Tag Archives: anticipation

The Likely Indefiniteness of Coined Terms

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by Dennis Crouch

AGIS v. Life360 (Fed. Cir. 2016)

In some ways the case here can be thought of as placing a higher definiteness burden on patentees when relying upon non-industry-standard language such as coined-terms in the claims. This result makes sense to me because coined-terms are most likely to be found at points of novelty within the claim — the points where precision in description is most important. 

The AGIS claims all require a “symbol generator” to track mobile phone user location.   See U.S. Patent Nos. 7,031,728 (claims 3 and 10) and 7,672,681 (claims 5 and 9).  During claim construction, the district court found the term lacked definiteness under 35 U.S.C. 112 ¶ 2 (now 112(b)) and, although it would seemingly be a foregone conclusion, the parties stipulated that the claims were therefore invalid.

On appeal, the Federal Circuit affirmed the indefiniteness finding under its strict means-plus-function approach. The appellate panel first held that the “symbol generator” element should properly be interpreted under 35 U.S.C. 112 ¶ 6 as claiming a means for performing a specified function without reciting (in the claims) the supporting structure.  Under 112 ¶ 6, means-plus-function claim elements are However, the statute requires that MPF claim elements be tightly construed to cover only “the corresponding structure . . . described in the specification and equivalents thereof.”  Further, the Federal Circuit has repeatedly held that MPF claim elements that are not supported by corresponding structure within the specification are indefinite and thus invalid.

Step 1: Traditionally, claim elements intended to be interpreted as means-plus-function elements include the word “means.”  Here, the word ‘means’ was not used – and that leads to the a rebuttable presumption 112 ¶ 6 does not apply.  Prior to 2015, this presumption was seen as a “strong” presumption.  However, in Williamson (2015), the en banc Federal Circuit eliminated the “strong” portion of the presumption and in favor of one that appears easily rebuttable.  Under Williamson, 112 ¶ 6 will apply when the proper construction of the words of the claim fail to provide sufficiently definite structure.  The standard is “whether the words of the claim are understood by person of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.” If not, then 112 ¶ 6 applies.

Here, the court noted that the term “symbol generator” was a term coined for the purposes of the patent and thus, cannot be said to be already known to one of skill in the art. As such, the court fell-back on its textual analysis – finding that “the combination of the terms [symbol and generator] as used in the context of the relevant claim language suggests that it is simply an abstraction that describes the function being performed (i.e., the generation of symbols) [and]  by itself, does not identify a structure by its function.”  Of interest, at this stage, the court did not delve into the question of whether the specification had properly defined the term.  I believe that omission was a result of the fact that the specification did not so define the term (as discussed below).

Step 2: Once a term is defined as Means-Plus-Function, the court must then look to the specification to determine whether corresponding structure is available to define the term. Here, because the symbol generator is a computer implemented function, the court requires disclosure of an algorithm for performing the function. Here, that algorithm was not provided. Quoting Aristocrat Tech, the court wrote: “A patentee cannot claim a means for performing a specific function and subsequently disclose a ‘general purpose computer as the structure designed to perform that function” because this “amounts to pure functional claiming.'”

Coined Terms and Circular Reasoning: Looking at the specifications, the only mention of the term “symbol generator” was found in one of the two specifications and that specification stated only that “The CPU also includes a symbol generator for creating touch screen display symbols discussed herein.”

Because MPF analysis involves circular reasoning, it is difficult to know what the result would have been if the specification had sufficiently and particularly defined the symbol generator as an algorithmic module.  That structural definition certainly would have been enough to satisfy structure requirement of 112 ¶ 6.  However, if it was sufficient to satisfy 112 ¶ 6, then it likely would have been sufficient to ensure that the proper construction of the term was non-MPF.  This leads to the conclusion that, at least for coined-terms, the whole game is won or lost at step 1 from above.

 

 

GAO: Patent Office Must Define and Improve Patent Quality

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The Government Accountability Office (GAO) has published two new reports on Patent Office Activities along with the results of a major survey of 2,600 patent examiners.

Regarding patent quality, the GAO suggested that the USPTO’s standard of patent quality should focus solely on the basics: defining “a quality patent as one that would meet the statutory requirements for novelty and clarity, among others, and would be upheld if challenged in a lawsuit or other proceeding.”  However, patent clarity must be an important element of that definition.  The GAO writes:

GAO estimates that nearly 90 percent of examiners always or often encountered broadly worded patent applications, and nearly two-thirds of examiners said that this made it difficult to complete a thorough examination. Without making use of additional tools, such as a glossary of key terms, to improve the clarity of patent applications, USPTO is at risk of issuing patents that do not meet statutory requirements.

The reports were requested by Rep. Goodlatte in his role as chair of the House Judiciary Committee.  I expect that Rep. Goodlatte will hold hearings with PTO representatives in the fall to focus on ways to move forward.

 

Supreme Court Challenge to ITC’s Broad Authority

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by Dennis Crouch

DBN (formerly DeLorme) v. US International Trade Commission (Supreme Court 2016)

In addition to district court infringement litigation, U.S. law offers a second avenue for patent enforcement – the United States International Trade Commission (USITC).  In today’s free-trade environment, the USITC’s role is somewhat counter — protecting of U.S. industry.  A substantial portion of USITC work involves enforcement actions to prohibit importation into the U.S. of “articles that … infringe a valid and enforceable” patent. See 19 U.S.C. 1337.

Despite the statutory language “articles that . . . infringe”, in Suprema an en banc Federal Circuit held that the USITC has the power to block importation based upon an inducement theory of infringement — even if the imported products themselves are not infringing. (6 – 4 en banc decision)

In a well written petition, DBN has challenged the holding of Suprema – asking “Whether the International Trade Commission’s jurisdiction over the importation of ‘articles that … infringe a valid and enforceable’ patent extends to articles that do not infringe any patent.”

The case also involves an interesting separation of powers issue — although the USITC found the patent enforceable, a district court found the patent invalid.  DBN terms this a “zombie patent” penalty.  In the case, the ITC first issued the exclusion order and the patent was later found invalid.  In that interim, DBN violated the exclusion order and the ITC assessed a $6 million contempt penalty that is being challenged in the second question presented: “Whether the Federal Circuit erred in affirming the Commission’s assessment of civil penalties for the domestic infringement of a patent that has been finally adjudicated to be invalid.”

USITC Procedure sets up the USITC as the party prosecuting the case rather than the patentee. As such, the agency is the named respondent and will be represented by the Solicitor’s Office. I expect that the patentee BriarTek will also weigh-in.  The patent at issue is U.S. Patent No. 7,991,380 and covers an emergency satellite communication system.  The asserted claims were found invalid as anticipated and/or obvious.  That holding was then affirmed on appeal by the Federal Circuit.

Prof. Radin’s Patent Notice and the Trouble with Plain Meaning

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By Jason Rantanen

Professor Margaret Radin, who recently retired from the University of Michigan Law School, is a leading scholar known for her work in property theory, contracts law, intellectual property, and internet commerce.  She’s best known to my students  for her articulation of a modern personhood theory of property in Property and Personhood, 34 Stan. L. Rev. 957 (1982).

In her essay Patent Notice and the Trouble with Plain Meaning forthcoming in the Boston University Law Review, Professor Radin offers her thoughts on a topic at the heart of contemporary debates in patent law: the extent to which the words of claims can operate as boundaries that provide the same degree of notice that we expect in the real property context. The abstract reads:

In their book, Patent Failure, James Bessen and Michael Meurer took the position that notice of the scope of a patentee’s property right is usefully analogous to notice conveyed by real property boundaries. In this essay I argue to the contrary that the idea that patent claim language could be rendered determinate enough to justify an analogy with physical fences or metes and bounds is illusory. Patent claims raise the question, in a way that fences do not, of how words “read on” objects in, or states of, or events in the world. I take a small detour through the language theory of Quine as backdrop to my argument that there is no such thing as plain meaning, at least not in situations involving innovative products and processes where there is money at stake. I draw on three landmark patent cases — Markman, Phillips, and Festo — to illustrate this basic point. In my concluding Postscript I bring the big picture into play. The costs of providing better notice, even if that were possible, might outweigh the gains. Plus, even if the analogy with physical boundaries and the commitment to plain meaning were not illusory, such rigidity in interpreting claims would undermine a significant feature of the patent system: the flexibility to reward breakthrough inventions proportionately to their importance.

Professor Radin’s discussion is worth a read for the eloquent way that she captures and synthesizes the raw strands floating around in current discussions about patent claims.

Viewed through the lens of my current projects, though, her essay raises deeper questions about the meaning of claim construction itself.  Over the last two decades, patent law has experienced the emergence of the perception that claim construction is simply the process of interpreting the meaning of the words in the claims.  From Markman to Cybor to Phillips, claim construction grew into a search for linguistic meaning.  Even Teva reinforces this perception, with its focus on the role of evidence in determining the meaning of key claim terms.

