophisticated computer and (2) whether the concrete and practical purposes of the invention needs to be recited in the claims.

This case may well be impacted by CLS Bank, but I would suspect the only impact will be on the language that the court uses to affirm. The politics of the outcome may be interesting. Although I would not be surprised with an affirmance without opinion, Judge Moore may want to hold this case until after CLS Bank in order to make the first post-SCOTUS comment on the issue. (Judges Moore, Reyna and Hughes were on the panel).

The patent was originally owned by Polaroid who assigned rights in 2010 to the British Virgin Islands entity known as Mitcham Global Investments – seemingly as part of the bankruptcy proceedings. Then, in 2012, rights were transferred to Digitech which is an Acacia company. The USPTO records also show a security interest held by a Saudi investment company.

Listen to oral arguments: http://www.cafc.uscourts.gov/oral-argument-recordings/all/digitech.html

2d Edition of Ethical Issues in Patent Litigation now available!

April 2, 2014EthicsAbstract Idea, Subject Matter EligibilityDavid

Woo hoo! You have no idea how much work it is to create something like this. Very proud of the second edition and a huge thanks to the good folks at Oxford University Press, and then LexisNexis, for making it happen. Buy (many copies of) it here. The abstract:

Patent Ethics: Litigation (2014 Edition) by David Hricik, is a unique guide to the ethical issues arising in the course of the patent litigation process. By providing relevant rules and case law, it allows practitioners to identify ethical problems before they arise and to address them most effectively when they do. This treatise and its companion volume (Patent Ethics: Prosecution, by David Hricik and Mercedes Meyer) are the first of its kind to combine rules and patent-specific cases with author commentary, which distills the author’s experience and expertise into effective practice strategies. The 2014 Edition has been completely revised and includes discussion of ethical issues arising under new AIA post-grant proceedings, including prosecution bars. It also includes new chapters on ethical issues in alternative fee agreements and in settlement agreements, and expanded chapters on selection, compensation, and use of expert witnesses.

Unpatentable: See Bilski, Mayo, Flook, and Benson

March 31, 2014PatentAbstract Idea, anticipation, Enablement, obviousness, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

The question of patentable subject matter is nominally grounded in the statute 35 U.S.C. § 101. That statute offers patent rights to anyone who “invents or discovers any new and useful process, machine, manufacture, or composition of matter.” However, very few section 101 cases actually refer to the statutory text. Rather, the focus is on the Supreme interpretative stance that the statute also prohibits patents on abstract ideas, products of nature, and natural phenomena. It is the definition of Abstract Idea that is at stake in Alice Corporation Pty. Ltd. v. CLS Bank Int’l. [TRANSCRIPT OF ORAL ARGUMENTS]

Alice Corp.’s patent covers a computerized escrow system and method that CLS Bank allegedly uses in the process of settling trillions of dollars in transactions each week. After Alice Corp., sued CLS Bank for infringement, CLS responsively argued that the patent claims are invalid as impermissibly encompassing an abstract idea.

In the background, the Supreme Court has decided three recent Section 101 cases: Bilski, Mayo, and Myriad. Arguing for CLS Bank, Mark Perry argued that these two cases determine the outcome here.

MR. PERRY: Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.

Rather, to be patent eligible, CLS Bank argues, the computer implementation must offer a “technological solution.”

MR. PERRY: We know from Benson, the Court’s seminal computer implementation case, that if you can do it by head and hand, then the computer doesn’t add anything inventive within the meaning of the 101 exception. That is the holding of Benson. And the Court reiterated that in Mayo. Flook said exactly the same thing. If you can do it with pencil and paper, then the computer is not offering anything that the patent laws are or should be concerned with.

It is only where the method will not work without a computer, which is not these claims, and where the computer itself is doing something that the patent law is willing to protect.

Justice Ginsburg asked why – if it is such a simple case – why the Federal Circuit struggled so:

JUSTICE GINSBURG: The Federal Circuit in this case split in many ways, and it had our decisions to deal with. You said, given Bilski and Mayo, this is an easy case. What is the instruction that escaped a good number of judges on the Federal Circuit? How would you state the rule?

MR. PERRY: Your Honor, I think there’s a significant element to the Federal Circuit that disagrees with Mayo and has been resistant in applying it. Chief Judge former Chief Judge Michel filed a brief in this Court essentially saying Mayo is a life sciences case, You should limit it to that because if you apply it to everything else, then these patents are no good. Mayo we submit is a technology-neutral, Industry-neutral, exception-neutral framework that can be used to answer all of these questions.

We should note here, that, although CLS Bank sees the Mayo test as exception-neutral, the respondent was not asked to explain why the test was not applied the most recent Section 101 case of Myriad.

The reference to Mayo/Flook is important – with the notion that to be patent eligible there must be a technological innovation rather than discovery of an abstract idea followed by routine technological implementation of that idea. The result of the Mayo/Flook approach is that patent eligibility is temporally dependent. In particular, innovations that were once patent eligible will later be not eligible once the implementing-technology becomes well known. Mr. Perry explains:

JUSTICE SOTOMAYOR: How about email and just word processing programs?

MR. PERRY: At a point in time in the past, I think both of those would have been technological advances that were patentable. . . . Because they would have provided a technological solution to a then unmet problem. Today, reciting, and do it on a word processor is no different than and do it on a typewriter or and do it on a calculator.

The inventive contribution component, which uses specifically the language of conventional and routine and well understood, will evolve with technology. That’s why it’s different than the abstract idea component.

