Five years ago today, on Monday, August 20, 2007, while many of us were otherwise preoccupied with the impending doom of the claims and continuations rules promulgated by the Patent Office, the United States Court of Appeals for the Federal Circuit unceremoniously changed the law as it applies to the awarding of willful damages. Sitting en banc in In re Seagate Technology, LLC, the majority of the Court determined that the negligence standard for determining whether to award enhanced damages for willful infringement is not the appropriate standard, but rather that a reckless standard should be and now is the law of the land.
Curiously, the Federal Circuit announced this significant change to the law relating to willfulness in a case that related to a discovery dispute. Seagate Technology, LLC petitioned the Federal Circuit for a writ of mandamus directing the United States District Court for the Southern District of New York to vacate Orders compelling disclosure of materials and testimony that Seagate claimed was covered by the attorney-client privilege and work product protection. The Court, per Judge Mayer, would say that this case requires confrontation “the willfulness scheme and its functional relationship to the attorney-client privilege and work product protection.”
When the Supreme Court remanded the Federal Circuit’s original panel decision in AMP v. USPTO for reconsideration in view of Mayo Collaborative Services v. Prometheus Laboratories, Inc., I said that nothing would change in that remand. In particular, I predicted that the same two-to-one majority from that Federal Circuit panel (Judges Lourie and Moore in the majority, Judge Bryson in dissent) would again rule that the claimed isolated DNA sequences were patent-eligible under 35 U.S.C. § 101. My primary reason for my confidence in that prediction was that the Supreme Court’s 1980 decision in Diamond v. Chakrabarty (man-made living organism is patent-eligible) would control on that claimed subject matter, not Mayo Collaborative Services. See Chakrabarty Controls on Isolated DNA Sequences, not Mayo*.
So guess what happened in the AMP remand of? As I predicted, simply “déjà vu”: the same two-to-one majority ruling for essentially the same reasons, as well as confirming that Chakrabarty (not Mayo Collaborative Services) controlled on the patent-eligibility of the claimed isolated DNA sequences. For the full decision see AMP v. USPTO II (August 16, 2012).
A key provision of the Hatch-Waxman Act resides in 35 U.S.C. § 271(e)(1) which provides immunity from a patent infringement suit where the testing of the patented invention is for the purpose of securing regulatory approval from the FDA. Or to use the specific language of 35 U.S.C. § 271(e)(1), there is no patent infringement if the use of the patented invention is “solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs.”
This Hatch-Waxman provision, commonly known as the “safe harbor,” has been construed twice by the Supreme Court, and in an expansive manner to immunize alleged infringing activity. First, in the 1990 case of Eli Lilly & Co. v. Medtronic, Inc., the Supreme Court ruled that this “safe harbor” applied to medical devices, not just drugs as was originally believed (including by the respective House and Senate floor managers for the Hatch-Waxman Act). In fact, the basis for the holding in the Medtronic case makes this “safe harbor” essentially applicable to the testing of any patented invention that is for the purpose of securing regulatory approval from the FDA (e.g., food additives, cosmetics, etc.). See Guttag, “The Ever Expanding ‘Safe Harbor’ of Hatch-Waxman: The Merck v. Integra Lifesciences Case,” Cincinnati Bar Association Report, page 16 (August 2005).
The inventions described in Bancorp’s US Patents 5,926,792 and 7,249,037 concerned methods, media and systems for administering and tracking the value of life insurance policies. A representative claim reads:
A life insurance policy management system comprising:
a policy generator for generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities of the stable value protected investment;
a fee calculator for calculating fees for members of a management group which manage the life insurance policy;
a credit calculator for calculating credits for the stable value protected investment of the life insurance policy;
an investment calculator for determining an investment value and a value of the underlying securities of the stable value protected investment for the current day;
a policy calculator for calculating a policy value and a policy unit value for the current day;
digital storage for storing the policy unit value for the current day; and
a debitor for removing a value of the fees for members of the management group which manages the life insurance policy.
The Bancorp Services case involved two patents, U.S. Pat No. 5,926,792 (the ‘792 patent) and U.S. Pat No. 7,249,037 (the ‘037 patent), relating to methods, systems, and computer-readable media for administering and tracking the value of life insurance policies in separate accounts. Both the ‘792 patent and ‘037 patent share a common patent specification having a priority date going back almost 16 years (September , 1996). Also, this is not the first time the Federal Circuit has grappled with ‘792 patent. There was an earlier 2004 Federal Circuit decision which reversed a grant of summary judgment of invalidity of the ‘792 patent based on “indefiniteness,” as well as a 2008 Federal Circuit decision which vacated a judgment of noninfringement of the ‘792 patent.
On Friday, July 20, the Federal Circuit heard oral arguments in the remand of the AMP et al. v. USPTO et al. appeal – the case better known as the Myriad Genetics “gene patent” case. The supplemental briefing in this case, and the oral argument itself, continue to reveal how those with diverse perspectives on DNA patents misunderstand each other. Scientists are making dubious assumptions about the operation of patent law. Patent lawyers are making inaccurate assumptions about how the science works. And those who are neither patent lawyers nor scientists just go by what they’ve been told. The Department of Justice’s (DOJ) supplemental amicus brief and oral argument in this case are a good example of the widening disconnect.