But patent law’s dirty secret is that claim construction isn’t just about divining the linguistic sense of words and phrases in the claims.  That’s a seemingly fine inquiry when analyzing questions such as infringement, or anticipation or even, perhaps, nonobviousness.  Yet when it comes to other issues in patent law–enablement, written description and especially § 101–defining the meaning of words is less central to the analysis.   To be sure, sometimes the formalized procedure of Phillips does matter in enablement.  Liebel-Flarsheim and Automotive Technologies offer two examples.  But for the most part, the formalized claim construction that we’re used to is absent from the Federal Circuit’s enablement, written description and § 101 determinations.

Nevertheless, claim construction of a sort is present.  The court articulates something that it uses in its analysis.  In the enablement and written description contexts, I’ve come to call this something a target that must be enabled or adequately described.  What it really is, though, is claim construction–just not in the sense that we’ve become comfortable with.

The Federal Circuit’s opinion on Monday in Bascom v. AT&T Mobility [Download Opinion] illustrates this point.  That case involved a motion to dismiss granted by the district court on the ground that the claims were invalid on § 101 grounds.  (I’ll summarize the facts and holding in more detail in a subsequent post.)  After assuming that the claims were directed to an abstract idea under Enfish‘s statement about “close calls” at step one of the Alice/Mayo framework, the court turned to step two: the search for an “inventive concept.”  Here, the court concluded that the “inventive concept described and claimed in the []patent is the installation of a filtering tool at a specific location, remote from the end-users, with customizable filtering features specific to each end user,” a concept that the court concluded was not (on the record before it) conventional or generic.  Slip Op. at 15-16.  This determination–of identifying an “inventive concept”–is as much claim construction as the linguistic machinations of Phillips.  Indeed, the court even refered to what it is doing as construing the claims: “Thus, construed in favor of the nonmovant–BASCOM–the claims are “more than a drafting effort designed to monopolize the [abstract idea].”  Slip Op. at 17.

Query: Fictional Patent Lawyers (and their Trolls)

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Professor Bob Jarvis (Nova Southeastern) is finishing up a law review article discussing the depiction of patent lawyers in popular culture (TV shows, movies, novels, comic strips, etc.).  Although he’s already found dozens of such characters, he’d like to hear from any Patently-O readers who know of such characters (he’s trying to make his piece as thorough as possible).

Bob can be reached at jarvisb@nova.edu.  His deadline is Friday, June 10.

I’ll highlight the Javris article once it is out. Meanwhile, you may want to check-out the article by Professor Ed Lee (Kent-IIT) titled Patent Trolls: Moral Panics, Motions in Limine, and Patent Reform. The article “provides the first empirical study of the use of the term “patent troll” by U.S. media.”

 

A Comparison of the EU Trade Secrets Directive and the US Defend Trade Secrets Act

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Guest post by Mark Ridgway and Taly Dvorkis, Allen & Overy, LLP, London. 

It has been a busy year for law makers seeking better protection for trade secrets.  Much coverage has been given to the Defend Trade Secrets Act (DTSA), which provides a federal private right of action for trade secret protection.  President Obama signed the DTSA on May 11, and the law takes effect immediately.  Patently-O has covered the DTSA legislation and legislative process in several posts here.

On May 17 the European Council is expected to formally adopt the Trade Secrets Directive, requiring all Member States to provide certain minimum standards for trade secret protection.  Member States will have two years to implement the provisions of the Directive into their own national laws.

How do the US and EU positions on trade secrets compare?  Below are the key similarities and differences between the DTSA and the European Trade Secrets Directive.

What has led to these Legislative Changes?

The desire for harmonization of trade secret protection has spurred these movements both in the US and the EU.  According to the European Commission, the lack of a uniform European approach has resulted in a “fragmentation of the internal market” and “weakening of the overall deterrent effect of the relevant rules.”  The EU Directive seeks to harmonize the laws of the various member states by providing a consistent definition of what qualifies as a “trade secret.”  Additionally, the Directive addresses the remedies available to trade secret holders and the measures courts can use to prevent the disclosure of trade secrets in legal proceedings.

In the U.S., the DTSA arose from a desire to federalize trade secret protection, which had thus far been dominated by state law (although most states had previously adopted the Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission in 1979).  While certain federal protection previously existed in the form of the Economic Espionage Act of 1996, the DTSA provides an individual right sue in federal court, thus obviating the need to bring private actions in various state courts where procedures differ greatly.

How is “Trade Secret” Defined?

Under both the EU Trade Secrets Directive and the DTSA, to qualify as a trade secret the information at issue must be kept confidential and must derive economic value from being kept confidential.

Article 2 of the Trade Secrets Directive defines a trade secret as information which meets all of the following requirements:

  1. is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
  2. has commercial value because it is secret;
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

This definition tracks the definition for “undisclosed information” provided in article 39(2) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which requires all signatories to afford some level of protection for confidential information.

The DTSA definition of “trade secret”, meanwhile, consists of “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-

  1. the owner thereof has taken reasonable measures to keep such information secret; and
  2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”

As seen, whether in Europe or in the U.S., to be considered a trade secret the information must be kept confidential and derive an economic value from the fact that it is confidential.  Both the EU Directive and the DTSA are aimed at protecting commercial confidential information.  What is not required is that the information be entirely novel, a distinction from other forms of intellectual property.  Further, the EU Directive makes explicit that combinations of otherwise publicly available information can be protected provided they are not readily accessible or generally known.

Confidentiality in Litigation

The EU Directive and DTSA have similar provisions for the preservation of confidentiality during legal proceedings for trade secret misappropriation.  In the U.S. the ability to file confidential documents under seal to maintain secrecy has long been an option open to litigants.  The DTSA specifically sets out that a court may not authorize or direct the disclosure of information unless the owner is first given the opportunity to file a submission under seal describing the interest in keeping the information confidential.  The DTSA therefore extends the option of filing briefs under seal to include disclosure at trial and in court opinions, and also allows non-parties to request that certain information be kept confidential.

The EU Directive similarly addresses preserving confidentiality during legal proceedings.  The Directive sets out that an applicant must first supply a “duly reasoned” application as to why certain information should be kept confidential.  The maintenance of secrecy is therefore not the default position, and requires court approval.  It remains to be seen how the national laws of the Member States will implement the Directive and how courts will interpret what qualifies as a “duly reasoned” application.  In some countries this will require minimum changes (for instance, in the U.K. no change will be required), while in others it will be a more significant cultural and legal shift.

Protection for Whistle-blowers

The protections for whistle-blowers and press freedom have been a significant part of the public debate concerning the EU Directive.  Opponents of the Directive expressed concern that, as a result of the Directive, journalists and whistle-blowers could be criminalized for publishing information that companies consider secret.  However, the EU Directive specifically sets out that it should not prevent whistle-blowers and those publishing trade secrets to serve the public interest from doing so.  Moreover, there are no criminal provisions in the Directive.  The Directive states:

The measures, procedures and remedies provided for in this Directive should not restrict whistleblowing activity. Therefore, the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest, insofar as directly relevant misconduct, wrongdoing or illegal activity is revealed. This should not be seen as preventing the competent judicial authorities from allowing an exception to the application of measures, procedures and remedies in a case where the respondent had every reason to believe in good faith that his or her conduct satisfied the appropriate criteria set out in this Directive.

This exception for whistle-blower activity is much broader than that provided by the DTSA.  The DTSA provides immunity from liability for disclosing a trade secret only when the disclosure is confidential and made to the government or in a court filing (under seal).  There is no specified exception for journalists or other public good-doers, although arguably the First Amendment provides protection.  The DTSA does include a provision by which employers must notify their employees of the protection available under the new law, a notice requirement which is not present in the EU Directive.  Employee is defined broadly by the DTSA to include those working as contractors or consultants.

Remedies

The most controversial part of the DTSA has been the introduction of an ex parte seizure order as a federal measure.  Under the DTSA, a court can issue an order for the seizure of property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”  Additional remedies include injunctions and damages, where an injunction is deemed most appropriate for any continuing harm.  For previous harm, a court may award damages for actual loss or any unjust enrichment.  A court can also choose to award damages measured by a reasonable royalty for the unauthorized use of the trade secret.  As with other protection of intellectual property, violation of the DTSA done wilfully or maliciously may result in a court awarding enhanced damages as well as attorneys’ fees.

The EU Directive similarly allows for injunctions, damages measured as lost profits, account of profits, or a reasonable royalty for the trade secret use (paid as a lump sum).  The Directive also allows for provisional and precautionary measures, and says that Member States can provide for more far reaching protection, so long as the safeguards in the Directive are met.

