Editorial Note: This article is part 2 of a 2 part series adapted from a presentation I gave earlier this week at the annual meeting for the Association of Intellectual Property Firms (AIPF). To start reading from the beginning please see Dark Days Ahead: The Patent Pendulum.
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.
Then we get to AMP v. Myriad, which most people misunderstand. Most people think that it says that cDNA is patent eligible. What the Court said is that cDNA is patent eligible except insofar as the cDNA is identical to what occurs in nature. Now that might seem logical except that they admit that cDNA must be manmade, which is scientifically correct. cDNA cannot possibly exit in nature. So cDNA, something that is completely manmade, can be patented unless it’s identical to what occurs in nature. With artificial organs, correct me if I’m wrong, but isn’t the idea to make one that works exactly like the one that God gave you? If this gets applied much longer to its logical extreme we’re going to see personalized medicine come to a halt, unfortunately. And the Court admits here that the claim that they’re invalidating is not naturally occurring but they invalidate it because it’s a law of nature. If these Justices were being graded they’d get an F just on basic logic. They couldn’t pass the LSAT any more, or at least they couldn’t do the logic games section of the LSAT. Their decisions are completely illogical.
Then we have Alice v. CLS Bank. Now the interesting thing about CLS Bank is the Court used what they called the Mayo framework. That strikes me as terribly ironic given how horribly wrong they got Mayo in the first place.
Let me go back to Myriad for a minute. One of the other things I failed to mention was that Justice Thomas in a unanimous opinion said – and I’m paraphrasing – no matter how cool or interesting or unique a discovery is, discoveries are not patent eligible. But that’s just not true. If he had actually taken the time to read this statute he was supposed to be interpreting, which is 101, which is all of one sentence long, he would have noticed that discoveries are patent eligible. And those of you who do pharma work, if discoveries aren’t patent eligible, what are you guys going to be protecting? Nothing. Because the whole question with respect to obviousness is about understand how the lead compound originated. How did you derive the lead compound? I want to know your story. And if you had a finite number of possibilities you started with, no patent for you. If you discovered which lead compound you needed to start with and then came up with something that was unique and useful, patent for you. So if discoveries are not patent eligible the pharma industry will soon be in for a world of hurt. When is pharma going to wake up? I think people may be starting to wake up.
Now I left Bilski v. Kappos for last, which is the first in this chronology. I left it for last because of the irony involved. How ironic is it that after these four cases the only thing we can say with absolute certainty is that business methods are patentable. [Laughter] Oh, my gosh, what happened? It’s like they tilted the world on its head. Perhaps it would make some sense to say business methods are not patent eligible but all the rest is. So the only bright line rule we have is the one that the people who were challenging these things in the first place wanted to go the other way. So we don’t know about software. It’s getting harder and harder to patent software though. We don’t know about medical diagnostics, which are critically important. Read the Medtronic brief in Bilski, which explains that if medical diagnostics cannot be patented we will wind up with fewer medical devices. And the connection is simple, we can’t treat what we don’t know exists. If we don’t know what’s affecting you and why we can’t develop the drugs of the machines to work for you. First we must to know what’s wrong with. So if we don’t have those increasingly better medical diagnostics we’re not going to get the better treatments. And that’s what we really want.
The consequences of SCOTUS decisions are really severe. The U.S. is no longer a favorable jurisdiction for many biotech patents, medical devices and software. What that’s going to mean is companies are going to move. We’ve known this throughout history. Companies locate where the laws are the best for them. If you’re an innovator you’re going to go where the patent laws are the strongest. And that’s why the U.S. has dominated in these industries. We’re number one in biotech is because of Chakrabarty, which has basically been overruled. Prior to Myriad you would have said the ruling of Chakrabarty was this: if there’s human intervention it’s patent eligible, but now you can’t say that because there was human intervention in Myriad, which they acknowledged, and still the claims were patent ineligible.
We know companies will move to jurisdictions with more favorable laws. Proof of this comes to our headlines in the form of tax inversion. That’s the big catch word these days. So companies are already moving to different jurisdictions to avoid taxes. We know this stuff happens across the board. Expect fewer medical devices for the reasons we talked about. Portfolios are going to be substantially devalued. Marketing, licensing and acquisition of patents is drying up or you’re going to have to sell or license for a song, which is going to negatively affect shareholder value. Investors are going to be reluctant to invest in these things until we get some more certainty, which hurts startup companies and, by the way, those startup companies are the ones that create the most jobs. So SCOTUS involvement in the patent arena is not going to be good for job creation either.
