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Patent law has always swung like a pendulum. The law swings between extremes, spending very little time in the middle. It is easy to get caught up with the shifting laws and even easier to start looking at the trees instead of the forrest, worrying where there is really no need to become so distressed. Lately, however, there has been an ever increasing and significant assaults on patent rights. It is not much of an exaggeration to wonder whether any commercially relevant innovation can be and remain patented. We seem to be back to the days when valid patent claims were those that had not been litigated. Today it is more fair to say valid patent claims are those that haven’t reached the Supreme Court or the Federal Circuit. Ubiquity is now the touchstone of ineligibility, or obviousness, rather than being celebrated for such wide spread adoption.
I am more concerned now than ever that the pendulum has swung so far and has gained so much momentum that it will fly clear from its support base point. I raised this with Ray Niro, the famous patent litigator who was originally called the first patent troll, back in July 2013. Then he told me: “looking at the bright side of things, I believe that the pendulum will swing. I believe it will come back.” I again asked him his thoughts on the matter in another interview approximately 11 months later, Niro said that he thought the pendulum would swing back, but he was far less optimistic.
Niro wen on to say:
[I]t’s going to be a long time and it will take the disaster mode to do it. I think, as the economy tanks, there is less innovation and, as the big companies start to get bitten by these adverse decisions (maybe in the Apple/Samsung wars), you’re going to see the pendulum swing back. When you wreck the patent system and you create a disincentive, now you have big company A suing big company B they’re gonna get—one of them is going to be unhappy. And it’s probably going to be the plaintiff that is unhappy. Well, as they see their portfolios eroded because of split infringement, because of Section 112 definiteness, because of patent eligibility, because of the minuscule damages that they can recover, you’re going to see a backlash at some point and an adjustment. But I think it’s going to take a long time, Gene. I don’t think it’s a matter of months. I think it’s many years before people wake up. I just hope that we haven’t wrecked the country in the process.
And therein lies the problem. Without any legitimate statutory precedent or authority the Supreme Court is wrecking the U.S. economy just as sure as snow is white and water is wet. Unfortunately, a terribly divided Federal Circuit is causing their own brand of destruction. We are entering a dark time for patents; one that will have a significant deleterious effect on the U.S. economy.
While the Supreme Court is assaulting patent rights vis-a-vis patent eligibility, the United States Court of Appeals is assaulting patent rights from a different angle — obviousness. The Federal Circuit has long been infatuated with de novo review, which means that they get to do whatever they want and give absolutely no deference to the district court and/or jury, but lately the Federal Circuit has ratcheted it up a notch.
Recently in a non-precedential opinion in I/P Engine, Inc. v. AOL, Inc. (CAFC, August 15, 2014), a majority of the Federal Circuit panel assigned found all the asserted claims obvious. See Federal Circuit Ignores Jury Finding of Non-obviousness. They declared that no reasonable jury could have determined otherwise. The problem is that EVERY decision maker who had previously reviewed the claims disagreed, as did Judge Chen who dissented. Indeed, the patent examiners that issued the patents in the first place found them patentable and non-obvious, the reexamination examiners who again reviewed the patent claims in question found them patentable and non-obvious, the jury found the asserted claims non-obvious, and the district court reviewing the jury verdict on a JMOL also found the asserted claims non-obvious. There was also specific and direct evidence introduced that would support a jury determining that the asserted claims were non-obvious. In legal terms this means that there was substantial evidence to support the jury finding, but the Federal Circuit ignored it nevertheless.
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Truthfully, not only could a reasonable decision maker find the claims to be non-obvious, but EVERY decision maker other than Judges Wallach and Mayer found the asserted claims to be non-obvious. The unreasonable parties seem to be Judges Wallach and Mayer. In fact, a reasonable person might well conclude that when everyone else disagrees they are the ones who are being unreasonable.
The aforementioned disregard for the factual decisions of the jury and utter disregard of all other decision makers in the chain is problematic. It is even more problematic because this was not an isolated incident. The same exact scenario presented itself in Soverain Software v. Newegg, which the Supreme Court refused to accept. See Soverain v. Newegg: Not An Ordinary Obviousness Dispute. Ever more distressing in the Soverain debacle was the fact that Newegg appealed asking only for a new trial. Soverain responded to the appeal, but the Federal Circuit took it upon themselves to find the asserted claims non-obvious. But Soverain was never afforded the opportunity to present arguments that the asserted claims were non-obvious because a that was not at issue. They lost the claims anyway.
To show just what a mess the Federal Circuit has created, Soverain is now going back to the Federal Circuit in Soverain Software v. Victoria’s Secret, which will be argued at the CAFC on October 10, 2014. Victoria’s Secret is trying to claim that Soverain lost the asserted claims when they lost to Newegg. Soverain, however, made the persuasive argument that Federal Circuit Newegg decision couldn’t have any collateral estoppel effect since the Federal Circuit didn’t provide Soverain with the opportunity to argue non-obviousness. That is, of course, the proper legal determination and perfect evidence of what happens when the Federal Circuit over reaches. To call this a mess doesn’t even scratch the surface. Stay tuned for more coverage of this appeal on IPWatchdog.com in September.