The EU Directive does not call for enhanced damages for malicious activity, but rather approaches damages from the opposite viewpoint, specifying that Member States may limit the liability for damages of employees for misappropriating trade secrets if the employee acted without intent.

Employee Mobility and Non-Compete Agreements

In the sensitive area of employee mobility and competition, the Directive specifically states that it shall not offer any ground for restricting the mobility of employees.  However, the Directive does not include any requirement to harmonize the laws in relation to post-termination restrictions or non-compete clauses, meaning that national laws will continue to apply.

The DTSA addresses employee mobility in requiring that an injunction against a former employee be “based on evidence of threatened misappropriation” of trade secret information and not simply on the fact that the person may know certain information.  The DTSA also states that any injunction preventing or limiting future employment cannot conflict with applicable state laws protecting employee mobility.  Shortly before the DTSA took effect, the White House released a report that criticizes non-compete agreements and state laws that offer too much protection for such agreements.  While no immediate action is expected following the report, it is offered as a discussion point in considering what is necessary in non-compete agreements and how states should treat them.

Limitation Period

In the U.S., the limitation period for a company to bring an action under the DTSA is three years after the date on which the misappropriation is discovered or could have been discovered with reasonable diligence.  The EU Directive gives the Member States the freedom to set the limitation period for their respective national laws, but sets the maximum period at six years (albeit Member States have discretion as to when the clock starts to run).

Conclusion

It is obviously desirable that trade secret protection be consistent across borders, whether state or national, as protection is only as strong as its weakest link.  In the U.S., the DTSA specifically sets out a requirement that the Attorney General provide a report on the threats of trade secret theft outside the U.S. and the protection of trade secrets afforded by U.S. trading partners.  How the EU Directive and DTSA play out as Member States implement the Directive and courts interpret the laws will help shape trade secret protection around the globe.

Hotel Security Checking Co v Lorraine Co, 160 F 467 (2d Cir 1908).

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Hotel Security Checking Co v Lorraine Co, 160 F 467 (2d Cir 1908).

OPINION BY: COXE

OPINION:  Before LACOMBE, COXE, and WARD, Circuit Judges.

COXE, Circuit Judge. The Hicks patent describes and claims a “method of and means for cash-registering and account-checking” designed to prevent frauds and peculation by waiters and cashiers in hotels and restaurants. The object of the alleged invention is accurately to check the account of the cashier and of each waiter. In carrying out the system, each waiter is provided with slips of paper, so marked as to distinguish them from those used by the other waiters in the same establishment. The person in charge of each department,  which fills an order given by waiters, is provided with a sheet of paper ruled lengthwise in parallel columns, each waiter having a particular column exclusively appropriated to him. Each waiter is numbered or otherwise marked. If numbered, and this is the simplest method of designation, the number on the slips given him   will correspond with his own number and his orders will be entered in the sheet column bearing a similar number. For instance, waiter No. 6 is given a badge showing that number, which he is required to wear conspicuously; he is also given slips bearing that number and his orders are entered under column No. 6 by the person in charge of the department filling the orders. The large sheet on which the orders of the different waiters are entered is simply a sheet of plain paper with parallel lines ruled thereon, the columns being numbered at the top; a sheet of legal cap could easily be utilized for this purpose.Each waiter is given a number of slips about 3 1/2 by 5 1/2 inches in size, which are blank except that the waiter’s number is marked thereon. If, for instance, waiter No. 6 receives an order for food, he goes to the kitchen department and when the order is filled he exhibits his tray to the checker, who enters the price of each article on the waiter’s slip and also on his own sheet under the column No. 6. The slip is returned to the waiter, who presents it at the proper time to the customer. Either the waiter or the customer pays the amount to the cashier who retains the   slip. It is usually sufficient in practice to enter the total of any one order and not each item separately. If subsequent orders are given either from the kitchen, the bar or the cigar stand, the same process is repeated and the amounts entered upon the same slip. At the close of business the sum of the slips of waiter No. 6 in the hands of the cashier, can easily be compared with the sum of the items charged to him by the departments collectively and the same is, of course, true of all the other waiters. The amount charged to all the waiters can be compared with the total of all the items of all the slips in the hands of the cashier and with the cash reported by the latter. If there has been no carelessness or dishonesty, the amounts will agree and if there has been, it is easy to discover where the fault lies.

The specification enumerates ten separate results, which it is alleged are accomplished by the use of the patented system, all having in view the protection of the employer from peculation by his servants either individually or in combination with each other.

The claims are as follows:

“1. The herein-described improved means for securing hotel or restaurant proprietors or others from losses by the peculations of waiters, cashiers or other employes, which consists of a sheet provided with separate spaces, having suitable headings, substantially as described, said headings being designatory of the several waiters to whom the several spaces on the sheet are individually appropriated, in conjunction with separate slips, each so marked as to indicate the waiter using it, whereby the selling price of all the articles sold may be entered in duplicate, once upon the slip of the waiter making the sale, and once upon his allotted space upon the main sheet, substantially as and for the purpose specified.

“2. The herein-described improvement in the art of securing hotel or restaurant proprietors and others from losses by the peculations of waiters, cashiers or other employes, which consists in providing separate slips for the waiters, each so marked as to indicate the waiter using it, and in entering upon the slip belonging to each waiter the amount of each sale that he makes, and also in providing a main sheet having separate spaces for the different waiters and suitably marked to correspond with the numbers of the waiters and of their slips,  and in entering upon said main sheet all the amounts marked upon the waiters’ slips so that there may thus be a duplication of the entries, substantially in the manner and for the purpose specified.”

The principal defense is lack of novelty and invention. Section 4886 of the Revised Statutes (U.S. Comp. St. 1901, p. 3382) provides, under certain conditions, that “any person who has invented or discovered any new and useful art, machine, manufacture or composition of matter” may obtain a patent therefor. It is manifest that the subject-matter of the claims is not a machine, manufacture or composition of matter. If within the language of the statute at all, it must be as a “new and useful art.” One of the definitions given by Webster of the word “art” is as follows: “The employment of means to accomplish some desired end; the adaptation of things in the natural world to the uses of life; the application of knowledge or power to practical purposes.” In the sense of the patent law, an art is not a mere abstraction. A system of transacting business disconnected from the means for carrying out the system is not, within the most liberal interpretation of the term, an art. Advice is    not patentable. As this court said in Fowler v. City of New York, 121 Fed. 747, 58 C.C.A. 113:

“No mere abstraction, no idea, however brilliant, can be the subject of a patent irrespective of the means designed to give it effect.”

It cannot be maintained that the physical means described by Hicks, — the sheet and the slips, — apart from the manner of their use, present any new and useful feature. A blank sheet of paper ruled vertically and numbered at the top cannot be the subject of a patent, and, if used in carrying out a method, it can impart no more novelty thereto, than the pen and ink which are also used. In other words, if the “art” described in the specification be old, the claims cannot be upheld because of novelty in the appliances used in carrying it out, — for the reason that there is no novelty.

The patent seems to us to cover simply a system of bookkeeping made applicable to the conditions existing in hotels and restaurants. The fundamental principle of the system is as old as the art of bookkeeping, i.e., charging the goods of the employer to the agent who takes them. Suppose the case of a firm selling goods by agents direct to the public. Before starting out the agent goes to each department and secures the goods needed by him, let us say, 5 dozen pairs of gloves, 3 dozen shirts, 100 neckties, 2 dozen pairs of shoes, etc. As a matter of course, the bookkeeper charges these items to the agent on the books of the firm and gives him a bill, or list, with the items and prices entered thereon. The agent knows from an examination of the list exactly what price he is to charge to the customer. When he makes remittances to the firm with statements showing the goods sold by him and the names of the buyers, the firm knows by an examination of its books what goods he has sold, how his sales compare with those of other agents and what amount, if any, he still owes. This, in essentials, is the scheme of the patent and it is as old as the laws of trade.

The patentee has modified and adapted it to fit the ephemeral character of the business in hand, but it required no exercise of the inventive faculties to do this. In a transaction which is to be concluded within an hour, a ponderous system of bookkeeping is unnecessary; but the substitution of a blank sheet laid on the desk for a blank sheet bound in a book, and a series of slips of uniform size for the ordinary bill heads, may require ingenuity and be more convenient, but it adds nothing of substance to the art.