Now let me talk for a moment about the Federal Circuit and obviousness, which is really the next battleground. I took this slide from an article I wrote last month. You can prominently see Judge Chen’s picture, it is not there to say he got it wrong, he’s the only one who got it right. The case was about the Vringo patents. They had been issued by the examiner. They had been taken back into reexamination, came out of reexamination not only with all the claims challenged intact, but more claims added. A lawsuit was filed. The judge let the case go to a jury. The jury found infringement and non-obviousness. On a JMOL the judge says that the jury’s right, that there was substantial evidence to support the jury’s conclusion. And then it goes up to the Federal Circuit. Every decision maker throughout the entire process has so far announced that these patents are nonobvious. And two out of the three on the panel conclude that nobody, no reasonable trier of fact could find these patent claims anything but obvious. Judge Chen was the only dissenting vote. That no reasonable person could find that these were obvious seems to be the only reasonable conclusion because only two people to come to a contrary decision were on the Federal Circuit. The patent examiners, the patent examiners reexamination unit, the board, the jury and the district court judge all found that they were nonobvious. And the same thing happened to Soverain Software in their case against Newegg, so this blatant disregard for all other decision makers is a trend at the Federal Circuit. So even if we deal with the 101 issue this 103 issue is going to become a growing concern I’m afraid. Gone are the days when Chief Judge Markey cautioned that proceedings in lower tribunals were not some sort of prelim, but were a real event. The only real event is at the Federal Circuit. That is the only venue that defendants need to win and they are at an alarming level.
One thing that I forgot to put in was a happy feel good slide. Maybe I didn’t forget to put that in because there’s unfortunately not a lot to feel happy and good about. Although I do think there are ways forward. I did receive some interesting news over the weekend. Someone wrote an article for me on IPWatchdog about the consequences for corporations in disclosing the fact that their patent portfolios are substantially devalued. The article was about ledger accounting and all this kind of stuff. The author has been contacted by Reuters and Bloomberg and others who are shocked because they thought Alice was only going to affect patent trolls. It’s news to them that Alice will have significant and possibly dramatic consequences for patent portfolios owned by elite, publicly traded Silicon Valley companies. So we may see some reporters chasing this issue and we may see some more stories coming out. Maybe the tide is going to start to turn.
I think there are things you can do and there are things your clients can do. I always tell people that nobody wants to say write a letter, right? What good is writing a letter? I can tell you knowing what I know about the way D.C. works, writing a letter can really matter. Making phone calls to your Representative or Senators can really matter. If you have companies that can get meetings with Congressional staffers you should encourage them to explain the importance of patents for their businesses. That’s how the last round of patent reform died in the Senate, at least to some extent. There were two different groups of professional, startup level independent inventors tirelessly working the Senate. But if you won’t even make a call and/or write a letter we have no chance. So start there.
Then if you’re going to file patent applications on software you need to take a look at the algorithm cases, which are means plus function cases. You want to have means plus function claims in your applications. I know how crazy that sounds but it’s going to be better to get something than it is to get nothing. And if you’re trying to satisfy the algorithm cases in terms of disclosure to support means plus function claims then your discloser is going to be all the better. So don’t be afraid to put those big scary things into the spec that we all know we could write. We can go down to a level where we talk about gates and logic, you know, back from your computer architecture days. Dust off the computer architecture and logic texts from college. We need to go to that granular, hyper-technical level because if judges think they understand the invention it’s going to either be patent ineligible or obvious. So remember after KSR how the background section shrunk substantially because we didn’t want to say anything bad that could be used against us? Well now need to lose the aversion to say things that could be held against us and overwhelm with lot of technical information in the specification. The more scary and technical the better because otherwise we’re in for some dark days.
That’s really all I’ve got. I think we have a few minutes for questions? If there are any questions I’m happy to answer any questions— Jennifer?
