Judge Michel says Congress May Have to Revise 101

On July 3, 2014, I had the opportunity to interview Judge Michel, former Chief Judge of the United States Court of Appeals for the Federal Circuit. The interview took place at the University Club in Washington, DC. Our conversation was wide ranging, dealing with all the pressing issues of the moment in the patent world. In part 1 of the interview Judge Michel explained exactly why the Supreme Court’s decision in Alice v. CLS Bank was terrible, saying that he thought the decision would lead to “total chaos” because there is no repeatable, predictable test that can be objectively applied.

In part 2 of the interview, which appears below, we continue our discussion of Alice, but focus on how the Supreme Court is importing considerations that historically (and correctly) are matters of obviousness under 35 U.S.C. 103.

QUINN: Well, I know one of the things that we’ve talked about in the past as a concern is with all these decisions patents have gotten a lot longer, a lot more difficult to read, and really almost in some ways hide the innovation. And it’s not necessarily a conscious “I want to hide it,” sometimes it may be, but patents from 50, 60 years ago used to be a couple pages long and that included the drawings. What do you think the Alice decision is going to do to the complexity of patent applications moving forward?

MICHEL: Well, it’s hard to imagine that it will encourage shorter or simpler applications. But I don’t really know. I can’t predict. And part of what worries me is the extent of the harm is difficult to gauge. I think there will be harm. My concern is that it’s likely to be massive harm. But it can be equally argued that the harm will be very small because really nobody knows. So we’re taking a huge gamble here where nobody knows what the risks and harms can be. Also consider this you talk about the stability of property regimes in the law, how about the right of a property owner as to who’s going to decide things? In our lawsuit where you sued me if I claim your patent’s invalid as obvious I’ve got to prove it. I’ve got to prove it to an elevated burden with admissible evidence to a jury. But in a 101 matter it looks to me like there’s no role for the jury it’s all going to be up to the district judge to decide whether to invalidate the patent by declaring it ineligible. So there’s a lurking issue here of right to jury trial because the Supreme Court has now shifted the center of gravity of an invalidity case from the trial and the jury to a pretrial motion with no jury and probably very limited factual records.

QUINN: And there seems to be absolutely no presumption of validity.

MICHEL: Well, even if there is a presumption of validity what does it really mean in practice if a judge has to make a decision based on whether something’s a discovery or whether it’s derived from something in nature, or whether it’s abstract?

[Varsity-3]

QUINN: That’s true. But what concerns me is that it seems like, as you were saying earlier, so much of the 103 jurisprudence is peeling off and now becoming a part of 101. Now if we were going to address this under 103 there are safeguards in place, there are standards in place, there’s the KSR rationales and the prohibition against hindsight and the Graham factors and secondary considerations, so whether we agree with the current state of obviousness law or not, at least they are safeguards and standards there. We know there’s not a moving target, and we know that there would also be the presumption of validity. So it seems like we have none of the safeguards, none of the development of the law, none of the presumptions when the Supreme Court forces obviousness considerations into 101. So it’s all the bad with none of the protections.

MICHEL: It’s kind of ironic that the Supreme Court has so expanded notions of ineligibility starting with Bilski and now the Mayo, Myriad, and Alice, meanwhile the Congress is talking about patent reform and made numerous major changes in the America Invents Act in the patent statute but said nothing about 101. If the Supreme Court’s four cases result in the kind of chaos and harm that I fear they may, I expect that the demand of vast segments of the industry will be so great that Congress will have to get back in the act and start revising 101 to basically cut back on these Supreme Court ineligibility laws.