Mr. Phillips responds somewhat weakly that there must be “significant limitations on the extent to which novelty has to be built into 101.

There is some potential that the decision will be rather small – deciding that an escrow-settlement method is an abstract idea and that the routine addition of computers to facilitate the method does not alter that original conclusion. This result would essentially parallel the results of Bilski v. Kappos and would potentially add nothing of substance to the law. Many of the questions followed this line of thinking and Alice’s attorney, Carter Phillips, repeatedly worked to explain how the technological aspect of the invention is much more complex that has been commonly caricaturized. CLS Bank argued the opposite.

JUSTICE GINSBURG: On the abstract idea, you know that the Bilski case held that hedging qualified as an abstract idea. So how is intermediate settlement a less abstract than hedging?

MR. PHILLIPS: … What we claim is a very specific way of dealing with a problem that came into being in the early 1970s of how to try to eliminate the risk of nonsettlement in these very massive multiparty problems in which you need to deal with difficulties that exist at different time zones simultaneously and to do it with a computer so that you not only take them on chronologically, deal with them sequentially, based on the kind software analysis that the patent specifically describes by function.

And it goes even further than that, and does something that no escrow agent and no … settler that I know of. It actually blocks specific transactions that, in the shadow account, would violate the terms of the settlement that would ultimately be implemented.

. . . [This is an invention that] you cannot, absolutely cannot [implement this system without a computer], because it is so complex and so many interrelated parts.

. . . I believe that if you analyze the claims and you don’t caricature them and you don’t strip them out of the limitations that are embedded in there, this is not some kind of an abstract concept. This is not some kind it’s not an abstract idea..

JUSTICE KAGAN: There is something that you’ve patented that has that is not just simple use a third party to do a settlement. . . . And what is that, putting the computer aside?

MR. PHILLIPS: It is well and again, it’s difficult to do that because you absolutely need the computer in order to implement this. But the key to the invention is the notion of being able simultaneously, dealing with it on a chronological basis to stop transactions that will otherwise interfere with the ability to settle on time and under the appropriate circumstances. And the only way you can do that in a realtime basis when you’re dealing with a global economy is to use a computer. It is necessary to the efficacy of this. So in that sense, I can’t I can’t disaggregate it the way in some sense you’re suggesting. It seems to me it’s bound up with in it’s bounds up with the whole notion of is this an abstract concept. . . .

MR. PERRY: On the abstract idea, Justice Ginsburg, you asked Mr. Phillips what’s the difference between hedging and this claim. There is no difference. This is hedging. It is hedging against credit default rather than price fluctuation, but it is simply hedging. . . . Mr. Phillips suggests, well, we have multilateral transactions, global things, chronological, time zones and so forth. None of those are claimed, Your Honor. Those are all recited in specification. The claims read on a single transaction involving two parties.

JUSTICE SCALIA: Why isn’t it why isn’t doing it through a computer not enough? I mean, was the cotton gin not an invention because it just means you’re doing through a machine what people used to do by hand? It’s not an invention. It’s the same old, same old. Why is a computer any different in that respect?

MR. PHILLIPS: At one level I agree with you completely. There is no difference between them.

This Court has, however, said on more than a few occasions, albeit in dicta, that coming up with an idea and then say, use a computer, is not sufficient. And what I’m trying to suggest to you is we don’t fall within that dicta. Now, if you don’t accept the dicta and you say use a computer is fine, then I think we’re done.

MR. PERRY: Of course, a patent that describes sufficiently how a computer does a new and useful thing, whether it’s data compression or any other technological solution to a business problem, a social problem, or a technological problem, would be within the realm of the of the patent laws. That is what the patent laws have always been for. . . . Those algorithms, those inventions are undoubtedly technological. And if they are used in a trading platform or a hedging system or something else, that wouldn’t disable them [as patent eligible].

The bigger version of the decision would more particularly address software patenting. Here, Alice suggests that the case is very much about the ongoing viability of software patents:

JUSTICE KENNEDY: You understand the government to say no software patents.

MR. PHILLIPS: That’s the way I interpret the government’s the government’s brief.

However, both CLS Bank and the Government argue otherwise. Mr. Perry states “this will not affect software patents. . . . [Rather,] we are talking about a group of patents … that’s way out at the tail end of the distribution.” Likewise, the Solicitor General Verrilli argued that “it’s just not correct to say that our approach would make software patenting ineligible. [In our proposed test] any software patent that improves the functioning of the computer technology is eligible. Any software patent that improves that is used to improve another technology is eligible.” In thinking about the consequences for patentees who already hold patents that may become ineligible, Mr. Perry suggested that their problems are minimal because “the patent holder would have the opportunity to institute a reexamination proceeding or some sort of administration process to address that issue.”

Justice Breyer indicated the importance of creating a rule that works:

JUSTICE BREYER: There is a risk that you will take business in the United States or large segments and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer. . . . And if you go the other way and say never, then what you do is you rule out real inventions with computers. . . . [The amicus briefs provide] a number of suggestions as to how to go between Scylla and Charybdis. . . . I need to know what in your opinion is the best way of sailing between these two serious arms.

MR. PHILLIPS: Well, Justice Breyer, I guess I would suggest to you that you might want to deal with the problem you know as opposed to the problems you don’t know at this stage. I mean, we have had business method patents and software patents in existence for well over a decade and they’re obviously quite significant in number. And and we know what the system is we have. And Congress looked at that system, right, and didn’t say no to business methods patents, didn’t say no to software patents, instead said the solution to this problem is to get it out of the judicial process and create an administrative process, but leave the substantive standards intact.

