It is one again time to take a moment to look back on the year that was, reflecting on the biggest, most impactful moments of the year. For us that means looking backward at the most impactful events in the world of intellectual property.
Unlike in years past where we would get a variety of different perspectives from industry insiders, there was unanimous agreement among those participating this year. Hands down the biggest moment in the intellectual property world was the Supreme Court’s unanimous decision in Alice Corp. v. CLS Bank. Shortly after the Supreme Court issued its decision Chief Judge Paul Michel (ret.) told me that the decision would create “total chaos.” I wish I could say he was wrong, but we all knew that would be the case, and it has been the case. We now have diametrically opposed views from the Federal Circuit on virtually identical claims (see Ultramercial and DDR Holdings). So below you will see a lot of mention of Alice from a variety of different perspectives.
The one moment that no one mentioned, but which long term has the potential to be significantly more important than Alice is the retirement of Chief Judge Randall Rader from the Federal Circuit. He first stepped down as Chief Judge in May and then retired in June. Edward Reines was later disciplined by the Federal Circuit for his actions relating to an ethical matter arising from the events that lead Rader to step down as Chief Judge. Losing Judge Rader from the Federal Circuit will be a huge blow for the patent system to absorb.
In any event… and without further ado… I present the reflections on 2014 from industry insiders.
Chief Judge Paul Michel (ret.)
United States Court of Appeals for the Federal Circuit
1. The PTO announcement of a comment period lasting until March 16, 2015 on its newly-revised eligibility guidelines.
That is a tacit admission that Alice has thrown Section 101 law into disarray. Neither examiners nor APJs can apply the subjective and vague standards fairly and consistently.
Mayo now applies to computer science and Alice to life science. “Inventive concept” and “something more” now apply to all technologies. Uncertainty abounds, threatening innovation.
Untold thousand of issued patents have been cast into a purgatory of doubtful validity. If their value and enforceability plummet, R&D investment incentives will go into free fall. Factories will not get built, jobs will not get created. New products, including cures for disease, will never reach consumers.
National innovation policy is being made by the Supreme Court, not Congress, despite a lack of authority, expertise and a factual record. Dicta from Supreme Court opinions, old and new, controls our statutory patent system, locking it into ancient and inaccurate assumptions by technology-challenged Justices.
Guideline revisers or Congress, however, can and may right the listing ship, preventing technology stall, brain drain, and R&D disinvestment.
2. The PTO seeking input for revision of Regulations and guidelines governing AIA review proceedings.
Early results suggest present Board practices and procedures may unduly disadvantage patent owners. They face increased costs, no presumption of validity, lower burden on challengers, laxer claim constructions and nearly insurmountable barriers to amending challenged claims. Delays are another problem, despite the PTO admirably meeting the one-year deadline for decision in every case. District courts, however, typically stay enforcement suits pending final adjudication of validity. Including appeal, finality can be delayed for nearly three years. Serial petitions can further delay enforcement of valid and infringed patents.
Kudos to PTO leaders, here too, for revisiting their own paperwork. Unfortunately, the Federal Circuit is too boxed in by the AIA to help much. Thus, once again, only guideline revisers or Congress can restore a functioning patent system.
3. Senator Durbin’s questions to Director-designate Lee at her confirmation hearing suggesting that before enacting further “reforms”, Congress should assess the impact, in just 2014, of dramatic Judiciary reforms, landmark court decisions and AIA implementation results.
Proposed legislation that is still more adverse than the AIA to the owners of two million patents trying to license or enforce their rights surely appears premature, and likely unnecessary. Ironically, the Goodlatte and like bills would hobble responsible owners, the vast majority, without actually deterring the limited number of frivolous suits and abusive asserters.
4. Recent discussions among patent community leaders of alternative patent reform legislation.
It would guarantee full funding for the PTO, rebalance AIA reviews, improve the Patent Pilot Program, protect judicial independence, restore eligibility for crucial inventions in computer and life sciences, and contain other measures to protect and increase investment in vital R&D and job-creating commercialization
Let us hope the New Year will indeed be happy. But that will require Congress to pause its rush to legislate and to get the true facts straight. And, it will mean the PTO must make guideline changes on a continuing basis. Let us hope both policy makers are up to the job.
As we approach 2015, it is clear that there will be no “uneventful” years in the future of patent law. Given the tremendous value of patents to the U.S. economy, it’s hardly surprising that an ever-growing cadre of patent lobbyists, pundits, reporters and “experts” spent 2014 discussing patent policy.