The patentee is evidently an observant man, and, with large experience in the business, has written a treatise on restaurant account keeping, containing many valuable suggestions for preventing dishonesty by waiters, which may be epitomized as follows: — employ a competent and observant head waiter, have at least one honest man in charge, give each waiter a number and slips with a corresponding number, stamp the price of the articles ordered by him on the slip, and charge the amounts to him on a sheet of paper under his number, printed or written at the top of the sheet. Although the record does not show that this identical system was used prior to the patent, it does show that the underlying idea of keeping a duplicate record of the items taken by the waiter from the kitchen or bar, so that the cashier may know whether the proper amount of cash has been paid or not, had long been known. The essential features were old, the changes, elaborations and improvements of the patent belong to the evolution of the business of restaurant and hotel keeping, and would, we think, occur to any clever and ingenious person familiar with the needs of that business. The truth of this proposition will be made apparent by a brief survey of the prior art.

We agree with the judge of the Circuit Court in thinking that the patent to Smith for “a service and cash check,” while not a direct anticipation, describes a system which in the main corresponds to that of the patent in suit. Smith says:

“The invention has for its object to assure returns to the proprietor to the full value of the food served by preventing collusion of employes and patrons without offense, and also to economize time of patrons and employes and assure more satisfactory service.”

Smith provides each waiter with a package of checks requiring the waiter to write his name on the body and coupon of each check. As the waiter passes the checker on his way to the guest with the food ordered by him, the checker punches from the check the value of the food on the waiter’s tray. When the order has been fully served, the cashier adds up the sums opposite the punch marks and writes the sum total in ink next the dollar mark on the check and coupon. The cashier has at hand a series of numbered spindles, one for each waiter, and on the proper one he places the coupon torn from the check. When a check is paid to the cashier, the coupon is returned to the waiter as a voucher and at the close of the day’s business the cash in hand must correspond with the amount punched on the checks and also with the amounts written in ink on the coupons which are delivered up by the waiters when they have finished work for the day. The Smith claim is not for a system, method or means, but is for “a service of cash check provided,” etc.

Admitting, arguendo, that a system such as Hicks describes is patentable, if absolutely novel, we are of the opinion that the improvements of Hicks over the system disclosed in the Smith patent are such as would occur to anyone conversant with the business. The testimony also shows that several years prior to the Hicks application, there was in vogue in Harvey’s restaurant in Washington, a system similar in all essential details to that of Hicks’. Although we are not prepared to say that the two systems are identical in detail, we are unable to discover any patentable improvements in the latter system over the former. We have no reason to discredit the statement of defendant’s witnesses that Harvey used a checker’s sheet ruled in parallel columns on which the prices of the articles ordered by the waiters, respectively, were entered, being also entered on the waiter’s slip.

The brass check system which was in use prior to the patent is thus described in the complainant’s brief:

“In this system the waiter received from the checker a brass check having thereon the total amount of the food, etc., served to the guest. If the guest gave a second order the waiter gave back the check to the checker and received a larger one in exchange. In some cases a record was made of the total paid by each guest, but this record was not like or comparable with the Hicks main sheet and could not achieve its results. There was no division of the sheet into spaces for the different waiters and there was no duplication of entries. The inadequacy of this system is obvious.”

This statement is adopted because of its conciseness and, although it omits some features of the system, it will close debate upon the facts if it be accepted as correct. The principal differences between this system and the Hicks system are the substitution of paper for brass, recording each item separately instead of the total and using a recording sheet which is ruled instead of one that was not ruled.

Regarding the entry of the total amount upon the brass, or paper, check and upon the sheet, it will be remembered, as before stated, that the patentee says:

“Each item of the order may be entered separately on the slip and on the sheet if so desired, but, in practice, I have found it more convenient and usually sufficient for the purposes of my invention to enter the whole of any one order as a total.”

This language is too plain to admit of doubt. It is a clear declaration on the part of the patentee that if the total be entered on the slip and sheet it will infringe the claims. This being so, if a system, similar in other respects, be found in the prior art where totals are so entered, it will anticipate the claims. The complainant has endeavored to explain away this statement but we are not in the least impressed by his efforts in that direction.

The alleged prior use by McKenna, we dismiss without comment for the reason that the testimony in its support is too uncertain to satisfy the requirements of the rule that prior use must be proved beyond a reasonable doubt.

If at the time of Hicks’ application, there had been no system of bookkeeping of any kind in restaurants, we would be confronted with the question whether a new and useful system of cash-registering and account-checking is such an art as is patentable under the statute. This question seems never to have been decided by a controlling authority and its decision is not necessary now unless we find that Hicks has made a contribution to the art which is new and useful. We are decidedly of the opinion that he has not, the overwhelming weight of authority being that claims granted for such improvements as he has made are invalid for lack of patentability.

The case at bar is not distinguishable in principle, from the case of Hocke v. N.Y. Central & H.R.R. Co., 122 Fed. 467, 58 C.C.A. 627, in which this court, after describing the improvements “for securing against loss of freight” covered by the claims, said, “All this evidences good judgment upon the part of one who is experienced in the particular business, but it does not rise to the level of invention.”

In the case of U.S. Credit System Co. v. American Credit Indem. Co., 59 Fed. 139, 8 C.C.A. 49, this court had before it a patent for “means for securing merchants and others from excessive losses by bad debts, which consist of a sheet provided with separate spaces and suitable headings,” etc. The court says:

“There is nothing peculiar or novel in preparing a sheet of paper with headings generally appropriate to classes of facts to be recorded, and whatever peculiarity there may be about the headings in this case is a peculiarity resulting from the transactions themselves. * * * Given a series of transactions, there is no patentable novelty in recording them, where, as in this case, such record consists simply in setting down some of their details in an order or sequence common to each record.”

It is unnecessary to multiply authorities as we are convinced that there is no patentable novelty either in the physical means employed or in the method described and claimed in the Hicks patent.

The decree is affirmed, with costs.

Precedent and Process in the Patent Trial and Appeal Board

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Guest post by Saurabh Vishnubhakat, Associate Professor of Law at the Texas A&M University School of Law.  Prof. Vishnubhakat was an advisor at the USPTO until June, 2015, although his arguments here should not be imputed to the USPTO or to any other organization.

On May 9, the USPTO Patent Trial and Appeal Board (PTAB) designated five opinions as “precedential”—the most significant of the four labels that the agency attaches to its administrative decisions.  This action is itself a milestone, as the USPTO has designated only three other opinions as precedential over the last 22 months.  So this is a useful moment to examine the process by which PTAB opinions become precedential and to consider what this new body of administrative precedent means for the patent validity review procedures created by the AIA.

What the Current Precedential Opinions Say

The eight PTAB precedential opinions themselves are as follow:

Designated as Precedential in May 2016

Designated as Precedential in January 2016

Designated as Precedential in July 2014

What the PTAB Designations Mean

PTAB opinions come in four varieties—until recently, it was three—and each serves a different function.  The most difficult to designate and so the rarest are precedential opinions, which are binding in all future cases before the PTAB unless and until they are superseded by later binding authority.  Two particularly strong motivations for designating an opinion as precedential is to resolve a conflict among multiple PTAB decisions and to address novel questions.

By contrast, the largest and least significant set of opinions are routine; all opinions are routine by default, and some further action is necessary to elevate an opinion’s status.  Routine opinions are still binding as to the particular case, but should generally not be cited as persuasive authority except as to their particular facts.

In the middle are two more types of non-binding opinions: informative and representative.  Informative opinions articulate the PTAB’s norms on recurring issues and offer guidance both on issues of first impression and on PTAB rules and practices.  Representative opinions offer a sample of typical decisional outcomes on a given matter.  Until recently, the only middle category was informative opinions, which presented guidance on the rules and practices of the PTAB, representative samples of opinion types, or representative samples of outcomes. On September 22, 2014, the PTAB created a new category for representative opinions—ranked below informative opinions.

In short, representative opinions are a descriptive curation of routine opinions.  Informative opinions go beyond merely surveying an issue and synthesize some further normative guidance.  Precedential opinions go further still and make the synthesis binding.

How the PTAB Designates Opinions

The process for designating opinions resides in the PTAB’s Standard Operating Procedure No. 2 (Rev. 9, Sept. 22, 2014).  Any member of the PTAB may nominate an opinion to be designated as representative, informative, or precedential.  This includes the Director and Deputy Director of the USPTO and the Commissioners for Patents and Trademarks as ex officio members.  Interested parties and members of the public may nominate an opinion within 60 days of its issuance to be designated as precedential.  Nominations are received and referred by the Chief Judge of the PTAB.

Upon a nomination to make an opinion precedential, members of the PTAB discuss the proposal for a prescribed period (usually 10 business days) and then vote.  Approval by a majority sends the opinion to the Director, whose approval is also necessary.  Upon approval by the Director, the opinion is designated as precedential and published (with appropriate notice and opportunity for written objection where confidentiality applies under 37 C.F.R. § 1.14).

For opinions already designated as precedential, any member of the PTAB may suggest that later authority has overcome the opinion’s precedential value.  If first the Chief Judge and then the Director both agree, then the opinion loses its precedential force, and a notice of the change is posted in its place among the list of precedential PTAB opinions.