So my suggestion to you would be follow that same advice, a liberal interpretation of 101 and not a caricature of the claims, analyze the claims as written, and therefore say that the solution is 102 and 103 and use the administrative process.

. . . . So on the one hand, you’ve got a problem that it seems to me Congress to some extent has said is okay and we’ve got a solution and that solution’s playing through. On the other hand, if this Court were to say much more categorically either that there’s no such thing as business method patents or adopt the Solicitor General’s interpretation, which is to say that there cannot be software unless the software somehow actually improves the computer, as opposed to software improving every other device or any other mechanism that might be out there.

What we know is that this would inherently declare and in one fell swoop hundreds of thousands of patents invalid, and the consequences of that it seems to me are utterly unknowable. And before the Court goes down that path, I would think it would think long and hard about whether isn’t that a judgment that Congress ought to make. And It seems to me in that sense you’re essentially where the Court was in Chakrabarty, where everybody was saying you’ve got to act in one way or the other or the world comes to an end, and the courts have said, we’ll apply 101 directly. . . .

MR. PERRY: That path between Scylla and Charybdis was charted in Bilski and Mayo. Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.

The Government test is a bit difficult to fully discern and even General Verrili had some trouble explaining:

JUSTICE BREYER: I think you say a computer improvement that, in fact, leads to an improvement in harvesting cotton is an improvement through a computer of technology, so it qualifies. But then I think you were going to say, or I got this also from the brief, a computer improvement that leads to an improvement in the methods of selling bonds over the telephone is not an improvement in technology reached by the computer. Am I right about the distinction you’re making?

GENERAL VERRILLI: I don’t think there’s a yes or no answer to that question. [But,] that is generally the line we’re drawing.

JUSTICE GINSBURG: I have a question about how do you identify an abstract concept. A natural phenomenon, a mathematical formula, those are easy to identify, but there has been some confusion on what qualifies as an abstract concept.

GENERAL VERRILLI: We would define abstract an abstract concept as a claim that is not directed to a concrete innovation in technology, science, or the industrial arts. So it’s the it’s abstract in the sense that it is not a concrete innovation in the traditional realm of patent law.

Although seemingly not relevant to the present case, Alice took some pains to explain why their patent includes no software code:

MR. PHILLIPS: what we did here is what the Patent and Trademark Office encourages us to do and encourages all software patent writers to do, which is to identify the functions that you want to be provided for with the software and leave it then to the software writers, who I gather are, you know, quite capable of converting these functions into very specific code. . . .

It doesn’t actually, obviously, put in the code, but that’s what the PTO says don’t do. Don’t put in the code because nobody understands code, so but put in the functions, and we know and we know that someone skilled in the art will be able to put in the code. And if they aren’t, if they can’t do that, then it’s not enabled and that’s a 112 problem.

This discussion of functionality may foreshadow the upcoming Nautilus case. On that point, Justice Sotomayor asked whether Alice is “trying to revive the patenting of a function?” Mr. Phillips did not directly respond.

In the end, Alice Corp’s case of technological innovation is slight. Mr. Phillips agreed with Justice Kennedy that it would be “fairly easy” for a “second year college class in engineering” to draft the claimed software – giving the court additional fodder for rejecting this case merely with a string citation to Bilski, Flook, and Benson.

Alice Corporation Pty. Ltd. v. CLS Bank International

March 31, 2014PatentAbstract Idea, Claim Construction, First to Invent, Licenses, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

Today, the Supreme Court will hear oral arguments in the patent subject matter eligibility case of Alice Corporation Pty. Ltd. v. CLS Bank International. Alice Corp.’s patent covers a computerized escrow system and method that CLS Bank allegedly uses in the process of settling trillions of dollars in transactions each week.

Question presented

Whether claims to computer-implemented inventions-including claims to systems and machines, processes, and items of manufacture-are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court?

As petitioner, the patentee (Alice Corp) will argue first. Respondent’s time will be split between CLS Bank and the US Government who has filed an amicus brief highlighting a misguided argument that “the abstract idea exception is patent law’s sole mechanism for excluding claims directed to manipulation of non-technological concepts and relationships.”

A transcript should be available in the afternoon.

See: Dennis Crouch, Software Patent Eligibility: Alice Corp v. CLS Bank on the Briefs (March 13, 2014).

= = = = =

The Supreme Court is working through a number of patent related decisions this term:

Alice Corporation Pty. Ltd. v. CLS Bank International (subject matter eligibility of computer implemented inventions and software). Oral arguments March 31, 2014 with decision expected June 2014.
Teva v. Sandoz (whether a district court’s finding of fact in support of claim construction should be reviewed de novo as required by the Federal Circuit). Petition granted March 31, 2014.
Lexmark Int’l v. Static Control (allegations of patent infringement against non-competitor can create Lanham Act claim). Decided March 25, 2014.
Octane Fitness v. Icon Health & Fitness (proper standard for determining an “exceptional case” in the attorney fee shifting context of 35 U.S.C. §285). Oral arguments held February 26, 2014 with decision expected by June 2014.
Highmark v. Allcare Health Mgmt. (standard of appellate review for fee shifting decisions). Oral arguments held February 26, 2014 with decision expected by June 2014.
Nautilus v. Biosig (standard for determining when a patent claim is invalid as indefinite). Oral arguments scheduled for April 28, 2014 with decision expected in June 2014.
Limelight v. Akamai (determining whether inducement should be severely narrowed by the no-joint-infringement doctrine). Oral arguments scheduled for April 30, 2014 with decision expected in June 2014.
Medtronic v. Mirowski (holding that patentee has the burden of proving infringement even in declaratory judgment actions by a licensee in good standing). Decided January 22, 2014.
Petrella v. MGM (considering the laches doctrine in the copyright context). Argued January 21, 2014, awaiting decision.
ABC, Inc., v. Aereo, Inc (when does an internet transmission count as a “public performance” under the copyright laws?). Argument scheduled for April 22, 2014.
POM Wonderful v. Coca-Cola (who has standing to challenge a food or beverage label as misleading or false under the Lanham Act). Argument scheduled for April 21, 2014.