QUINN: Well, I think that is really a potential. I don’t know how soon they’re going to have to get back in, but I think as these things are going to start to play out they likely will have to before all our domestically invented commercially relevant innovations won’t be patent eligible. If the Supreme Court is so interested in their own old cases, why don’t they just go back to Hodgkiss? They never seem to go back to Hodgkiss because that would be the one ancient case in our area that would seem to be relatively applicable because they were really struggling with these issues and what it meant to have an innovation that could and should be patented. But again that’s a 103 issue and they’re trying to pound a square peg into a round hold with 101, I’m afraid. And I don’t know that they really understand what they’re doing. And I think Congress, the last time they opened up the act with AIA, they excluded tax strategies but they said but if the tax strategy is a part of the computer related process the computer related process may still be patent eligible if it satisfies all the other requirements. So I expected a Bilski framework within the Alice decision where they say business methods, at least some, are patent eligible. Did it surprise you that they didn’t even use the word “software?”

MICHEL: No. I think the Supreme Court is torn. You could almost maybe say schizophrenic, where they want to slap down with the Federal Circuit has done because their gut feeling is it’s too rigid or it’s too pro patent or it’s too something. But then on the other hand they’re afraid that they may hugely mess up the whole patent system if they rule very broadly. So they slap down what the federal circuit did. They don’t substitute clear tests of their own because they want to be cautious and not create harm. So the net effect is to create more uncertainty. So every time they intervene the patent law gets less clear in my opinion.

QUINN: Yes. Well, now let’s move forward with patent reform. I guess there are a couple things we can talk about – patent reform that just died to the never-ending state of patent reform that we find ourselves in. And patent reform is already coming back with the demand letter proposals. And it will be back in 2015 with the new Congress, no doubt. What does this mean for the future?

MICHEL: Well, I think it’s somewhat similar to many other controversial issues far afield from patent law. The reason I say that is there is in my perception an issue of the 1% who have big lobbyists versus everybody else, most of whom don’t have big lobbyists or big campaign contribution war chests or bundlers or law firms, and PR firms, and vast campaigns that go on for years and years to get what they want. So to my way of thinking the question is whether Congress will hear and heed all players, all stakeholders, which I hope they will. I think they will. They need to because patent reform has to be balanced and sensible and practical and productive for the country, for everybody, for every technology, for small companies, for big companies, for new companies, for old companies, for startups, for inventors, for investors. It’s got to work for all the players in this vast thing that we’re referring to when we use the phrase “patent system.” So balance and fairness and hearing all the viewpoints and stakeholders is the key. And there was a risk that that wasn’t going to happen. And it looked to me like, with the lead up in the House to the Goodlatte Bill passing by such an overwhelming margin, it looked to me like most of the voices weren’t heard. Only the voices of those wanting radical change were heard. The Senate did much better and the fact that they didn’t rush something through modeled on the Goodlatte Bill I thought was a great achievement. What they’ll do in the future hard to know. You know, there’s a much greater ability on the part of Congress in my opinion to do something with regard to demand letters than to try to micromanage patent litigation through legislation. Patent litigation management by its nature has to be done by the district judge. It cannot fairly and effectively be dictated by micromanaging by the Congress. And even on the demand letter issue I see a huge potential to stop true abuses right now under existing law. If I buy up a bunch of patents and send thousands of letters to local coffee shops and movie theaters and so forth on patents I don’t own or patents that are plainly invalid or patents that aren’t being infringed, or patents that have expired I can be shut down right now by the Federal Trade Commission under the existing statues. So I would think that enforcement against true abuses under current law ought to be step one before we change the law.

QUINN: I agree with that, too. And I think district court judges have a lot more authority than some of them let on. I mean I don’t know that I’ve ever met a district court judge that didn’t understand the power that they have. Not to say that in a bad way. I think almost all of them, at least the ones I’m familiar with, approach it in a very solemn way. They understand. But it seems in this space that some district court judges almost feel like there’s nothing that they can do and I don’t know whether it’s because these companies that are complaining about the problem are settling so early and not really giving the district courts an opportunity to take a look.