The Chief Judge of the PTAB may designate any opinion as informative or representative so long as it is not already precedential.

Why the PTAB’s Precedents (and Process) Matter

Both the content of the PTAB’s body of precedential opinions and the PTAB’s process have important implications for ex post administrative review of patent validity.

As to content, it is telling that all eight precedential opinions pertain to the procedural structure of IPR and CBM proceedings, particularly insofar as that procedural structure interacts with the structure of patent litigation in the federal courts.  The separation of patent powers between the executive and the judiciary is now before the Supreme Court in multiple cases, and this body of precedential opinions should be understood as a signal of the USPTO’s strong interest in shoring up its regime of administrative adjudication.

The opinions in SecureBuy, LG Electronics, and Oracle address when earlier civil actions do and do not bar a petition for PTAB review.  Westlake Services addresses estoppel in future CBM review, and there is good reason to expect that the same reasoning will apply to the parallel statutory language that governs IPR estoppel.  Lumentum Holdings rejects a jurisdictional view of certain procedural requirements, preserving the PTAB’s broad authority to choose its cases.  MasterImage 3D frames a patent owner’s ability to amend claims during review.  And Bloomberg and Garmin Int’l address limits on trial-type discovery in both the IPR and the CBM/PGR contexts.  Making these procedural and structural decisions into binding authority is, by definition, intended to bring uniformity to the PTAB’s large and increasing body of case law.

The need for such uniformity is particularly strong right now.  The Supreme Court in Cuozzo v. Lee is evaluating whether the PTAB’s authority in instituting petitions is truly nonreviewable.  The Court in Cuozzo is also considering whether the PTAB’s claim construction standard can properly remain unaligned with federal court standards, a question that turns significantly on the ability of patent owners to amend their claims during review.  The trial-like nature of PTAB proceedings is more generally under attack as to whether IPR and CBM review violate the separation of powers doctrine and the Seventh Amendment jury trial right, as the recent cert petition in MCM Portfolio LLC, Petitioner v. Hewlett-Packard Company (No. 15-1330) suggests.  In this environment of Supreme Court scrutiny, a persuasive argument that PTAB practice is proceeding with institutional coherence may do much to influence the USPTO’s autonomy in administering the validity and scope of patent rights.

Guest Post: The AIA, Inter Partes Review, and Takings Law

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In a provocative new article called “Taking Patents,” 72 Wash & Lee L. Rev. (forthcoming 2016), Gregory Dolin (Baltimore) and Irina Manta (Hofstra) argue that the Federal Government effectuated a taking through its creation and implementation of the inter partes review mechanism.  Below, Camilla Hrdy and Ben Picozzi summarize the main points of their recent response to Dolin and Manta, “The AIA Is Not a Taking: A Response to Dolin & Manta,” 72 Wash. & Lee L. Rev. Online 472 (2016).

Gregory Dolin and Irina Manta argue in a forthcoming article that the Leahy-Smith America Invents Act (AIA) effectuated a Fifth Amendment “taking” by enhancing the mechanisms for challenging issued patents in administrative proceedings. Initial data do indicate that patents are more likely to be found invalid in the new inter partes review (IPR) and covered business method review (CBMR) proceedings than in district court actions or through the IPR and CBMR’s administrative predecessors. Patentees’ have even complained that the filing of individual IPR petitions has affected their stock prices.

Has the AIA made it too easy to invalidate a patent? Have patentees been treated unfairly? Maybe. Maybe not. But one things is clear: Dolin and Manta’s argument that the AIA is a taking faces serious legal hurdles.

First, Dolin and Manta’s premise that patents are property rights protected by the Takings Clause is far less clear than they contend. While the Supreme Court has recently suggested that patents, like land, “cannot be appropriated or used by the government itself, without just compensation,” see Horne v. Department of Agriculture, 135 S. Ct. 2419 (2015) (quoting James v. Campbell, 104 U.S. 356, 358 (1882)), both that statement, and the statement it quotes, are dicta. More recent decisions express greater ambivalence regarding patents’ status under the Takings Clause.

In contrast with trade secrets, the Supreme Court has never held that patents are property under the Takings Clause. In Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999), the Court held that Congress can’t abrogate states’ sovereign immunity from patent infringement claims. In reaching this conclusion, the Court stated that patents are “surely included within the ‘property’ of which no person may be deprived by a State without due process of law.” Id. at 642. But the Court declined to rule on patents’ status under the Takings Clause. See id. at 642.

Most recently, in Zoltek Corp. v. United States, 442 F.3d 1345 (Fed. Cir. 2006) (per curiam), vacated on other grounds, 672 F.3d 1309, 1314–22 (Fed. Cir. 2012) (en banc), the Federal Circuit held (rightly or wrongly) that 28 U.S.C. § 1498 is the only means of recovery for patentees whose patents are infringed by the U.S. government. Patentees can’t bring claims for compensation under the Takings Clause. Although the court eventually vacated that decision, the court never repudiated the reasoning behind its constitutional holding.

Dolin and Manta try to get around Zoltek by arguing that, unlike government infringement—which is like a forced permit and leaves all the rights of a patent intact—the AIA “changed the scope of patent rights themselves” by subjecting issued patents to more stringent post-issuance review. However, courts have not endorsed that argument, and analogs are difficult to find.

Second, even if we accept the argument that government can potentially take patents by altering their scope retroactively, courts are unlikely to view post-issuance review proceedings as the kinds of government actions regulated by the Takings Clause. Courts assessing constitutional challenges under the Fifth or Fourteenth Amendment tend to distinguish actions intended to “cure” defects in government administrative systems from incursions on property rights. In Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), the Federal Circuit rejected a very similar challenge to IPR’s predecessor based partly on this distinction, noting that reexamination statute belonged to “the class of ‘curative’ statutes, designed to cure defects in an administrative system[,]” and that such statutes are treated more favorably for Fifth Amendment purposes even when they devalue property rights. We see little reason that a court would reach a different conclusion today.

Lastly, even if a court decides it is possible for the government to take patents by subjecting them to more stringent post-issuance review, Dolin and Manta’s argument almost certainly loses as a matter of takings doctrine. To determine whether a particular governmental action effectuates a taking, courts assess “the character of the governmental action, its economic impact, and its interference with reasonable investment-backed expectations.” See Penn. Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978). Thus, even assuming we accept that the AIA significantly devalued all patents (a big “if”), whether this constitutes a taking depends on whether patentees should have anticipated that Congress would amp up administrative review, given the existing regulatory background.

Dolin and Manta argue the AIA’s enhanced IPR and CBMR proceedings interfered with patentees’ “reasonable investment-backed expectations” by increasing the likelihood that their patents would be found invalid in administrative proceedings utilizing patentee-unfriendly rules such as “preponderance of the evidence” standard for invalidation and “broadest reasonable construction” with limited opportunity to amend. But, as Dolin and Manta concede, the AIA was enacted against a background of federal statutes and regulations that authorize challenges to patent validity. IPR and CBMR review are only the latest in a series of administrative procedures authorizing parties to offensively challenge the validity of issued patents. To us, it seems highly unlikely that the question of whether the Takings Clause applies to the creation of new IPR and CBMR review could turn on such small differences as whether or not patentees have a full opportunity to amend their claims during review.

Also, it is worth noting that beyond third party challenges to patent validity, numerous federal regulatory statutes limit patentees’ ability to exploit their inventions for purposes of health and safety. For example, various regulatory review statutes, such as the Food, Drug, and Cosmetic Act (FDCA), the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and the Toxic Substances Control Act (TSCA), practically reduce effective patent lifetimes by prohibiting patentees from commercially marketing or using protected products prior to regulatory approval. Yet none of these statutes fully compensate patentees for their losses.

Are these actions all takings as well? This conclusion has troubling consequences. Does Congress really need to compensate patentees every time it passes a statute that significantly affects the value of issued patents? Could Congress pass regulations for the purpose of restraining bad-faith enforcement of patents that have already been granted? What about judicial actions that reduce the value of patents? Do they intend for Congress to compensate patentees in these cases or to take fewer actions limiting patent rights, simply due to the fear of effectuating a taking? This seems like a dangerous basis on which to formulate patent policy.

In any case, we think that, given this regulatory backdrop and the existence of administrative review proceedings for over thirty years, patentees could foresee—or reasonably should have foreseen—that the government would continue to actively regulate patent rights without “just compensation.”

Together, these arguments persuade us that the AIA is not a taking. Nevertheless, the authors’ article is a thought-provoking and educational analysis of the constitutional implications of Congress’s recent efforts to reform the patent system. We thank them for reopening the door on this area of scholarship.