Gone Fishing: 25 year old patent application rejected again

March 17, 2014PatentAbstract Idea, Affirmed Without Opinion, obviousness, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

In re Rudy (Fed. Cir. 2014)

Back in 1988, Christopher Rudy filed a patent application for a fishing hook that is both colored and translucent. An illustrative pending claim is as follows:

21. In an article of manufacture, which is a fishing hook, which is disintegrated from but is otherwise connectable to a fishing lure or other tackle and has a shaft portion, a bend portion connected to the shaft portion, and a barb or point at the terminus of the bend portion, thus itself not being a fishing lure to include a fishing lure in imitation of an insect or part of an insect to include an insect body, and which is made of suitable material, the improvement comprising where the hook is made of a suitable material, which permits transmittance of light therethrough and is colored a color, selected from the group consisting of red, orange, yellow, green, blue and purple, in nature.

In reading the claims, you might think that this is an abstract idea case since the invention is based upon the law of nature or abstract idea that the translucence and color of a fishing hook correlate with a fish’s proclivity to bite and, although the patent does claim a physical hook, that application merely uses well known technology in a way that basically occupies the same space as the abstraction itself.

However, the PTO rejected the claim under 35 U.S.C. § 103 as obvious in light of the prior art. The prior art apparently teaches transparent fishing hooks as well as fishing hooks that are both translucent and colored but that are shaped like insects. Although neither of those references teach all of the elements of the claim, the USPTO found that it would have been obvious back in 1988 to combine the references to form Rudy’s invention. Rudy submitted a number of affidavits explaining the invention’s importance. However, the USPTO found those statements from the inventor and his “friends and family” to be insufficiently anecdotal to overcome the rejection. On appeal, the Federal Circuit has affirmed the rejection without opinion.

The only interesting part of the oral arguments came when the court asked the USPTO to explain why the case was still alive and pending after 26 years. The USPTO placed full blame on Mr. Rudy. Explaining that “Mr. Rudy is a very zealous advocate on his own behalf.” In particular, during this time Mr. Rudy has apparently filed thirteen amendments to the claims; seven petitions; eight extensions of time; twenty nine miscellaneous letters; enjoyed three appeals; and has abandoned his action only to later revive it to be considered again.

On remand, I expect that Rudy will amend his claims and try again.

Software Patent Eligibility: Alice Corp v. CLS Bank on the Briefs

March 13, 2014PatentAbstract Idea, AIA Trials, anticipation, Enablement, obviousness, PGR, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

Alice Corporation Pty. Ltd. v. CLS Bank International, Supreme Court Docket No 13-298 (2014)

Later this term, the US Supreme Court will shift its focus toward the fundamental question of whether software and business methods are patentable. More particularly, because an outright ban is unlikely, the court’s more narrow focus will be on providing a further explanation of its non-statutory “abstract idea” test. The Supreme Court addressed this exclusionary test in its 2010 Bilski decision, although in unsatisfactory form. As Mark Lemley, et al., wrote in 2011: “the problem is that no one understands what makes an idea ‘abstract,’ and hence ineligible for patent protection.” Lemley, Risch, Sichelman, and Wagner, Life After Bilski, 63 Stan. L. Rev. 1315 (2011).

In this case, a fractured Federal Circuit found Alice Corp’s computer-related invention to be unpatentable as effectively claiming an abstract idea. See, U.S. Patent No. 7,725,375. In its petition for writ of certiorari, Alice presented the following question:

Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

Oral arguments are set for Mar 31, 2014 and a decision is expected by the end of June 2014. In addition to the parties, a host of amici has filed briefs in the case, including 11 briefs at the petition stage and 41 briefs on the merits. Although not a party to the lawsuit, the Solicitor General has filed a motion to participate in oral arguments and steal some of the accused-infringer’s time.

The invention: There are several patents at issue, but the ‘375 patent is an important starting point. Claim 1 is directed to a “data processing system” that includes a number of elements, including “a computer” configured to generate certain instructions, “electronically adjust” stored values, and send/receive data between both a “data storage unit” a “first party device.” The claims also include “computer program products” and computer implemented methods. The underlying purpose of the invention is to provide certain settlement risks during a time-extended transaction by creating a set of shadow credit and debit records that are monitored for sufficient potential funds and that – at a certain point in the transaction the shadow records are automatically and irrevocably shifted to the “real world.”

It is unclear to me what makes this invention novel or nonobvious and many believe that it would fail on those grounds. However, the sole legal hook for the appeal at this stage is subject matter eligibility. One thing that we do know is that CLS Bank is alleged to be using the patented invention to ensure settlement for more than a trillion dollars daily.

