The United States Patent and Trademark Office exists to protect the rights of American innovators, granting them a license to reap just rewards from their inventions.
But today the U.S. patent system is under attack—in the form of a terribly wrong decision in the very court that was purposely established by Congress in 1982 to support and enforce the protections for patents enshrined in Article One of the U.S. Constitution. The court in question is the U.S. Court of Appeals for the Federal Circuit (CAFC). The bad decision is in Soverain Software LLC vs. Newegg Inc.
In September, the CAFC ruled in favor of Newegg, reversing earlier rulings that Newegg had infringed three patents of Soverain’s relating to Internet commerce technologies.
In doing so, the CAFC disagreed with the facts established by the USPTO when it decided to award Soverain the patents in the first place. It reversed two successive lower court decisions which upheld the USPTO’s position and awarded Soverain both damages and a royalty payment from Newegg. And its decision conflicted with the exact opposite conclusion from the USPTO in reexaminations of the three patents where the same prior art was considered.
The Supreme Court on November 5, 2013, heard oral argument on whether the burden of proof in an action for a declaratory judgment of non-infringement falls on the plaintiff licensee or on the defendant patentee. Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, oral argument 11/5/2013.
The debate centered around whether a patentee/defendant sued for a declaratory judgment of non-infringement is required to prove a case of infringement that was neither alleged nor arguably possible where the DJ plaintiff is a licensee. The Petitioner argued that the burden that would be on the patentee as infringement plaintiff does not change when it is a DJ defendant. The Respondent argued that, because the patentee cannot assert an infringement counterclaim against its licensee in good standing, the normal default rule places the burden on the party that initiates the action.
Patent law places the burden of proving infringement on the patentee, and the procedural device provided by the Declaratory Judgment Act does not shift that burden, according to Seth Waxman of WilmerHale, arguing for Petitioner Medtronic. The Federal Circuit erred in changing the rule where the DJ plaintiff is a licensee.
On July 18, 2013, at the US Chamber of Commerce, the Global Intellectual Property Center (GIPC) hosted an event, “India: International Outlier on IP.” The two-part event began with Congressmen John Larson (D – CT) and Erik Paulsen (R – MN) giving keynote speeches about the concerning status of IP law in India. A panel discussion followed consisting of David Torstensson, Senior Consultant, Pugatch Consilium; Manisha Desai, PhD, Assistant General Patent Counsel, Eli Lilly; and Michael Schelsinger, Counsel, International Intellectual Property Alliance.
The GIPC previously released its International IP index, Measuring Momentum, on December 11, 2012. Pugatch Consilium ranked nations based upon intellectual property rights (IPR) to provide a global overview. Various factors included patent enforcement, fairness of compulsory licensing, copyright term of protection, and membership to international treaties. Not surprisingly, Brazil, Russia, India, and China (BRIC) comprised the bottom of the list. While most would expect China to be ranked last, India was ranked last overall and in almost all individual categories, including Foreign Direct Investment (FDI), Research and Development Spending, and Membership and Ratification of International Treaties. David Torstensson of Pugatch Consilium noted that while IPR in China are lacking, some legislation does in fact exist, which helped its ranking. Notably, India is the only country in the study that is not a signatory for any international IP treaties, such as the Patent Law Treaty (PLT) and World Intellectual Property Organization (WIPO) Internet Treaties.
In the United States, attorneys, judges and others have struggled for decades to determine when, if ever, computer programs or software should be eligible for patent protection. In the 1960’s the U.S. Patent Office declared that software could not be patented. Since then, a series of court decisions have rejected that view and established that one may definitely patent software in the U.S., although the exact requirements remain unclear and critics increasingly demand that it should not be patentable.
As a starting point, 35 U.S.C. §101 provides that any new and useful process, machine, manufacture, or composition of matter, or new and useful improvement thereof, is eligible for patent protection, subject to other requirements of the Patent Act (that is, §101 is just the threshold test for patentability). Congress has never stated any limitations to the patentable categories of §101 and case law has only recognized three categories of exceptions – subject matter that may not be patented: laws of nature, physical phenomena and abstract ideas. Computer software is often found to be ineligible on the ground that it comprises abstract ideas, but courts have struggled to provide a precise formula or definition for abstract ideas.