“Kitschy, Not Catchy”
Readers will recall that this is not the first time DOJ appears in this case. Two years ago when the Myriad case first reached the Federal Circuit, DOJ filed an unsolicited brief, replete with hypothetical examples of elemental lithium, cotton, coal, isolated electrons, and other things having nothing to do with molecular biology, siding in part with the American Civil Liberties Union (ACLU), and arguing that Myriad’s claims to BRCA-encoding DNA molecules are patent-ineligible under Section 101.
In the immortal words of baseball great Yogi Berra, “It’s déjà vu all over again”. A little more than a year after they previously heard AMP v. USPTO, the CAFC panel of Judges Lourie, Bryson and Moore have once again taken up the question of whether isolated DNA and related methods are patent eligible subject matter under 35 U.S.C. §101.
To recap, last year, the same panel ruled that the composition claims reciting isolated DNA were patent eligible, with Judges Lourie and Moore supporting patent eligibility and Judge Bryson dissenting. All three Judges also agreed method claims involving “analyzing” or “comparing” DNA were not patent eligible. Lastly, all three Judges agreed that a screening claim (claim 20 of the ‘282 patent) was patent eligible. For a full discussion of last year’s decision (in English and Japanese), please click here. After the decision, AMP appealed to the Supreme Court, who later vacated the CAFC decision and remanded the case to the CAFC for further consideration in view of their Mayo decision (English summary;Japanese summary).
The Board recognized multiple characteristics that differentiate the claimed invention in the “674 patent from the prior art combination of Song and Handong. Among these, the Board specifically determined that the claimed invention possessed a “supporting arm” and that the safety wheels of a resultant combination of Song and Handong would be raised off the ground, unlike what is depicted in the ‘674 patent and recited in the claims. Still, the panel determined that the claims were invalid. How is it possible to find an invention obvious when not all of the elements are within the prior art? This is unfortunately a disturbing trend that has been brought about by a misreading of KSR.
The decision of the Supreme Court in Prometheus has been predicted to have implications for business method patentability, but the decision in what will surely become known as the Alice case provides an early indication that the CAFC may endeavour to limit its scope. Whether the claimed subject matter lies in the reality of patent-eligible subject-matter or is more correctly located in the Wonderland of abstract ideas is an issue that has been debated on both sides of the Pond, and on which the Dodo or the King of Hearts in his judicial capacity would surely have had an opinion if it had been brought to their attention. In the US there appears to be ample scope for further debate.
The patentees Alice Corporation are based in Australia and are a joint venture between a private company and National Australia Bank Limited. Their website  explains that they were established in Melbourne in 1995 and have applied for and obtained patents on their financial market innovations worldwide, including in the US, UK and other major financial centres. The patented innovations cover the trading of risk, investment, lending, exchanging and similar products. Alice exploits its inventions by licensing selected entities. Neither Alice nor Ian Shepherd who was the inventor has a significant web presence, and in contrast to the situation in Prometheus there appears to be no back-story that throws light on the merits or otherwise of the alleged invention.
After the Supreme Court ruled in Bilski v. Kappos that a claimed method for managing (hedging) the risks associated with trading commodities at a fixed price was patent-ineligible under 35 U.S.C. § 101, the Federal Circuit has gone “hither and yonder” in trying to determine when other business methods and systems reach (or don’t reach) the patent-eligibility zone. At the patent-ineligible end is CyberSource Corporations v. Retail Decisions, Inc. where Judge Dyk (joined by Judges Bryson and Prost) ruled that a method and system for detecting credit card fraud in Internet transactions was patent-ineligible under 35 U.S.C. § 101. At the patent-eligible end is Ultramercial, LLC v. Hulu, LLC (recently vacated and remanded by the Supreme Court for reconsideration by the Federal Circuit) where Chief Judge Rader (joined by Judges Lourie and O’Malley) ruled that a claimed method for monetizing and distributing copyrighted products over the Internet was patent-eligible. See Throwing Down the Gauntlet: Rader Rules in Utramercial that Breadth and Lack Specificity Does Not Make Claimed Method Impermissibly Abstract.
These polar opposite decisions in CyberSource and Ultramercial illustrate how fractured the Federal Circuit’s patent-eligibility landscape has now become for business methods and systems. The most recent split decision in CLS Bank International v. Alice Corp. Pty. Ltd. where a claimed trading platform for exchanging business obligations survived a validity challenge under 35 U.S.C. § 101 epitomizes this problem. As CLS Bank International unfortunately shows, an objective standard for judging the patent-eligibility of business methods and systems remains elusive, subject to an ever growing “tug-of-war” between the “inclusive” and “restrictive” patent-eligibility factions of the Federal Circuit. In particular, after CLS Bank International, we are no closer to having a judicially accepted definition of what is (or is not) an “abstract idea” when it comes to claiming business methods and systems.