The Supreme Court’s decision on subject matter patent eligibility in CLS Bank v Alice was the biggest patent event of 2014. A severely splintered decision from an en banc panel at the Court of Appeals for the Federal Court (CAFC) cried out for a grant of cert by the Supreme Court. Like dutiful children on Christmas Eve, we waited for the gift of an enlightened holding in Alice. Instead, what emanated from the highest court in the land was an edict that the particular financial business methods of the claims in Alice were not patentable. However, we were told that software and business methods are still patentable subject matter. We were also instructed that abstract ideas without “significantly more” are not. So, while the Court didn’t provide the bright-line test that some had expected, their restraint was equally meaningful. Already we’ve seen more than a dozen lower court decisions attempting to interpret and apply the guidance with varied results. The PTO guidelines implementing Alice and lower court decisions will continue to be one to watch in 2015.
The Alice decision was particularly meaningful, as it came on top of earlier Supreme Court decisions in Prometheus and Myriad, which limited patentable subject matter eligibility in the life sciences areas. A perceived trend towards narrowing patent eligibility galvanized the patent community and jump-started efforts by many to blunt the impact of these decisions, which, among other negative effects, are expected to inhibit business growth in the U.S.
Another pivotal event this year was Senate Majority Leader Harry Reid’s decision not to bring the patent reform bill to the floor of the Senate, even after the bill passed overwhelmingly in the House. The legislative delay was met with much consternation by those calling for reform, and it seems as if the final chapter in legislation has yet to be written. That said, the legislative pause allowed time for internal changes to be implemented at the USPTO that addressed some of the relevant concerns, and further cleared the way for judicial decisions affecting litigation reform to resolve many of the issues the legislation was intended to cure. When the House and Senate reconvene in January, policymakers should assess these changes as they consider the next round of patent litigation reform bills.
My last candidate for important patent event of 2014 is President Obama’s nomination of Kara Farnandez Stoll to serve on the Court of Appeals for the Federal Circuit. In full disclosure, Kara is married to my brother, Tom Stoll, so her nomination is not only the talk of the patent bar, it is the talk at our dinner table as well. What I know for certain is that Kara is not only a fine person and awesome mother of three – she is also an outstanding patent lawyer with the integrity and judgment to serve at the CAFC with distinction for many years.
The biggest moment in patent law in 2014 was unquestionably the June decisions in Alice v. CLS Bank. It has fundamentally changed the rules of the game for business methods and software patents, to an extent I think we don’t yet understand. In the past when the Supreme Court has restricted patentable subject matter the Federal Circuit has found ways to limit the reach of the decision, but I think Ultramercial suggests that the new court is no longer willing to do that. The new normal may lie somewhere in between Ultramercial and DDR.
I imagine that many contributors to this article will mention the Supreme Court’s ruling in Alice v. CLS Bank, and that is as it should be. If it was not immediately obvious that it was a landmark case, there can no longer be any doubt about it. The ways that the USPTO examination process has changed for applications affected by that ruling are significant and measurable. Come back when IP Watchdog publishes its “Patent Wishes for 2015” panel next week to read how I hope the situation will play out.
Assuming others will more specifically address Alice, I will address one of the biggest realizations my team’s came across this year as we researched how prosecution of foreign applications unfolds in the United States. We uncovered the surprising extent to which many foreign firms are hampering their own patent prosecution efforts, an issue that became visible while we were using LexisNexis PatentAdvisor to analyze USPTO data to assess the causes of unusually long application pendencies in a number of art units.
What we discovered is that a surprisingly high number of foreign applicants tend to follow strategies that undesirably mimic the patent prosecution they conduct in their home jurisdictions. A common characteristic of the problem is responding to office actions with narrowly focused amendments to a single independent claim. These responses may overcome the objections of foreign examiners; however, in the United States, they usually lead to drawn out, incrementally advancing prosecutions. U.S. practitioners generally respond to an initial office action with multiple arguments that give an examiner more options for granting allowances. When foreign firms limit their U.S. IP counsel’s role to forwarding their application correspondence to the USPTO, this rigor does not take place and their applications are usually delayed as a result. My team will continue to study this issue in 2015, but it does appear that a more U.S. centric prosecution strategy would significantly benefit foreign applicants.
When considering the most impactful patent development in 2014, it’s hard not make a beeline to the Supreme Court’s Alice decision. But rather than focus on the decision’s immediate impact on software patents, I base my vote on the fact that Alice gave district court judges a powerful tool for dismissing cases at the pleading stage. No discovery needed at all. If a given patent’s claims can be overgeneralized to a phenomenon that humans have been doing before the phenomenon was implemented in software — and many can — then a district court judge has all the ammunition needed to find the patent ineligible under § 101 and dismiss the case. Not in recent memory has it been so easy for a district court judge to dismiss a case at such an early stage. A true game changer indeed.