Patent Quality Symposium Report – USPTO Patent Quality Initiative Moving Forward

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

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

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

Clarity of Record Pilot

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

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

Master Review Form, Consistency, and Data Collection and Analysis

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

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

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

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

Use of Post-Grant Outcomes

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

Improved Search and Training

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

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

Collaboration

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

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

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

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

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

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

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

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Guest Post by Bruce Wexler and Edwin Mok

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cardpool: Amending Claims in Reexam after Court Judgment of Invalidity

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by Dennis Crouch

The timing of a settlement is sometimes really important for patentees — especially if a court is about to find your patent invalid.

Slightly complex story: In Cardpool v. Plastic Jungle, the district court ruled on summary judgment that Cardpool’s gift-card-exchange patent claims invalid under 35 U.S.C. 101 and dismissed the case with prejudice. U.S. Patent No. 7,494,048.  That decision was initially affirmed by the Federal Circuit in a R.36 Judgment Without Opinion. Shortly thereafter, however, the USPTO issued a reexamination certificate finding the claims (as amended in reexam) patentable (of course, the PTO did not consider eligibility but only novelty and nonobviousness).

The timing of the reexamination certificate gave Cardpool the opportunity to request rehearing from the Federal Circuit. The appellate court agreed and vacated its prior summary affirmance (although not the district court’s opinion) and remanded to the district court to consider the impact of the reexamination changes.

The parties apparently came to some agreement and thus on remand the parties jointly moved for the district court to vacate its invalidity judgment since the claims had been amended and since the PTO certificate issued before the appellate mandate. See Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330, 1346 (Fed. Cir. 2013).

However, the district court rejected the plea for vacatur — finding that the PTO decision does not “displace a district court judgment” and that it would be “against the public interest” to allow a patentee to overcome an invalidity judgment simply by “amending its invalid claims.”

No Vacation: Now, on appeal again, the Federal Circuit has affirmed the lower court ruling that vacatur is not necessary or proper:

The Supreme Court counsels that “vacatur must be decreed for those judgments whose review is . . . ‘prevented through happenstance’—that is to say, where a controversy presented for review has ‘become moot due to circumstances unattributable to any of the parties.’” U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18, 23 (1994).

Here, the mootness is due to amendments made by the patentee.  As such, the appellate court refused to vacate the district court judgment.

= = = = =

Res Judicata: What is unclear here is the level of claim & issue preclusion that will apply going forward when Cardpool asserts the patent against some third party.  Claim 1 was found invalid by a final judgment. However, Claim 1 has now been amended.   Could Cardpool sue Plastic Jungle (or its assigns) on the revised Claim 1?  Could Cardpool sue an unrelated alleged infringer? Writing for the majority, Judge Newman suggests (but does not hold) that Cardpool will be able to do so:

On the facts and procedures of this case, the issue of validity of the reexamined claims remains to be addressed in any future proceeding. In the initial proceeding the original claims were adjudicated only on the ground of subject matter eligibility under section 101. As in Aspex, the effect of a prior judgment rendered on specific issues as applied to the original claims, depends on the facts and issues of the reexamination, and invokes equity as well as law.

I pulled-up the reexamined claims and found that they were extensively amended to require that the method be computer-implemented using a processor, computer program, data requests, validation process by the processor, etc.  I would be truly surprised, if these amendments are sufficient to overcome the Alice Corp. test for eligibility (as implemented).

 

Again with the Redundancy: Although MPHJ’s claim might be obvious, HP can’t pursue that argument

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HP v. MPHJ (Fed. Cir. 2016)

Over the past few years, MPHJ has raised the ire of many with its enforcement campaign of U.S. Patent No. 6,771,381.  The claims seemingly cover HP’s multi-function scanner-printers that can be configured to email the scanned documents.  However, rather than suing HP for infringement, MPHJ sent letters to tens of thousands of businesses who HP printers seeking royalties.  A number of states took direct action against MPHJ, including Vermont and Nebraska.

HP’s response to this was to file an inter partes review proceeding challenging all 15 claims of the ‘381 patent.  IPR2013-00309.  The PTAB largely sided with HP – finding 14 of the claims unpatentable, but confirmed the patentability of claim 13.  HP appealed on claim 13, but the Federal Circuit has affirmed the Board ruling.

HP challenged claim 13 on both obviousness and anticipation grounds. However, the Board refused to institute review on the obviousness grounds — seeing that ground a ‘redundant’ to the two counts of anticipation.  The unique aspect of claim 13 is that it requires a “list of available module means for maintaining a registry” (e.g., “input, output, and process modules”).  This list was not found in either of the two separate anticipation references (Cotte or SJ5) as such, the Board found no anticipation. 

As a question of fact, an anticipation conclusion by the Board is given substantial deference on appeal and will be affirmed if “a reasonable mind might accept the evidence presented as sufficient to support the finding.” Here, the appellate panel agreed that at least some evidence supported the conclusion that the element was missing from the prior art since HP was “unable to specify” how the required list was disclosed in the prior art.

HP also challenged the Board’s refusal to institute on obviousness grounds and its failure to explain its redundancy conclusion.  On appeal, the Federal Circuit refused to address that issue — finding that appellate review of the institution decision is barred by statute.

Allowing an APA challenge to the Board’s decision to institute on the basis that the Board had insufficiently articulated its reasoning would eviscerate § 314(d) by allowing substantive review of the institution decision. Although there is a strong presumption of judicial review of administrative action, that presumption may be overcome where “there is persuasive reason to believe that such was the purpose of Congress.” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667 (1986). Congress, through § 314(d), has explicitly stated that the Board’s institution decision “shall be final and nonappealable.” Thus, that specific statutory language precludes our review.

It is unclear to me at this point whether Claim 13 is valuable – i.e., do the current HP models infringe? I guess that we’ll see.

 

= = = = =

MPHJ’s case against Vermont is still pending before the U.S. Supreme Court.

= = = = =

The court here did not address how HP had standing to appeal, from the briefs neither party addressed that issue as well.

Federal Circuit: No Opinion Serves as the Basis for Our Opinion

Patent, , , , , ,

By Dennis Crouch

Chicago Board of Options Exchange v. International Securities Exchange (Fed. Cir. March 25, 2016)[1] and International Securities Exchange v. Chicago Board of Options Exchange (Fed. Cir. March 25, 2016) (Appeal No. 2015-1743)[2]

These appeals involve three CBOE patents directed to automated trading exchange systems. All three patents (all claims) were challenged in covered business method reviews and found by the PTAB to be ineligible under Section 101 (abstract ideas).  In addition, two of the same patents (a subset of claims) were challenged in inter partes review proceedings, but in those cases the PTAB sided with the patentee and found the ISE had failed to prove invalidity (either obvious or anticipated).

The CBOE appealed the 101 invalidations, and ISE separately appealed the inter partes review denials.  In an odd set of judgments, the Federal Circuit affirmed the PTAB 101 rejections in a Rule 36 Judgment (no opinion issued).  At the same time, the Federal Circuit also dismissed the IPR appeal as moot. However, in this second case the court did issue an opinion to explain the mootness following from the original no-opinion judgment. The court writes:

In this appeal, International Securities Exchange, LLC (“ISE”) challenges the determination of the Patent Trial and Appeal Board (the “Board”) in inter partes review proceedings involving U.S. Patent Nos. 7,356,498 (“the ’498 patent”) (IPR2014-00097) and 7,980,457 (“the ’457 patent”) (IPR2014-00098). The Board found that ISE failed to show by a preponderance of the evidence that the challenged claims of the ’498 and ’457 patents are unpatentable as either anticipated, obvious, or both, under 35 U.S.C. § 102(e) and 35 U.S.C. § 103(a). In light of our decision in Chicago Bd. Options Exch., Inc. v. Int’l Secs. Exch., Case Nos. 2015-1728, -1729, and -1730, issued contemporaneously herewith, affirming the Board’s conclusion that both patents address unpatentable subject matter under 35 U.S.C. § 101, we find this companion case moot. We dismiss the appeal and vacate the Board’s decisions.

The Federal Circuit’s use of R.36 No Judgement opinions is on the rise even while wringing its hands over the USPTO’s failure to explain its judgments to institute AIA trials.[3]

= = = = = =

[1] Appeal Nos. 2015-1728, 2015-1729, and 2015-1730. These cases are on appeal from three Covered Business Method Post Grant Review Proceedings. CBM2013-00049 (Pat. No. 7,356,498), CBM2013-00050 (Pat. No. 7,980,457), and CBM2013-00051 (Pat. No. 8,266,044).

[2] Appeal Nos. 2015-1743 and 2015-1744.  These cases are on appeal from two inter partes review proceedings. IPR2014-00097, IPR2014-00098.

[3] See, Dennis Crouch, Federal Circuit: Our Muscles are Not Working, Patently-O (March 23, 2016)

Federal Circuit: Our Muscles Are Not Working :{}

Patent, , , ,

by Dennis Crouch

Shaw Industries v Automated Creel Systems[1] involves several interesting issues involving inter partes review proceedings.