[Interview-3]

MICHEL: But now the district judges have had considerable power of discretion and leeway to slap down and punish and deter true abuses. It may be that they didn’t always use it as vigorously as they could have, as they should have. It’s hard to know because there’s no factual record that would really let you assess that rationally, empirically, numerically. But it could be. Now I’ve been critical of the Supreme Court with you in the 101 area, very critical. I’ll probably offend every one of the nine justices since they’ve been unanimous on these cases. But I have to compliment the Supreme Court in the recent decisions dealing with fee shifting and the appellate review standard for fee shifting, and on claim indefiniteness, which was a dead letter in the patent law that would almost never apply and had no real meaning.

I think in these recent three decisions the Supreme Court has vastly helped the patent system by clearly empowering and in effect encouraging the district judges to sanction, that is punish true abusive practices. It doesn’t matter whether it’s the bringing of a lawsuit that’s bogus or whether it’s bad conduct in the course of the litigation by either party. By defendant or a plaintiff. And so now the district judges can have no doubt that they have ample power to shift fees, to invalidate indefinite patent claims, and they no longer have to worry about the federal circuit reversing them. It’s now clear the discretion they have is very broad and I think it will be, it would take the most extreme case of fee shifting to get reversed by the Federal Circuit. So it’s now clear the district judges have a very free hand. And I think that’s very appropriate.

As I said in all ways only they can really at the end of the day manage patent litigation effectively. Not the Congress, not the Federal Circuit, not the Supreme Court beyond setting up the ground rules, which the Supreme Court has now done. So I am predict you will see a sharp increase in the district judges punishing truly bad behavior. Now, I think there are a lot of people who are claiming that bad behavior is the norm. I don’t agree with them. I think there is some truly abusive behavior. I think it’s actually quite limited.

My guess is it’s somewhere around 2% or 4% of all the thousands of patent cases filed every year. But still it should be slapped down and future temptations to be abusive either in filing bogus lawsuits or litigating them abusively need to be discouraged and deterred. And I think that’s going to happen now. I must say, too, the federal judges are stepping up very effectively. I just came back from a two day training course put on by the Federal Judicial Center for some 39 or so district judges from all around the country. And I participated with a group of very seasoned litigators and also Phil Johnson, coincidentally, sort of representing the industry viewpoint as well as from his litigator days. [See our discussion of Phil Johnson here] So there were about 12 of us running a seminar for district judges. We did it about a year ago in Charleston. We just finished doing it in Silicon Valley. And the district judges are intensely well prepared. They’re very interested in this. They’re very eager. They ask very good questions. They’re trying very hard to do the right thing. And I think you’ll increasingly see good results from not only that seminar training but also various manuals that the Federal Judicial Center has made available to district judges who are handling patent cases. The patent pilot program is beginning to really kick in and show very good effects. Those judges are communicating with one another so that if a judge in northern Illinois tries something that works really well that gets communicated around to all the other pilot judges and also the non-pilot judges, too. If somebody in the southern district of Texas tries something and it doesn’t work well, that equally gets broadcast all around the circuits to—I don’t mean the regional circuits I mean the informal discussion among trial judges. So a lot is happening through the pilot program, a lot is happening through the Federal Judicial Center, and a lot is happening just among the judges themselves because they all realize this is very important. Congress is hyped up about this, the Supreme Court is hyped up about this, the legal press and the general press are hyped up about this. Everybody knows patents are very important to the economy and to the future of the country. And so the district judges I think are highly motivated to play their role, play it to the hilt, play it properly and I think they will.

QUINN: Yes. I hope that is what happens. And I did agree with a number of the Supreme Court cases that came out this term and I think that that raised my expectations for Alice. So maybe that’s one of the reasons why my initial reading was this is just awful. Because it does seem like in a lot of areas the Supreme Court got it and they certainly gave district courts a lot of discretion, which I think is necessary. And hopefully that will be enough—because they have the statutory tools. They have 285 and then they have the general vexatious litigation statue I think it’s 1927. So the statutory help has already been there. And now that they’ve got the ability to actually use their discretion and not have to be looking over their shoulder and second guessed I think will allow them a lot more latitude.

MICHEL: Definitely.

CLICK HERE to continue reading… up next we discuss the future of the Federal Circuit.