Important case: The claim structure here is quite similar to that seen in hundreds-of-thousands of already issued patents and pending patent applications where the advance in software engineering is a fairly straightforward, but is done in a way that has an important impact on the marketplace. One difference from many software patents is that the underlying functionality is to solve a business transaction problem. However, there is a likelihood that the decision will not turn (one way or the other) on that field-of-use limitation. In his brief, Tony Dutra argues that the key here is utility, and that an advance in contract-settlement is not useful in the patent law context.

[Brief of the US Government] The most important brief in a pile such as this is often that filed by the U.S. Government. Here, Solicitor General Donald Verrilli and USPTO Solicitor Nathan Kelley joined forces in filing their brief in support of CLS Bank and a broad reading of the abstract idea test. In particular, the U.S. Government argues that none of the claims discussed are subject matter eligible. The brief begins with an importance argument – that “the abstract idea exception is patent law’s sole mechanism for excluding claims directed to manipulation of non-technological concepts and relationships.” This notion – that the abstract idea is the final and ultimate bulwark – places a tremendous pressure on the Court to create a highly flexible test. In my view, the Government largely loses its credibility with that argument – somehow forgetting about the host of other overlapping patent law doctrines that each address this issue in their own way, including requirements that any patented invention be useful, enabled, described in definite claims, and nonobvious. The ultimate backstop is likely the US Constitutional statement regarding “Inventors” and their “Discoveries.”

The government brief goes on to endorse the approach of first identifying whether the claim would be abstract if the computer technology were removed from the method claims and, if so, move on to consider whether the computer technology limitations are sufficient to transform a non-patentable abstract idea into a sufficiently concrete innovation in technology, science, or the industrial arts. “The ultimate inquiry is whether the claims are directed to an innovation in computing or other technical fields.” The brief then reviews the precedent on this topic from Bilski, Mayo and Flook.

Addressing the computer system and software claims, the U.S. Government agrees that they are certainly directed toward “machines” and “manufactures.” However, according to the government, those claims to physical products are properly termed abstract ideas because the physical elements “do not add anything of substance.”

One interesting element from the brief is that the US Government notes that, although a question of law, invalidity for lack of subject matter eligibility requires clear and convincing evidence in order to overcome the presumption of validity. In its brief, CLS Bank argues otherwise as does Google, who actually takes time to cogently spell out the argument with citation to leading authorities.

[Brief of CLS Bank] In its merits brief, CLS Bank somewhat rewrote the question presented – focusing attention on the Supreme Court’s decisions in Mayo.

Question Re-framed: An abstract idea, including a fundamental economic concept, is not eligible for patenting under 35 U.S.C. §101. Bilski v. Kappos, 130 S. Ct. 3218 (2010). Adding conventional elements to an abstract idea does not render it patent-eligible. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012). The asserted claim of the patents-in-suit recite the fundamental economic concept of intermediated settlement, implemented using conventional computer functions. The question presented is:

Whether the courts below correctly concluded that all of the asserted claims are not patent-eligible.

The basic setup of the CLS Bank is the argument that a newly discovered abstract idea coupled with conventional technology is not patent eligible. CLS Bank’s point is well taken that an outright win for Alice Corp. here would involve something of a disavowal rewriting of Mayo.

[Brief of Alice Corp.] Alice Corp’s brief obviously takes a different stance – and argues first that the non-statutory exceptions to patentability should be narrowly construed and focused on the purpose of granting patents on creations of human ingenuity and that the idea behind Alice’s invention is not the type of “preexisting, fundamental truth” that should be the subject of an abstract idea test. Alice also reiterated its position that the claimed invention should be examined as a whole rather than divided up as suggested by the Government brief.

[Brief of Trading Technologies, et al.] TT’s brief (joined by a group of 40 patent-holding software companies as well as Prof. Richard Epstein) argues that the “abstract idea” test is focused on scientific truths and scientific principles. In that construct, Alice Corp’s ideas regarding the settlement system would not be seen as ineligible. TT also challenges the court to think beyond the computer as “merely a calculator and that programming merely instructs the computer to perform basic mathematical calculations. “While this may have been true of many of the applications programmed on the earliest computers over 40 years ago, it is simply not the case today. . . . Viewing computers as merely calculators is completely disconnected from the reality of where innovation is occurring today and where most innovation will occur in the future.” In his brief, Dale Cook agrees and further makes the argument that a distinction between hardware and software is illusory – citing Aristotle to make his point. [Brief of Dale Cook]. Supporting that notion is the Microsoft brief that sees “software-enabled inventions” as the “modern-day heirs to mechanical inventions. [Brief of Microsoft HP]. Pushing back on this argument, Public Knowledge seemingly shows that the entire claimed method can be implemented in seven lines of software code. Thus, while some software is complex. PK makes the argument that the software at issue here is exceedingly simple.

TT also warns against the Government’s position that a strong eligibility guideline is needed in cases such as this. In particular, explains “inventions that do nothing more than use a computer to implement time-worn concepts in obvious and traditional ways will not receive patent protection notwithstanding the fact that they concern eligible subject matter. On that note, TT asks for clarification from the Supreme Court that “Mayo does not support importation of novelty, nonobviousness, and other patentability criteria into the ‘abstract idea’ analysis.”

[Brief of ABL] The final brief in support of petitioner was filed on behalf of Advanced Biological Labs by Robert Sachs. ABL argues that a claim should only be seen as problematic under the abstract idea test when there are no practical alternative non-infringing ways of practicing the abstract idea. On that point, ABL further pushes for the notion that the test should be considered from the framework of one skilled in the art rather than simply the-mind-of-the-judge and based upon clear and convincing evidence. Pushing back against this notion is the brief of the American Antitrust Institute (AAI) drafted by Professor Shubha Ghosh. The AAI argues that the purpose of the Abstract Idea exclusion is to prevent undue harm to competition and innovation. Seemingly, the AAI contends that a claim directed an abstract idea is per se anticompetitive and that even when coupled with technology it may still be unduly preemptive. Oddly however, later in the brief AAI argues for a test that is not based upon market competition or preemption.

