Should a District Court decide the question of patent-eligible subject matter under Section 101 as a “threshold issue” at the outset of the case – i.e., without the benefit of expert testimony and/or claims construction?
Former CAFC Chief Judge Rader at AIPLA on 10/25/14.
On November 14, the Federal Circuit issued its third opinion on the question of whether the claims in Ultramercial v. Hulu & Wild Tangent describe patent–eligible subject matter under 35 USC 101. In the first two decisions, the panel consisting of Chief Judge Rader and Judges Lourie and O’Malley, reversed the District Court’s granting of defendants’ Rule 12(b)(6) motion to dismiss based solely on the pleadings, i.e., prior to any discovery, expert testimony or formal claim construction.
In the latest decision (“Ultramercial-3”), the panel reached the opposite conclusion and affirmed the dismissal. This apparent turnaround was based on two intervening events: (1) the Supreme Court’s Alice decision in June; and (2) the fact that Chief Judge Rader was no longer on the court, and his place on the panel was taken by Judge Mayer. Much has, and will be, written about the first of these factors, so I would like to focus on the second, and in particular, the diametrically opposed views of Judges Rader and Mayer on a very important procedural issue; namely, whether the lack of patent-eligible subject matter should be a basis for dismissing a case at the outset based only on the “intrinsic” evidence, i.e., the patent itself and its prosecution history in the USPTO, without any discovery, expert testimony and/or claim construction. Notwithstanding the importance of the substantive Alice holding re how to distinguish a claim to an abstract idea from one that has a practical application, the procedural question is at the heart of the reversal of the CAFC’s holding in Ultramercial-3. The two judges’ opposing perspectives can most clearly be seen by comparing Judge Rader’s opinion of the court in Ultramercial-2 with Judge Mayer’s concurrence in Ultramercial-3.
On September 4, 2014, I had the opportunity to do a webinar conversation with Bob Stoll, former Commissioner for Patents at the United States Patent and Trademark Office and current partner at Drinker Biddle in Washington, D.C. Our wide ranging discussion lasted for just over one hour. This conversation, the first of many, was made possible with support from Innography, which is one of our sponsors on IPWatchdog.com. You can access the entire recording, which is free, by visiting Patent Eligibility in a Time of Patent Turmoil.
What follows is a bit of our conversation to wet your appetite. We discuss the Supreme Court generally, the lack of technical expertise at the Supreme Court, the realities of creating software, amicus briefs, the ramifications for watering down patent rights, the need for bright line rules and whether Congress needs to get involved.
STOLL: As someone very interested in the patent arena and getting the standards correct, I’ve been really worrying about things. I think we are in a very confusing state at the moment. I think that the courts are actually undermining patent eligibility in many different areas. And the irony seems to be, Gene, that the Supreme Court and now this Court of Appeals for the Federal Circuit seem to be not considering the fact that the United States is leading in many of these emerging technologies and specifically thinking about software and diagnostic methods and personalized medicine and gene sequences. I mean we are actually leading the world in this subject matter. We’ve developed these emerging technologies. We’re quite good at building upon a base of patents in these areas and I don’t think anybody’s taking into consideration the job creation and economic growth that these industries bring to the United States before mucking around in the standards.
Gene Quinn at the AIPF Annual Meeting in Washington, DC, September 29, 2014.
Today I am going to talk about what I call the patent pendulum. When Todd Van Thomme and I originally started talking about what I would talk about today I said that there would undoubtedly be something that comes up at the last minute. I even joked that I might wind up talking about how the Supreme Court actually got the Alice decision right, surprising us all and saying once and for all that software is clearly patentable. We all know it didn’t turn out that way. So the title of my presentation today is this: Dark Days Ahead: The Patent Pendulum.
As you are probably all familiar, patent law never stays the same in the same spot. It is always swinging one or another, either swinging more towards stronger patent rights and the patent owner, or away from strong patent rights and away from the owner. It has been that way throughout history.
Normally what’s happened is that we’ve seen the pendulum swing over longer periods of time, like over decades, and then it’ll move away. For example the 1952 Patent Act was premised on the fact that Congress didn’t like the way the law was developing over the preceding years and wanted more things be patentable, hence the 1952 Patent Act did away with the flash of creative genius test. So things swung back toward a more patent friendly law, at least for a while. And then in the 1970s no courts ever saw a patent that actually had valid patent claims. This famously prompted Congress to create the Federal Circuit. Under the guidance of Chief Judge Markey and Judges like Giles Sutherland Rich and Pauline Newman, who is still on the court, the pendulum swings back toward the patent owner once again.
Chief Justice Warren Burger (L) authored Diamond v. Chakrabarty, while then Justice William Rehnquist (R) authored Diamond v. Diehr.
