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.
Ten years ago if you said that patent eligibility would become one of the most important, hotly debated issues in the patent field most in the industry probably would have thought you simply didn’t know what you were talking about. Five years ago some saw the issues percolating, but still many in the trenches with their day-to-day practice life would likely still have raise a cautious eyebrow and questioned why you thought even the Supreme Court might turn its back on a solid generation of well established patent law. The tone was perhaps cautious, but most couldn’t imagine that the Supreme Court and the Federal Circuit would cease their expansive view of patent eligibility.
Oh how times change!
Today, after several years of substantial turmoil, patent eligibility in a variety of economically significant technologies is extremely uncertain, including software, natural products, medical diagnostics and personalized medicine. It is with great irony that one of the few things we know with any degree of certainty is that business methods are patent eligible. We likewise know that at least some cDNA is patent eligible, except that man-made cDNA that happens to be identical to what occurs in nature. Of course, that raises more questions than it answers.
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.
One of the most difficult issues in antitrust and patent law involves “pay for delay” or “reverse payment” settlements. Today, for the first time, the Supreme Court entered the fray, finding – in a 5-3 opinion written by Justice Breyer (with Justice Alito recused) that these agreements are not immune from antitrust scrutiny.
The settlements arise under the Hatch-Waxman Act, the law enacted by Congress in 1984 to foster drug innovation and challenges to invalid patents. Under the Act, the first generic to challenge a brand firm’s patent, claiming invalidity or noninfringement, obtains a valuable 180-day period of marketing exclusivity. This period, however, has encouraged brand firms to pay generics to drop their patent challenges and delay entering the market.
In the past decade, the Federal, Second, and Eleventh Circuits have upheld pay-for-delay agreements. They have emphasized the benefits of settlements, have claimed that payments fall within the “scope of the patent,” and have highlighted patents’ presumption of validity. In the summer of 2012, however, the Third Circuit created a circuit split by finding that pay-for-delay agreements were presumptively illegal.
Justice Stephen Breyer wrote for the majority in FTC v. Actavis.
On Monday, June 17, 2013, the United States Supreme Court issued its much-anticipated decision on so-called “reverse payments” in FTC v. Actavis, Inc. This decision will impact how brand name drug companies and generics enter into patent settlements to resolve pending patent litigation. In a nutshell, speaking for the majority, Justice Breyer wrote that there is no valid reason for the FTC to be denied the opportunity to pursue reverse payments as an antitrust violation. Breyer, who was joined by Justices Kennedy, Ginsberg, Kagan, and Sotomayor, determined that reviewing courts should apply the rule of reason when determining whether reverse payments violate antitrust law.
While the ruling will likely come as no shock to casual observers, or even to those who have long believed that these agreements were anticompetitive, it is a bit of a shock in that the decision seems to present an unrealistic utopian view of how challenges to reverse payments will be litigated. For reasons hardly explained, Breyer thinks that it will be largely unnecessary for reviewing courts to engage in complicated review of the patent or to engage patent issues, but at the heart of these cases is the underlying patent and associated patent laws that give brand name manufacturers significant and uncompromised rights to exclude.
Chief Justice Roberts explained in his dissent, who was joined by Justices Scalia and Thomas, that it was his view the decision of the majority “weakens the protections afforded to innovators by patents, frustrates the public policy in favor of settling, and likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements.”
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