One Year Filing Bar: The first involves the one-year deadline for inter partes review petitions following the service of a complaint to the future-petitioner.[2]  “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”

Here, the patentee ACS had filed an infringement lawsuit and served Shaw more than one year before the IPR filing.  However, the parties voluntarily dismissed the lawsuit without prejudice in a joint filing.  In considering the issue, the Board determined that the voluntary dismissal “nullifie[d] the effect of the alleged service of the complaint on Petitioner.” As such, the Board was free to institute the inter partes review proceeding.

On appeal the Federal Circuit followed its prior ruling Achates[3] that the appellate court lacks jurisdiction to the Board’s decision on whether the time-bar of Section 315 applies.  The panel[4] did not support the PTO’s decision and noted that the Supreme Court’s decision in Cuozzo[5] “may affect this court’s holding regarding the reviewability of the decision to institute in Achates.”

As an aside, a petition for writ of certiorari had been filed in Achates, that case, however, has settled. We’ll see if ACS takes the case up here.

The Non-Doctrine of Redundancy: The second issue involves the PTAB’s non-doctrine of redundancy.  Shaw filed two IPR petitions and in each petition the Board implemented the IPR on one ground for each claim, but declined to implement IPR on the additional grounds because they were ‘redundant’ without further explanation of that redundancy. The redundant arguments included anticipation grounds found redundant to obviousness grounds. Oddly, the PTO has stated repeatedly in the case that “there is no redundancy doctrine.”

In the appeal, the Federal Circuit again stated that it has no authority to review the Board’s decision to institute an IPR.

In the case, Judge Reyna joined the court’s opinion but also penned a judgment “concurring specially” to reflect his “deep[] concern[] about the broader impact that the Redundancy Doctrine may have on the integrity of the patent system.”  Here, the doctrine’s existence is expressly denied by those applying it. The PTO argues that it need not explain what’s happening because “the Director has complete discretion to deny institution . . . and [does] not even have to state in our institution decisions why were choosing not to go forward.”[6] Judge Reyna responds:

The PTO’s claim to unchecked discretionary authority is unprecedented. It bases this claim on the statute that makes institution or denial of inter partes review “final and nonappealable.” See 35 U.S.C. § 314(a), (d). Regardless of appealability, administrative discretion is not and never can be “complete” because it is always bounded by the requirement that an agency act within the law and not violate constitutional safeguards. See 35 U.S.C. § 2(b)(2) (PTO “may establish regulations, not inconsistent with law”). There is good reason for this. “Expert discretion is the lifeblood of the administrative process, but unless we make the requirements for administrative action strict and demanding, expertise, the strength of modern government, can become a monster which rules with no practical limits on its discretion.” Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 167 (1962) (internal quotation marks omitted).

Indeed, regardless of whether the Board’s institution decisions can be appealed, the Board cannot create a black box decisionmaking process. Conclusory statements are antithetical to the requirements of the Administrative Procedures Act (“APA”), which the PTO and its Board are subject to. 35 U.S.C. § 2(b)(2)(B); see also Dickinson v. Zurko, 527 U.S. 150, 154 (1999). The APA requires “reasoned decisionmaking” for both agency rulemaking and adjudications because it “promotes sound results, and unreasoned decisionmaking the opposite.” Allentown Mack Sales & Serv., Inc. v. N.L.R.B., 522 U.S. 359, 374– 75 (1998) (citation omitted). The APA requires that Board decisions evince both its authority to render the decision and a reasoned basis for rendering that decision. Id. at 372 (“Not only must an agency’s decreed result be within the scope of its lawful authority, but the process by which it reaches that result must be logical and rational.”). The problem here is not that the Board’s reasoning is illogical or irrational; the problem is that there is no reasoning at all.

Judge Reyna pushes further by highlighting the impact of the PTO’s non-decision on the eventual estoppel issues. The PTO suggested in the case that estoppel would not attach to the non-instituted redundant grounds since they were not instituted, but that argument makes little sense to me.[7]   And, as Judge Reyna points out, “[w]hether estoppel applies, however, is not for the Board or the PTO to decide. . . . These tribunals should not have to parse cryptic statements or search out uncited [and denied] doctrines to make this determination.”

= = = = =

Notes

[1] Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., Appeal No. 2015-1116 (Fed. Cir. March 23, 2016), on appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in Nos. IPR2013-00132, IPR2013-00584 challenging validity of U.S. Patent No. 7,806,360.

[2] 35 U.S.C. §  315(b).

[3] Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015).

[4] Opinion authored by Judge Moore and joined by Judges Reyna and Wallach.

[5] Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 890 (2016).

[6] Quoting PTO brief and oral arguments.

[7] The PTO’s argument does have some logical merit. The statute creates estoppel for arguments “raised or reasonably could have [been] raised during that inter partes review.”  Although the denied arguments were actually raised, there were raised during the institution proceeding and not the actual review.  And, since the PTO denied institution on those grounds, the party was then prohibited from raising those grounds during the review itself.

Sequenom: A great discovery should be worth something!

Patent

Sequenom v. Ariosa (on petition for writ of certiorari 2016)

Sequenom’s petition for writ of certiorari argues that the Federal Circuit and the lower courts have “dangerously overextended Mayo” and its bar to patent eligibility and that clarification is needed from the U.S. Supreme Court.   The science at issue is fascinating and stems from the problem of running dangerous fetal DNA tests.  The discovery here was that fetal DNA can be found floating around the blood of the pregnant mother and that the fetal DNA can be selectively amplified by focusing on the paternally inherited portion of its DNA (rather than the maternally inherited).  Sequenom’s patent claims two simple steps: (1) amplifying paternally inherited DNA from a plasma sample taken from a pregnant female and then (2) detecting the presence of the DNA.  Of course, the technology for these two steps was already known in the art at the time of the invention, and these two steps were (and are) the fundamental steps generally used to detect particular DNA molecules.  The Federal Circuit found these claims unpatentable under Mayo v. Prometheus because they effectively claim the unpatentable natural phenomenon: the existence of paternally-inherited cell-free fetal DNA (cffDNA) in the maternal bloodstream.

The petition for writ of certiorari asks the patent eligibility, but does so in a way that attempts to also lead the court to the answer:

Whether a novel method is patent-eligible where: (1) a researcher is the first to discover a natural phenomenon; (2) that unique knowledge motivates him to apply a new combination of known techniques to that discovery; and (3) he thereby achieves a previously impossible result without preempting other uses of the discovery?

The brief here does a good job of attempting to set-up some dividing lines for the Court – if it wishes to draw them.  The petition will have strong support from industry as well as many in academia.  However, it is unclear whether a ‘win’ here for the patentee would translate to support those seeking to patent software inventions.

[SequenomCertPetition]

Battle over Secret Sales and Secret Commercialization under the AIA

Patent, , , ,

by Dennis Crouch

Helsinn v. Dr. Reddy’s and Teva (D.N.J. 2016)

The America Invents Act of 2011 (AIA) amended the definitions of prior art under 35 U.S.C. § 102 – up for grabs in this case is whether the changes included a narrowing of the ‘on-sale bar.’  Prior to the AIA, the ‘on sale’ bar blocked patenting of inventions that had been “on sale in this country.”  Although not specific in the statute, courts interpreted the on-sale bar to include secret sales or offers-to-sell.  These typically include closed-door business-to-business and custom sales rather than retail sales.[1]  The AIA amended the statute in a number of ways – most pertinent here is addition of the ‘otherwise available to the public’ clause to Section 102(a)(1).[2]  The provision now reads:

Novelty; Prior Art.—A person shall be entitled to a patent unless—(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or

The question in this case is how to interpret the statutory phrase “on sale, or otherwise available to the public.”  The otherwise available to the public language suggests that the ‘on sale’ activity is also available to the public.  That reading, however, conflicts with the history of the on sale bar.  Which construction is correct?

The district court in Helsinn sided with the USPTO’s interpretation of the statute – that the AIA modified the definition of on-sale so that it now only includes publicly available sales activity.  This allowed the patentee in the case to avoid an invalidity finding based upon its own prior sales of the patented drug. On appeal, Teva offers its set of arguments to retain the old-meaning:

  1. In ordinary usage, an item is “on sale” whether sold privately or publicly.
  2. Courts have treated “on sale” as a term of art for almost two centuries for sound policy reasons grounded in the Constitution.
  3. Congress did not change the settled meaning of “on sale” by adding the phrase “otherwise available to the public.”
  4. The district court’s reading of “on sale” would render meaningless the crucial word “public” in [102(b)(1)(B)].
  5. A Committee Report and floor statements of two senators cannot accomplish what they failed to accomplish in the statute itself.
  6. The PTO’s interpretation is not entitled to deference.