[Shultz Love Brief] A leading brief on the side of ineligibility is that filed by Professors Jason Shultz and Bryan Love on behalf of about 22 other professors. The professors make the argument that the world would be a better place without software patents. For its conclusions, the brief largely relies on the work of Brian Love, Christina Mulligan, Colleen Chien, James Bessen, & Michael Meurer. The EFF brief from Professor Pamela Samuelson, Julie Samuels, and Michael Barclay make a parallel argument: “If anything, evidence shows that the U.S. software industry is harmed by the exponential growth of vague software patents.” Without denying the problems created by software patents, Professors Peter Menell and Jeff Lefstin argue that the solution is not to rely upon the “abstract idea” test to solve that problem. IBM offers the starkest contrast to the Shultz-Love brief – arguing that the failure to clearly offer patent rights for software inventions “endangers a critical part of our nation’s economy and threatens innovation.”

The ACLU has been more frequently involved with patent law issues and was a backer of the Myriad case. In its brief, the ACLU argues that the abstract idea exception is the patent law proxy for free speech and that monopolization of abstract ideas would be a violation of the First Amendment. That conclusion is supported by the Software Freedom Law Center & Eben Moglen. The First Amendment argument has the potential of twisting on the ACLU: if the justices fail to see that patents create any First Amendment concern then they may be more likely to support a narrowing of the abstract idea exception. Notably, in the most recent patent law oral arguments on fee-shifting, Justice Roberts arguably suggested that patents did not create any first amendment concerns.

I mentioned Microsoft’s brief earlier. Microsoft argues that software should be patentable – but not the software in this case. In particular, Microsoft agrees with the notion that simply adding “a computer” to an otherwise abstract idea does not fix the problem. Microsoft’s solution is to consider “whether the claim as a whole recites a specific, practical application of the idea rather than merely reciting steps inherent in the idea itself.” Microsoft goes on to admit that its test adds little predictability.

The Intellectual Property Owners Association and AIPLA similarly argue that software “if properly claimed” is patent eligible. On its face, that argument may not sit well with the Court who may see the “as claimed” notion designed to create loopholes for sly patent drafters whose noses are made of wax. A collective brief from Google, Facebook, Amazon, and others support this notion that patent eligibility should not turn on “clever drafting.” On an ancillary (but important) point Google argues that Section 101 defenses should be considered at the outset of most cases. cf. Crouch & Merges, Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making.

The ABA has collected the briefs: ABA Preview. (You’ll note that I didn’t have room to comment on all the briefs).
Mike Borella reviews the briefs and pending case on Patent Docs: Post I; Post II.
Gene Quinn reviews some of the briefs on IP Watchdog. (Note Gene’s discussion of Judge Michel’s brief that I did not discuss above).
Timothy B. Lee from the WaPo asks “Will the Supreme Court save us from software patents?“

Examining Eligibility: USPTO Guidelines on Products of Nature, Laws of Nature, and Natural Phenomena

March 4, 2014PatentAbstract Idea, Subject Matter EligibilityDennis Crouch

by Dennis Crouch

One difficulty with the US patent system is that the same rules of patentability are sometimes determined by a judge, other times by a jury, and, of course, most often by a patent examiner. A judge is typically an experienced lawyer and political heavyweight who receives substantial input from leading advocates on both sides of any argument. However, judges most typically have not technical expertise in the particular invention or its market. On the other hand, a patent examiner is typically a subject matter expert but comes with little or no legal training and who participates in an ex parte inquiry. At yet another extreme, a jury also receives the benefit of input from both sides, but typically has no technical or legal training.

One difficult role that the USPTO takes-on is translating court decisions on patentability into administrable tasks for its examiner corps. That task is perhaps most difficult in the realm of subject matter eligibility.

In a new set of training materials, the USPTO has attempted to provide some concrete guidance to its examiners on determining whether claims improperly encompass laws of nature, natural principles, natural phenomena, or products of nature. The updated guidance is necessary based upon the Supreme Court’s decisions in Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. _, 133 S. Ct. 2107, 2116, 106 USPQ2d 1972 (2013), and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. _, 132 S. Ct. 1289, 101 USPQ2d 1961 (2012). The USPTO is awaiting outcome of the CLS Bank decision before providing parallel insight on examining claims for abstract ideas.

Although these guidelines do not have force of law, they are important because of their de facto power for the several hundred thousand pending patent applications.

The basic test, according to the USPTO is “whether a claim reflects a significant difference from what exists in nature” (patent eligible) or instead “whether a claim is effectively drawn to something that is naturally occurring” (not patent eligible). Of course, the rub is the dividing line between these mutually exclusive categories.

The PTO provides the following flowchart:

More later.

My exhaustive (and last, really I promise!) post about why 101 is not a defense, nor properly raised in CBM proceedings

February 27, 2014EthicsAbstract Idea, AIA Trials, anticipation, Claim Construction, obviousness, PGR, Subject Matter Eligibility, USPTO DirectorDavid

This is from a declaration I filed in a patent case.

I. Because Section 101 is not “specified” as a “condition for patentability,” and, further, is not a condition for patentability, a “violation” of Section 101 may not be raised in a covered business method proceeding.