For those in the patent law world who may have been hiding under a rock, we have been flooded recently with lower court rulings on patent-eligibility under 35 U.S.C. § 101 after Alice Corp. v. CLS Bank International. Like a tsunami, these lower court rulings are uniformly sweeping away any patent in its wake as being directed to merely an “abstract idea” that doesn’t provide “something more.” Those quoted words are taken from Our Judicial Mount Olympus’ two-part test in Alice which is derived largely in part from the so-called “framework” of Mayo Collaborative Services v. Prometheus Laboratories, Inc. for separating patent-ineligible “claims to laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” See Ignorance Is Not Bliss: Alice Corp. v. CLS Bank International*
Briefly, the two-part Alice test says: (1) “determine whether the claims at issue are directed to one of those patent-ineligible concepts”; and (2) “search for the ‘inventive concept’ —i.e., “an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” In every court case I’ve read so far, all of those lower court rulings have dogmatically (and restrictively) applied this two-part Alice test to rule the patent claims on systems and/or methods (all involving so-called “business methods”) to be patent-ineligible under 35 U.S.C. § 101. In fact, I’ve only seen one reported PTAB decision (U.S. Bancorp. v. Solutran, Inc.) where patent claims on systems and/or methods involving these so-called “business methods” passed muster under this two-part Alice test.
There was a lot riding on Alice v. CLS Bank, and the Supreme Court got it wrong. There is no point in sugar-coating it, or pretending that everything will be alright. The Supreme Court is openly hostile to patents, and increasingly so is the Federal Circuit. Simply stated, strong patent rights are an absolute prerequisite for a high tech economy.
It is a sad realization, but we are indeed at a point were commercially viable claims worth litigating are virtually assured to be invalid claims. Until this changes the economy suffer in due course. After all, it isn’t the copycats who create new things. Copycats copy and innovators innovate. You cannot infringe patents owned by an innovator and claim that because the product is new to you it is an innovation. NO! It is merely new to you and a rip-off from the true innovator.
On the very same day that the U.S. jobs report shows unexpectedly weak growth, the Federal Court of Australia issued a ruling directly opposite to the ruling rendered by the United States Supreme Court relative to gene patents. In Yvonne D’Arcy v. Myriad Genetics, Inc., the Federal Court of Australia ruled that Myriad’s claims to isolated DNA are patentable under the laws of Australia. That is the correct ruling, and it is the ruling the U.S. Supreme Court should have reached in Association of Molecular Pathology v. Myriad Genetics. As the patent eligibility laws of the U.S. become increasingly inhospitable to high-tech innovative businesses we can expect more job losses and worse news for the U.S. economy on the horizon.
By now virtually everyone in the patent industry is aware of the Supreme Court’s decision in Alice v. CLS Bank. What is less universally understood is the full extent of the decision. My immediate reaction was that this would be extremely bad for software patents. Many others thought I was engaging in extreme exaggeration. Since then, however, the Patent Office has started issuing Alice rejections where no previous 101 patent eligibility rejection stood, they have been withdrawing notices of allowance after the issue fee has been paid in order to issue Alice rejections, and the Federal Circuit is strictly applying the nebulous “Alice standard” to find software patent claims patent ineligible.
It is now clear that the Supreme Court’s decision in Alice fundamentally changed the law and future of software patents, at least those already issued and applications already filed, which cannot be changed without adding new matter. Those applications were filed at a different time and under a substantially different regime.
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.
Recently I had the opportunity to interview Bob Zeidman, the president and founder of Zeidman Consulting, who is also the president and founder of Software Analysis and Forensic Engineering Corporation, Zeidman is an software expert. In fact, in addition to consulting with lawyers and technology companies, he is an testifying and consulting expert witness. The premise of our conversation was the upheaval in the patent industry thanks to the Supreme Court’s decision in Alice v. CLS Bank. In part 1 of our conversation we discussed the decision and ways that attorneys can build a specification to satisfy the Alice standard. In part 2 of our 3 part discussion, which appears below, we wrap up our discussion of the Alice decision and dive into a discussion about the fact that many in the computer science world don’t believe what they do to be particularly innovative or even special.
QUINN: And then there’s always the fear that if you put in code then you’re gonna be limiting yourself. I don’t think that’s really a justifiable fear as long as it’s put in properly as illustrative instead of limiting. You know, I mean the folks in the chemical world, they do this all the time. They have example after example after example after example, which is a great way to disclose what it is that you have, what it is that you’ve tried, what it is that you know that works.
ZEIDMAN: Exactly. It seems like if there is some ambiguity in the claims then you would go back to the specification to see if the code there could clarify the claims.
As I was reading recent Federal Circuit decisions I initially skipped right past I/P Engine, Inc. v. AOL, Inc. (CAFC, August 15, 2014). After all, this decision was non-precedential, so how important could it really be? But the Federal Circuit seems to have a peculiar definition of “non-precedential” these days.
In this case the jury found that the asserted claims were infringed, the jury found that the asserted claims remained non-obvious because the defendants’ evidence did not establish obviousness with clear and convincing evidence, and the plaintiff won a verdict of over $30 million with an ongoing royalty rate of 3.5%. The district court judge reviewed the jury determinations, particularly with respect to obviousness, and found that the jury was correct. The Federal Circuit, in their infinite wisdom, disagreed and found the asserted claims obvious. To do so the majority provided no deference to the factual determinations of the jury.