The law as it relates to software has been in flux over the last 10 years. Many older patent applications simply do not have enough detail to satisfy the current requirements to obtain a patent, although when drafted they would have been sufficient to satisfy the requirements then in place. Describing software as a pure method claim has not worked for a long time despite the fact that in reality software is really a method. Much more than a cursory description of software as a series of steps is required in order to have hope of obtaining patent protection for software.
Indeed, ever since the Federal Circuit en banc decision in Bilski, claims have been required to be tethered to tangible components, such as data storage devices, processors, databases, controllers, servers and the like. Unfortunately, however, the Patent Trial and Appeals Board at the United States Patent and Trademark Office now has taken the position that they will ignore the tangible components within a computer implemented method claim and then look to see what remains before determining whether the claim is patent eligible. See PTAB Kills Software.
Of course, after you remove or ignore the tangible components what remains is a naked process, which is patent ineligible. Thus, deciding to ignore tangible components leads to the inescapable conclusion that no software is patent eligible. Such disingenuous reasoning has the effect of punishing applicants for writing claims as the Patent Office has mandated ever since the machine-or-transformation test was first announced by the Federal Circuit in Bilski. The test announced in SAP/Versata, which was the first covered business method review decision announced by the PTAB, cannot be the correct test, and ultimately the decision (or at least the rationale) will be reversed. Any test that has the net effect of rendering all software patent ineligible, like the SAP/Versata test, is simply not correct as I will explain more clearly below.
There are a great many people inside the patent industry that are working hard to convince themselves that the Supreme Court decision in Association of Molecular Pathology v. Myriad Genetics is not so bad. The argument goes that the Supreme Court explicitly stated that cDNA is patent eligible and that Chakrabarty remains good law. The trouble with both rationales is that they are incorrect.
It seems to me that anyone who tries to convince themselves that Myriad is anything other than a disaster is just fooling themselves. It does no good to put our heads in the sand and ignore what the Supreme Court said as if by doing so it will make a difference. Anyone who is honest with themselves knows how the district courts will interpret Myriad, and it will not be in a patentee friendly manner.
But before going to far, let me conclusively demonstrate with the Supreme Court’s own explicit language why those who are trying to convince themselves, and others, that the decision is workable are wrong.
The recent Supreme Court decision in the Myriad case, like past decisions, did not announce a clear rule that can be extrapolated from the decision and applied in other technology areas. Consequently, the determination of what subject matter is patent-eligible continues to be unclear. Patent law specifically identifies four broad categories of subject matter—process, machine, manufacture, or composition of matter—that are patent-eligible. Although very few things fall outside these categories, the Supreme Court has engrafted some exceptions and limitations onto these statutory categories. Patentable-eligible subject matter that is otherwise within these categories is deemed ineligible for patent protection if it is a “law of nature,” a “physical phenomenon,” or an “abstract idea.” The precise meaning or scope of these exceptions and limitations are difficult to enunciate despite the numerous courts that have grappled with this issue. These exceptions and limitations can be viewed as labels that are attached after a judicial balance has been made between competing or conflicting underlying concepts. Justice Thomas recognized that balance in Myriad when he wrote, relying on both Mayo, and Chakrabarty, that “patent protection strikes a delicate balance between creating ‘incentives that lead to creation, invention, and discovery’ and ‘impeding the flow of information that might permit, indeed spur, invention.’”
This balance provides the underlying justification for viewing some discoveries as being so basic or fundamental that everyone should be free to utilize them. Nevertheless, it is imperative that a clear rule or test, based on this justification, is enunciated by the Supreme Court. Any resulting rule will be imperfect because it will potentially be over or under inclusive. Additionally, it will have disproportionate effects on different industries. But the importance of a uniform and predictable rule outweighs these deficiencies because it allows a business enterprise and courts to more easily make decisions. Recent Supreme Court patent decisions have generally rejected bright line tests in favor of a more-opened ended or flexible approach. Unfortunately, this provides limited guidance to lower courts and consequently the issue remains unsettled.
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