The starting point of my analysis is a consideration of the statutory limitation on grounds that can be raised in a CBM proceeding. As part of a limited transitional program, Congress expressly and plainly limited the grounds that can be asserted in a CBM proceeding to a small subset of those than those that can be raised in patent infringement suits. Specifically, although 35 U.S.C. § 282 lists defenses in patent suits, under the AIA in CBM proceedings only the defenses listed in subsections (b)(2) and (b)(3) can be raised. 37 C.F.R. § 42.304. It is clear that subsection (b)(3) does not cover Section 101, since it cites only to sections 112 and 251.

As a consequence, the only potential basis for Section 101 to be a defense – and therefore a proper basis for CBM Review – is if it is within subsection (b)(2), which states: “(2) Invalidity of the patent or any claim in suit on any ground specified in part II [of Title 35] as a condition for patentability.” 35 U.S.C. § 282(b)(2).

Unless Section 101 is “specified” in “part II” as a “condition for patentability,” it is not a proper basis for instituting a CBM proceeding. Sections 100 to 212 are in part II of the Patent Act. Thus, Section 101 is in part II. However, of those one hundred and twelve separate sections, two are “specified” as “conditions for patentability” – sections 102 and 103. Their titles state:

102. Conditions for patentability; novelty.

103. Conditions for patentability; non-obviousness subject matter.

Thus, plainly sections 102 and 103 each is “specified” as a “condition for patentability.” Just as plainly, Section 101 is not “specified” as a “condition for patentability:”

101. Inventions patentable.

In my opinion, the words “specified” as “a condition for patentability” in subsection 282(b)(2) point to only two sections of the one hundred and twelve sections in part two: sections 102 and 103. Congress knew how to specify a condition for patentability by putting the words “condition for patentability” in the title: Section 101 is not specified as a condition for patentability. Any other reading of subsection 282(b)(2) renders the word “specified” superfluous, and it also renders the phrase “conditions for patentability” superfluous. Either result violates a basic tenet of statutory interpretation. Just as it is improper to read “in part II” out, it is improper to read these other express limitations out of the statute.

Even putting aside the fact that only two statutes in part II are specified as “conditions for patentability,” and assuming courts are free to allow defenses to be raised under subsection 282(b)(2) even though they are not specified as “conditions for patentability,” it is clear that, in substance, Section 101 is not a “condition.”

First, reading the statute as a whole (which proper analysis requires), there is no doubt that Congress knew how to write a “condition for patentability.” In substance, sections 102 and 103 are express conditions for patentability. Section 102 begins, “A person shall be entitled to a patent unless . . . .” Section 103 states that “a patent for an invention may not be obtained . . . if the differences” would have been obvious at the time of the invention. Section 102 conditions patentability on novelty; section 103 conditions patentability on non-obviousness.

In stark contrast, Section 101 permissively states that “[w]hoever invents or discovers any new and useful process . . . or any new and useful improvement thereof, may obtain a patent therefor,” but doing so is “subject to the conditions and requirements of this title.” Thus, Section 101 grants permission to an inventor to apply for a patent, subjecting issuance to the conditions and requirements of the title. Further, Section 101 does not limit the person’s entitlement to a patent, unlike Section 102 and 103. It is in my opinion that Section 101 does not “condition” patentability on the invention falling within Section 101: if Congress had wanted to condition patentability on Section 101, it perhaps could have done so, but it plainly did not.

Further, the same legislation that codified the transitional CBM proceeding expressly describes Section 101, not as providing a condition for patentability, but as merely setting forth “categories of patent-eligible subject matter.” AIA § 18(e). Consistent with this, Congress authorized the PTO to rely on certain prior art to invalidate a claim under sections 102 and 103, AIA § 18(c), but the statute never mentions Section 101 as a basis for invalidity.

For these reasons, it is in my opinion clear that, although it is in part II of the Patent Act, Section 101 is not specified as a “condition for patentability” and it is in substance not a condition. Consequently, it is not a ground for review in the CBM proceeding sought by defendant herein.

In my opinion, the clarity of the text ends the inquiry. The text of the statute is not ambiguous. Nor is it absurd to conclude that Congress chose not to make “ineligible subject matter” a basis for CBM: indeed, given the Congressional purpose of speedy review of covered business method patents, a Section 101 inquiry would bog down the PTO in the myriad factual issues underlying the inquiry – many of which involve facts external to the PTO, such as whether the patent “preempts” other methods (i.e., whether there are non-infringing alternatives), what was “routine” or “conventional” in the art, and other facts not likely to be shown entirely by prior art. Omitting Section 101 is far from absurd but instead matches the purpose and intent of Congress to create a speedy, certain proceeding. See generally, Ultramercial, LLC v. Hulu, LLC, 772 F.3d 1335 (Fed. Cir. 2013) (identifying some of the factual inquiries inherent in the question of eligible subject matter).

Even assuming, nonetheless, that it is proper to look beyond the text, in my opinion it is proper to look to the purpose of the statute and legislative intent. Both confirm the plain meaning of the statute.

The purpose of the statute confirms that the CBM procedure 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^[1] shows that the purpose of the amendments is consistent with the text: to allow those charged within infringement 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.” 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. If anything, this shows that Congress enacted the CBM proceeding for the purpose of responding to the problem of difficulty in finding prior art and experts in the fields of business methods.

Beyond this, the legislative history of the AIA on this transitional program is, like almost all legislative histories, 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. What controls is the language Congress enacted, not my speculation about the intent of a handful of elected representatives.

