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.
Although the Supreme Court in Alice declined to provide an express definition of “abstract idea,” the opinion is packed with evidence that the Court intended for the term “abstract idea” to apply not to any “abstract idea” in the colloquial sense, but only more specifically to abstract ideas that are fundamental practices long prevalent in their fields. Furthermore, although the Court did not provide any direct guidance regarding how “long” a practice must be in use to be “fundamental” and “long prevalent,” the examples that it used have been in use for hundreds of years, if not longer. To put it into everyday language, the Supreme Court seems to think that an idea is only a patent ineligible abstract idea if it is really, really old and well-established.
Although the U.S. Supreme Court’s recent decision in Alice Corp. v. CLS Bank has caused some to conclude that software is no longer patent eligible in the U.S., or that the Alice decision renders all but a narrow range of computer-implemented inventions patent ineligible, a careful reading of the Alice opinion indicates that such conclusions are incorrect.
One reason for the public’s misunderstanding of Alice is that the decision has thrown the USPTO into what appears to be a state of confusion. Just days after the decision was released, the USPTO issued a memo to the Patent Examining Corps explaining the USPTO’s preliminary interpretation of Alice, which indicated that examiners should continue to examine patent applications for patent eligibility in much the same way as they had done before Alice. Then, just a few weeks later (and as reported in IPWatchdog), the USPTO did an about-face without any explanation and started withdrawing Notices of Allowance from patent applications—even in cases in which the issue fee had been paid—and issuing patent eligibility rejections based on Alice, using nothing more than a standard form paragraph. In my own practice I have seen wide disparities among examiners in their application of Alice to individual cases, ranging from Alice-based patent eligibility rejections for every claim containing the word “computer” to Office Actions whose reasoning seems unaffected by Alice, and everything in between.
Justices of the United States Supreme Court. No friends to innovators who require strong patent rights.
As I was putting together the slides for this Powerpoint presentation I thought to myself, “how do I title this page.” I’ll tell you the thought that first jumped into my head, although I ruled it out: “Public Enemy Number One.” Or I suppose “Public Enemy Number One through Nine.” There is little doubt that the Justices of the Supreme Court are indeed public enemies, at least insofar as patent owners are concerned. Unless you are represented by Seth Waxman at the Supreme Court your patent claims are invalid! And even Seth doesn’t always win, although he sure wins a lot for Monsanto.
Let’s start our discussion of SCOTUS decisions with Mayo v. Prometheus. In Mayo the Supreme Court proudly proclaims that they’re not going to take the government’s invitation to apply 102, 103, and 112. Instead the Court decided to limit its handling of the issues to patent eligibility under 101. And as they go through their analysis they admit that the claim in question includes things that are not in nature, but yet they reach the conclusion that the claim is still a law of nature anyway because you’re just adding some extra stuff that already exists. It’s breathtaking. One, that’s not what the law is. Two, that’s not what the statute says. And three, every other Supreme Court throughout history specifically said never do that, and they did it anyway.
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.
No question exists that patent eligibility under Section 101 has been, and remains, the most active question in patent law. Watching the rapid flow of cases back and forth between the Federal Circuit and the Supreme Court exceeds the excitement generated by most TV shows in sheer entertainment value. The only question open for discussion is whether we are watching “Game of Thrones,” “Survivor”, or “Modern Family.” Actually, the best choice may be “Lost”.
To understand the Supreme Court’s decision in Alice Corp. v. CLS Bank Int’l, a page of history provides more illumination than a book of Lewis Carroll references. Here we need to pick up at the point when everyone thought the computer patentability wars were over.
By the late 1990’s, the last frontier was business methods. We had absorbed Diamond v. Diehr and moved on to Beauregard claims and propagated signals. Everyone was making, or wanted to be making, tons of money in the Dot.Con era, and little patience remained for outdated rules.
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.