Unlike many, however, I do not believe the situation will significantly improve anytime soon, even if the Federal Circuit does begin delineating the limits of Alice in cases like DDR Holdings. First, the Federal Circuit appears fractured on Alice issues and unable to agree on the types of inventions that should pass muster under Alice. Validity is thus very much in the eye of the Federal Circuit panel that hears a given case on appeal. Second, regardless of how any district court judge rules with respect to any particular Alice challenge, the Federal Circuit isn’t going to review that ruling with deference anyway.
And uncertainty, plus lack of deference on appeal, equals very little incentive for a district court judge to let a case proceed through discovery, to the tunes of millions of dollars, when § 101 issues are in doubt. After all, why let a patent case proceed, only to hear from the Federal Circuit in the end that the asserted patent didn’t even qualify as patent eligible subject matter in the first place? Until the Federal Circuit has reviewed a given patent, and given it the § 101 stamp of approval, the district court judge has every incentive to force that review to happen on appeal.
Unfortunately, this misalignment of incentives now rears its head with most of the important issues in a patent case — §101 is just the latest addition to the list. And until district court judges start getting more deference on appeal, things are not primed to get any better. Luckily, the Supreme Court might have something to say on this very issue in 2014 when it issues its decision in Teva v. Sandoz. That will be something to look forward to.
I think everyone agrees that the Supreme Court’s decision in Alice Corp v CLS Bank was the one of the biggest moments in IP for 2014. The fate of software patents is now questionable as the court’s decision made things muddier rather than clearer by stating that software is definitely patentable, but performing steps by a computer is not patentable because that’s abstract. To add further murkiness, the court added that such abstract computer steps are patentable if they improve on an otherwise unpatentable abstract process. Huh? Software patents in re-exam have since been dropping like teenage girls at a One Direction concert.
Another biggest moment in IP for 2014 was the hacking of Sony computers by North Korea. President Obama made a disapproving face toward North Korea and sternly said he was disappointed by their “cyber-vandalism,” shortly before leaving on yet another vacation. This incident has shown that dictators really don’t care if they are on the right side or wrong side of history, and companies and governments better wake up to the fact that securing their IP needs to be their highest priority.
The U.S. Supreme Court’s decision in Alice Corp. v. CLS Bank sent all of us who work with computer-related patents on a real roller-coaster ride. At first it seemed that the decision might eliminate software patents and any computer-related patents that did not cover new hardware. Then a closer reading of the decision, and the USPTO’s initial guidance on Alice, seemed to indicate that little would change with respect to the patent-eligibility of software. Within weeks, however, the USPTO changed course and began not only rejecting new software patent applications but also withdrawing Notices of Allowance from previously-allowed applications.
This was the beginning of six months of volatility and uncertainty, with no clear guidance from the USPTO, and with Examiners adopting a wide range of approaches to patent eligibility of software. Patent applicants and practitioners had to decide whether to wait out the storm, improvise, give up, or craft strategies consisting of some combination of the above. As the year drew to a close, the USPTO issued long-awaited revised guidelines for patent eligibility, which seem to reflect a narrow interpretation of Alice and other recent precedent, under which most claims will remain patent eligible. We may enter 2015 with a patent eligibility landscape that is not too different than that which existed right before Alice, in which case a return to normalcy may be right around the corner.
After the Federal Circuit’s en banc panel delivered seven opinions on CLS Bank v. Alice in 2013, most of us would agree that the Supreme Court’s ruling in 2014 was the most significant IP event of the year. Confusion made its way into odd nooks and crannies. For example, I found myself in the office of a patent examiner who casually threatened a potential “abstract idea” rejection “due to Alice” even though the claims required hardware accelerometers and magnetometers in order to generate a 3D video environment on the screen of a mobile device. I kid you not.
2014 likely set a new high water mark for public awareness of privacy breaches – from vast quantities of consumer credit cards and celebrity photos to the massive attack on Sony’s corporate data. Taken together, we are invited to reconsider our sense of self and personal boundaries, our beliefs about free speech, trust, ideas, and our expectations for our relationships with corporations and governments. Now is a good time to debate and direct how technology will transform our interdependent futures.
Finally, “The Imitation Game” offered significant historical perspective on these questions. We were gifted with a profound cinematic tribute to one of the most significant inventors of our time, Alan Turing.