For the reasons shown above, in my view the text and committee report focus on prior art under sections 102 and 103. As enacted, in my opinion the AIA does not allow review of covered business methods for “eligible subject matter” in terms of Section 101.^[2]

II. Arguments I Considered but Found Incorrect.

I understand the PTO’s position is that Section 101 can be a basis for instituting a CBM Review. E.g., SAP Am., Inc. v. Versata Dev. Group, Inc., CBM2012-00001 (Jan. 9, 2013). Director Kappos justified the PTO’s position, not by focusing on the text, but by stating: “This interpretation is consistent with both the relevant case law and the legislative history.”[3] The PTO in its decision in Versata relied upon the same grounds. For the following reasons, this interpretation is incorrect.

First, these authorities simply do not address the text of the statute. The statute is not ambiguous. It is not absurd. There is no reason whatsoever to move beyond the plain text.

Second, the Supreme Court case relied upon to support these views 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. The statement actually undermines the argument that “eligible subject matter” is a condition for patentability. 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).

For these reasons, even if Graham is misapprehended as a definitive interpretation of Section 101, the Court’s opinion suggests that “eligible subject matter” is not a condition for patentability. If Graham stated that utility, novelty, and non-obviousness were conditions for patentability, then the Court’s statement that there are “three conditions”[4] 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.

I have also seen others avoid the text but instead cite to dicta in Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012) and to dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008). Neither case decided whether Section 101 was a condition for patentability. 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 both cases traces directly back to the dicta from Graham. But loose language can be found in other cases saying exactly the opposite. 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).

The important fact to me is that none of these cases parse the statutory text, or just 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.

I have also considered whether this analysis improperly relies upon titles to interpret the text. I agree it is generally improper to use the title to interpret text, at least where the title contradicts or is inconsistent with the substantive text. But that principle has no application here: Congress in the text of subsection 282(b)(2) limited the grounds upon which a CBM proceeding may be based to those “specified” in “part II” as “conditions for patentability.” Thus, the statutory text of Section 282 says to look for things “specified” in “part II” as “conditions for patentability.” Consequently, I am not using the title of any statute to interpret the meaning of Section 101: I am applying the plain text of subsection 282(b)(2). I am not using the title to interpret the text with respect to either “specified” as a “condition for patentability” just as I am not with respect to the statute’s use of “specified” in “part II.” Further, as shown above, I use only the text of the statutes to conclude that Sections 102 and 103 are conditions, but Section 101 is not. Reading those three statutes in pari materia (together), it is clear sections 102 and 103 are conditions, but Section 101 is not. The titles confirm the interpretation of the text, but they are not the source of it.

I have also considered other aspects of the legislative history. 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).”[5] Yet, it is undeniable 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. A sentence in a committee report that directly contradicts the plain 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 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. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator’s statement as having been presented to Congress and 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, coming in the form of Senate reports from the AIA, Congressional reports on the 1952 Act, and Federico’s commentary, discussed above. 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.

To sum up, in my opinion 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.

[1] The Supreme Court has cautioned against giving weight even to committee reports, admonishing courts that “judicial reliance on legislative materials like committee reports, which are not themselves subject to the requirements of Article I [of the U.S. Constitution], may give unrepresentative committee members – or, worse yet, unelected staffers and lobbyists – both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text.” ExxonMobil Corp. v. Allapattah Serv., Inc., 545 U.S. 546, 568 (2005). Here, the committee report simply confirms the plain text; it is not being used to interpret the text.

[2] As explained above, courts view legislative history, particularly more modern legislative history such that accompanying the AIA, with skepticism. Thus, I only note that the Senate report from 1952 and persuasive commentary by P.J. Federico confirm the plain meaning. First, both reports from 1952 Act state: “Section 101 sets forth the subject matter that can be patented, ‘subject to the conditions and requirements of this title.’ The conditions under which a patent may be obtained follow, and section 102 covers the conditions relating to novelty.” H. Rep. 1923, S. Rep. 1979 (82d Cong. 2d Session) (emphasis added). It is a perversion of the English language to read “the conditions under which a patent may be obtained follow” Section 101, but nonetheless in Section 101. Second and consistent with the plain text and these reports, Federico wrote that Section 4886 – which Congress in 1952 split up into what became sections 101, 102, and (in a sense at least) 103 – had “specified the subject matter for which a patent could be obtained and recited conditions for patentability. In the new code, this section has been divided into two sections, section 101 relating to the subject matter for which a patent may be obtained, and section 102 which defines statutory novelty and states other conditions for patentability.” P.J. Federico, Commentary on the New Patent Act (emphasis added) (available at http://ipmall.info/hosted_resources/lipa/patents/federico-commentary.asp). Thus, as a principal architect of the act, Federico recognized that while Section 4886 had both “identified the subject matter for which a patent could be obtained,” and “recited conditions for patentability,” under the 1952 Act “section 101 relat[ed] to the subject matter for which a patent may be obtained” but “section 102 defines novelty and states other conditions for patentability [e.g., statutory bars to patentability].” Id. Further, Federico’s description is consistent with the reviser’s note to the 1952 act, which stated that the “existing statute is split into two sections, section 101 relating to the subject matter for which patents may be obtained, and section 102 defining statutory novelty and stating other conditions of patentability.”

[3] http://www.uspto.gov/blog/director/entry/ptab_and_patentability_challenges

[4] 383 U.S. at 17.

[5] http://www.uspto.gov/blog/director/entry/ptab_and_patentability_challenges