In the recent patent case of Mayo vs. Prometheus Labs, the United States Supreme Court continued its pattern of restricting the scope of patentable subject matter under 35 US 101. Historically, patents had been strictly limited to processes, machines, compositions of matter and articles of manufacture. Excluded from eligibility were business methods, software, laws of nature, naturally occurring phenomena and mathematical formulas. Then the US Court of Appeals for the Federal Circuit began to expand the patent eligibility rules.
In Diamond v. Diehr, decided in 1981 by the United States Supreme Court, established that an un-patentable formula could be transformed into a process by the addition of method steps after the formula. Most would agree, however, that software did not widely become patent eligible until 1994 when the Federal Circuit in the Alappat case held that a programmed computer was essentially a machine and when that same computer was programmed differently, it became a second different machine – both patentable. The Alappat holding led to the acceptance of “software plus token hardware” as being patentable. Ultimately, the Alappat ruling would give rise to the State Street Bank case, decided in 1998 by the Federal Circuit, which held that business methods were patentable.
In the aftermath of these cases large numbers of patents were issued on computer software and business methods. Some of these cases gained national prominence; for example, Amazon sued on its “one click” method of purchasing goods online. The patent office was unable to fully examine a barrage of new subject matter applications, since much of the relevant art was in non-patent form. Numerous patents were issued which probably shouldn’t have been. In some instances patent attorneys and patent agents who were largely unfamiliar with computer technologies would write broad patent disclosures covering methods without much, if any, tangible being described.
The matter finally came to a head when the US Supreme Court began to clamp down on the free flow of easy patents. The first indication of the high court’s attitude appeared in 2006 in a concurring opinion in eBay v. MercExchange when Justice Kennedy commented that some patents were of “potential vagueness and suspect validity.” The next indication that the Supreme Court was growing tired of easy patents was when the Court threw out decades of Federal Circuit law relative to obviousness in KSR v. Teleflex, which lead to the rise of the “common sense” test. Still further, in Bilski v. Kappos, decided in 2010, the Supreme Court held that processes which transform an article from one state to another are patent eligible regardless of whether their use requires a machine. However, processes involving transformation of abstract financial data , such as that claimed in machine format in State Street Bank, are probably patent-ineligible unless they are tied to a machine, thereby providing a tangible tether to the process.
Although the Supreme Court avoided the issue in Bilski, they did say as early as 1978 in Parker v. Flook, that the machine (such as in Alappat) itself would be required to be novel and unobvious in each instance. The point here is that for years the US Supreme Court has narrowed the permissible scope of patent claims, only once in recent memory giving an expansive view of what is patent eligible subject matter. See Diamond v. Chakrabarty, which was decided by the Supreme Court in 1980 and found that living organisms can be patentable if they are the product of human creation. But even this ruling may well become undone in the not to distant future. After deciding Mayo v. Prometheus the Supreme Court remanded the Myriad Genetics case to the Federal Circuit for further consideration. The fate of gene patents hangs in the balance.
In this latest case, the Prometheus patent practitioners (as well as many within the patent community) were surprised that the method for optimizing therapeutic efficacy for treatment of a disorder was not patentable. The court held the claims merely provided for administering the drug to a patient having the disorder, determining the level of the drug in the patient and then setting forth the lower limit of effectiveness of the drug and the upper limit of the drug. In finding ineligibility, the court stated that “administering” the drug simply identifies a group of people who would be interested in the drug. And “determining” is a step which simply tells doctors to engage in an understood routine, and the setting limits clause is to simply tell the doctor about relevant, natural laws they should consider in the test results in making a decision. Whether you agree or disagree with the Supreme Court’s decision in Prometheus, the case has added to the Supreme Court patent jurisprudence. Once again the Supreme Court is curtailing patent rights and uprooting well established expectations within the industry.
The Prometheus decision shows that you can never know for sure what the outcome will be once you arrive at the Supreme Court. We also know that the Supreme Court is taking more patent cases now than ever, and those decisions have significant implications for the entire industry above and beyond the patent claims at issue and the parties involved. Your patent portfolio may be at risk because some other company obtained poorly written claims and the Supreme Court has taken the opportunity to decide not only the issues before them but to make decisions based on overarching concerns about the entire patent system, such as indicated by the statement of Justice Kennedy in eBay about potential large numbers of invalid patents.
IP exposure can be one of the biggest threats to a company’s survival, and particularly now given the shifting foundation of patent law and what is considered patent eligible. As the Prometheus case has once again proven, just because a patent is issued, it is not necessarily valid. Bottom line- a patent is a ticket to the court room, and is nothing more than a piece of paper on the wall if the patent holder does not have the funds to vigorously defend and enforce a patent’s valid rights. In view of the constant change in number, scope and strength of patents in this era, patent enforcement and defense insurance must be a high priority among patent owners and manufacturers. IP insurance enables companies to get through the lawsuit based solely on the merits, not the depth of their pockets.
So ask yourself this: Is your patent portfolio safe? In this time and place where the sands are shifting can you afford to fight difficult, protracted litigation in order to defend your patents? If you are like most start-up companies the answer is no, yet in many industries the entirety of the value of the company is in the patent portfolio. On this point, Jim Greenwood (former Congressman and current President & CEO of BIO) told IPWatchdog.com in April 2010:
For most of these companies the only thing that they have is intellectual property. They may have a folder with their IP portfolio in it and not a place to file it. They start off with that and then they have to raise money to even begin to have microscopes and bricks and mortar and staff. It is on the strength of that intellectual property that they have to raise all of those dollars for a very long time.
Intellectual property insurance is a most logical and economic choice for companies who find their entire value in “a folder.”