[TevaSecretSaleBrief]

Professors Mark Lemley (Stanford) and Robert Merges (Berkeley) along with 39 other law professors have filed a brief in support of Teva’s arguments here – arguing that the new interpretation “would radically rewrite the law of prior art.”

The key legal question in the case is simple: did Congress mean to sweep away scores of established cases under the 1952 Act even though it reenacted language unchanged since 1870, merely because it added the phrase “or otherwise available to the public” to the list of prior art categories in the new AIA section 102? We think not. We have three primary reasons. First, the district court’s reading is inconsistent with the language and structure of the AIA. Second, it is inconsistent with Congressional intent in readopting the “on sale” and “public use” language in section 102. Finally, it would sweep away scores of cases decided over two centuries and radically rewrite a host of patent doctrines.

[TevaProfAmicusBrief] Moving forward, Helsinn’s responsive brief will be due April 21.

Of course, the issues here have been substantially debated already with commentators coming out on both sides of the debate:

= = = = =

AIA expanded the scope of prior art in a number of ways. This is one area, however, where it potentially shrunk the body of potential prior art.  Innovative entities with a robust business involving private-transactions and those who rely upon third-party manufacturers are the most likely to benefit by a changed-law.

An important policy question (that could also influence is the construction) is whether eliminating secret sales as prior art would actually allow an innovator secretly commercialize its patent for years and then subsequently obtaining patent rights.

= = = = = =

 

[1] The Federal Circuit has also include a manufacture-supply agreement. (E.g., a supplier seeking for to manufacture and supply your custom inventory).  This issue is currently being reconsidered by the Federal Circuit in the en banc case of Medicines Co. v. Hospira.

[2] The statute also eliminating the ‘in this country’ limitation for on-sale prior art and limited the one-year grace period associated with the on sale bar.

Trolls vs Pirates: Halo/Stryker Oral Arguments

Patent, ,

Today the Supreme Court heard combined oral arguments in the willful infringement cases of:

  • Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. (14-1513); and
  • Stryker Corporation, et al. v. Zimmer, Inc., et al. (14-1520)
  • Read the transcript.

Jeffrey Wall argued on behalf of the patentee-petitioners who argued that the Federal Circuit’s limits on awarding enhanced damages is unduly rigid – especially following the Supreme Court’s Octane Fitness determination.  The U.S. Government has supported the petitioners in this case and presented Assistant to the Solicitor Roman Martinez to argue as amicus curiae.  Carter Phillips argued on behalf of the defendant-respondents.

Wall’s approach was to highlight the general nature of the the statute, which merely states that “the court may increase the damages up to three times the amount found or assessed.” That general statute should be contrasted with the Federal Circuit’s rule that requires separate proof of both objective and subjective willful behavior.  Rather, Wall argued that we should “go back to doing a totality [of the circumstances] inquiry . . . [applying] the principles that historically guided your exercise of discretion.”  Wall also pointed to the what he sees as an important factor in the analysis: that “a patent lawyer can virtually always come up with some non-frivolous defense in litigation” and, that fact makes is virtually impossible to prove that the infringement was objectively reckless.  The U.S. Government agreed that the objectively reasonable defense “creates an arbitrary loophole that allows some of the most egregious infringers to escape enhanced damages.”

MR. MARTINEZ: So recklessness, everyone agrees, is an objective inquiry. And in every other area of law where courts are conducting an objective inquiry, what you ­­ what you’re supposed to do is you’re supposed to take a reasonable man, and you put him in the ­­ the actual person who is accused of wrongdoing, in his shoes. And you take what that actual person knew, and you figure out whether a reasonable man in that person’s shoes would have thought that there was a very high risk that the conduct at issue was unlawful.

And what the Federal Circuit does is not that. What they are essentially doing is taking the reasonable man and giving him the benefit of omniscience, giving him the benefit of hindsight and saying, what facts do we know at the time of trial? And now that we know these facts at the time of trial, . . .

JUSTICE BREYER: I didn’t think they were doing that. I thought what they were doing was saying, we are not going to allow punitive damages in a case where the patent is so weak.

. . . .

MR. MARTINEZ: I think it’s possible to imagine ­­let me ­­ let me make it concrete.

Imagine a case in which there’s intentional violation or a reckless violation based on the facts known at the time. And later the ­… infringer is sued, and he hires a law firm that scours the world, and they find the library in Germany that has a Ph.D. dissertation that has some [publication] that arguably anticipated the invention at issue. So that’s a new fact. It wasn’t in anyone’s head. No one was aware of it at the time the infringement occurred. And maybe that law firm then puts together a reasonable but wrong theory under which the patent is invalid in light of that prior art. We think that’s a case in which the ­­ the conduct was culpable at the time of ­­ of infringement, and we think that’s a case that would warrant enhanced damages.

. . .

MR. PHILLIPS: We’re not talking about a situation here where it’s obvious when something is infringed. There are thousands of patents, hundreds of thousands of patents. There are lots of entities creating new products every day, new services,

. . . .

MR. WALL: [W]e and the PTO and many of Respondents’ amici recognize, the system as it currently stands is out of balance. And we have tried, and I believe we have succeeded, in crafting an approach that balances the Court’s concerns with the need to respect the rights of patentees, including small companies like Halo.

Justice Breyer offered some concern for software companies being accused of infringing weak patents:

MR. WALL: Justice Breyer, the sky didn’t fall for a century and a half, and it’s not going to fall if you reverse the Federal Circuit’s framework, just as it didn’t fall after Octane and Highmark in the fees context.

JUSTICE BREYER: It hasn’t fallen? Go look at the market shares of the different companies that are seriously involved in software. . . . I think it’s unfortunate that Congress hasn’t passed a special regime for those kinds of patents, but they haven’t.

. . .

MR. PHILLIPS: This is not a classic copying case. I mean, in a lot of ways this case comes down to sort of trolls versus pirates in terms of how you want to analyze it.

. . . .

JUSTICE SOTOMAYOR: Mr. Phillips, there’s a whole lot of worry articulated by Justice Breyer and reflected in your briefs about protecting innovation.But there’s not a whole lot of worry about protecting the patent owner. I can’t  forget that historically enhanced damages were automatic, and they were automatic because of a policy judgment that owning a patent entitled you to not have  people infringe willfully or not willfully. And I accept that at some point there was a different judgment made that ­­ that good­faith infringers should be treated differently than other infringers, willful infringers.

But I don’t know that that swung things so far the other way that it can only be that, if you come up with something, any defense whatsoever in the litigation that’s not frivolous, that that gets you out of enhanced damages.

Some of the conversation focused on the replacement test:

JUSTICE SOTOMAYOR: It can’t be that they can give enhanced penalties on whim.

MR. WALL: That’s right.

JUSTICE SOTOMAYOR: All right? So if it’s not whim, what is it? How do we articulate a test that protects what Justice Breyer is concerned about, which I think is a legitimate concern, but doesn’t entrench a position that just favors you?

MR. WALL: We think the statute was invoked for various purposes, not just to punish infringement. . . . [W]hat the parties are really debating is the nature of the infringement. That needs to be intentional or reckless based on the facts as they were known to the infringer. . . . the strength of the notice . . . Reed factors . . .

JUSTICE SOTOMAYOR: I Don’t want to adopt that test. How do I articulate this in a more generalized way?

MR. WALL: I think what you would say is that in judging whether a reasonable person would have thought that there was a really high risk, you’ve got to take account of both the strength of the notice, what kind of notice were they on of the patent, and what would have been commercially reasonable in the industry as it exists. And I think that ­­ those factors and those limitations are going to take account of the vast bulk of what Justice Breyer and what Respondents are are concerned about.

. . . .

MR. PHILLIPS: [Good luck finding] tort cases in which the eggshell plaintiff gets punitive damages because the defendant overreacted.

In addition to the elements of the test, the court is also addressing the standards of proof and review.

JUSTICE GINSBURG: Can we at least peel off the clear and convincing evidence that seems to come out of nowhere and the standard of de novo review rather than abuse of discretion?

MR. PHILLIPS: I would desperately ask you not to take out de novo review because we’re talking about an objective standard; it’s really almost ­­ it’s essentially a question of law. The issue is, is there an objectively reasonable basis for what’s been done here? [and clear and convincing evidence standard is dicta to this case]

. . . .

JUSTICE GINSBURG: You ­­ care about de novo review in the Federal Circuit rather than testing the district court’s determination for abuse of discretion.

A substantial amount of example-time focused on “copying”, which Mr. Wall identified as the “typical” case and the extent that enhanced damages should be limited to “willful” behavior.

For this case, it appears likely that the majority will overrule Seagate but the question remains open as to what will be the replacement rule.