Along these same lines, how could the claims lost by I/P Engine actually be lost as to others? The Federal Circuit for some inexplicable reason made the decision non-precedential, which means it has no binding authority on anyone other than the parties involved. So I/P Engine should be able to sue others on those same claims that they lost without any collateral estoppel. Talk about a complete lack of finality. But this is what you get when the Federal Circuit is more interested in being a super-trial court than an appellate court that limits review to appealable matters.
Unfortunately, from an economic standpoint a restrictive 101 view and an expansive view of obviousness that renders all commercially relevant innovations either patent ineligible or obvious will cost the US industry and economic opportunity. The US became the world home of biotech because laws in the UK (the previous center of gravity) became less favorable compared to the laws in the United States, thanks in no small part to the Supreme Court’s decision in Diamond v. Chakrabarty. While Chakrabarty was a patent eligibility decision we shouldn’t make the mistake of thinking that everything will go back to normal if only the Supreme Court were to discover a clue or Congress were to get involved and do something useful — and yes, I am fully aware of how pollyannaish that last sentence reads.
Still, it is widely known to be true that the Supreme Court’s decision in Diamond v. Chakrabarty was instrumental in the creation of a dynamic and flourishing biotech industry in the United States. “By finding that subject matter derived from nature is eligible for patenting if it is modified by man into something new, useful and unobvious, the Court provided assurance to biotech companies and their investors that emerging technologies are protected by the patent system even if they could not have been foreseen when the system was created 200 years earlier,” explained Jim Greenwood, President and CEO of the Biotechnology Industry Organization, in June 2010 on the 30th anniversary of the decision.
In Chakrabarty the Supreme Court held that living matter is patentable eligible if it is created by man. The Supreme Court in Chakrabarty explained:
[R]espondent’s micro-organism plainly qualifies as patentable subject matter. His claim is not to a hitherto unknown natural phenomenon, but to a nonnaturally occurring manufacture or composition of matter – a product of human ingenuity…
(emphasis added). This marked the first time that products of genetic engineering could be protected. It was game-changing for the simple reason that companies tend to locate in countries that have hospitable climates for business success. A big part of business success is being able to protect innovative creations so others cannot free ride and copy without having invested time, money and energy themselves. That is why there is a corporate density in countries where patent laws are favorable. This is one reason India, for example, struggles to get anything other than generic pharmaceutical companies.
The Chakrabarty decision revolutionized the biotechnology industry in the United States. Chakrabarty was quite clearly the turning point for the biotech industry. “There is no question that the Chakrabarty pivotal decision had a seismic effect on US patent policy, giving birth to a new mode of thinking at the United States Patent and Trademark Office,” then USPTO Director David Kappos explained in 2010 at the 30th anniversary celebration of the birth of the biotech industry. “Not only did this establish a sweeping precedent for future biotechnological discoveries, but it unleashed the opportunity to leverage the life sciences into new industries, new jobs, and new solutions. By allowing bio-patents to fuel the fire of our creative genius in addressing our most human of problems—advancements in medical therapies started granting families a new lease on life.”
The fact that the biotech industry has flourished in the United States and languished by comparison elsewhere shows the importance of an expansive view of what is patentable subject matter. But it would be naive to draw such a limited conclusion. Had the Supreme Court found genetically modified bacteria to be patent eligible but the Federal Circuit routinely ignored the Patent Office, district court judges and overruled factual findings of juries the outcome would have been quite different. The biotechnology industry flourishes because of patent protection. Patent eligibility is required, but the Federal Circuit upholding patent claims as non-obvious when fact finders have made those determinations is also required because at the end of the day it doesn’t matter why a patent claim is invalid, just that it is invalid.
We will see that happen with biotechnology and software in the U.S. as patent eligibility continues to evaporate and as the Federal Circuit continues to whimsically knock down patents that have been thoroughly vetted through examination, reexamination and multiple litigations. By the time Congress figures it out things will have gotten worse, perhaps catastrophically bad.
Next week, on September 4, 2014, at 12pm Eastern, I will host a free webinar discussion on the issue of patent eligibility turmoil with Bob Stoll, the former Commissioner for Patents at the USPTO and current partner with Drinker Biddle. We will discuss many of the issues raised in this article, including:
- The Supreme Court’s recent determinations in Alice v. CLS Bank, Myriad v. AMP, Mayo v. Prometheus and Bilski v. Kappos.
- How the Federal Circuit and Patent Trial and Appeals Board are interpreting and implementing the new Supreme Court mandates.
- What the United States Patent and Trademark Office is instructing patent examiners to do and the future of rulemaking.
- Ramifications for the biotechnology and software industries as patent eligibility continues to contract.
You can expect a lively conversation.