JENNIFER: I have two. One we have preliminary guidelines and we were supposed to get final guidelines or another set by late August. I have heard the scuttlebutt is we’re not getting them yet because the patent bar is not commenting to the Patent Office. They don’t have enough commentary to actually produce those guidelines or they just don’t know what to do. One, I’d like to hear any points you have on that. And then the second, and you know I do a lot of IPR work and we’ve had a couple of situations where the PTAB is sua sponte taking up 101 issues that have never been briefed by either party. Now, I usually represent petitioners, so—
GENE: So you like that?
JENNIFER: But I feel like there’s a real deep process concern there where now all of sudden have this trier of fact that’s saying, oh, and you have a 101 problem and you never get to comment on that expect in your oral argument and you didn’t even know it was coming.
GENE: Well, due process is becoming a growing problem. Going back to the Soverain Software situation, that appeal went up to the Federal Circuit and Newegg was asking for the case to be remanded for a new trial. That was their ask. So Sovereign briefed that issue. Sua sponte the Federal Circuit declared all of Sovereign’s patent claims invalid because of obviousness never having had that addressed on appeal on any level. So we see a fundamental lack of due process even at the Federal Circuit. We see it happening with examiners too. The Patent Office comes out with Alice guidance that initially that says “nothing to see here, the framework has changed substantively but the substantive analysis remains the same.” That shocked me because I know what the Obama Administration wants to do with these patents – they don’t want software patents. They are listening to Google. They would rather have none of these things. So I was shocked that that was their initial interpretation. That was the career people got out in front of the politicians and thoughtfully addressing the issues in a responsible, adult manner. But something quickly shifted. You started seeing 101’s raised where 101 had never been raised by an examiner previously. You actually saw the Patent Office start to take back Notices of Allowance even after the issue fee had been paid, rejecting claims under Alice. So you see it from the PTAB, you see it from the examiners, you see it from the Federal Circuit. Lack of due process is a real issue. You’ve got to start making due process arguments when you’re going up to the Board and you’re going up to the Federal Circuit to preserve these things. Due process has always been a sexy issue for the Supreme Court. It also happens to be one of the things the Supreme Court can actually understand. So I think you may have a better opportunity to get some of those issues in front of Supreme Court than trying to make it a question about obviousness and asking them to overrule KSR. So make that argument.
There are also due process issues at the Patent Office in terms of unequal treatment. Surprise, surprise Bank of America, Wells Fargo, J.P. Morgan Chase are getting their software patents, none of them are being pulled back after Alice. But now the folks that are representing the startups or the independent inventors in the financial service area can’t get anything. There is a double standard like I’ve never seen before. And we all know that there’s always been a double standard, just getting different examiners or assigned into different Art Units leads to double standards or at least inconsistent decisions, right? But what we are now seeing is unequal treatment on steroids.
The last thing about the rules, what I’ll say is I don’t have much information about that. There’s real worry that the Myriad and Mayo guidelines are going to come out really bad. So I wouldn’t be surprised that attorneys didn’t take the time to comment because they were atrociously bad and in preliminary form and I don’t think a lot of us think any of our opinions are going to matter. The Patent Office also surprisingly extended the Mayo and Myriad comment period and they inserted an Alice question. I’ve never seen them do that before. So we’re going to get guidelines, I think, that deal with Mayo, Alice and Myriad all the same time. And I think we’re probably likely to see that by the end of the year and I don’t think it’s going to be very favorable for innovators and patent owners.
I can also wonder whether some of this is starting to be held up because some in Congress may be asking some questions. There was a hearing over the summer where Congress did start asking questions about why the Patent Office was withdrawing Notices of Allowance after the issue fee has been paid? I think people may be starting to clue in. So if you have a client that wants to take a position now is a good time. Write to Congress. Now they’re busy getting elected, but over the next six months will be a time when I think we’re going to see the Googles of the world come back for more patent reform. They always come back for more patent reform in a new Congress any more. We are in a state of perpetual patent reform. So this issue will be ripe again come February and March of 2015. So start thinking about whether you have clients that can write letters, clients that can get meetings, clients that can start getting involved.
And if you have clients that have a patent line item in their budget you all should start to talk to them about spending some of that money on amicus briefs. You probably saw the New York Times article about the Supreme Court and it’s something I’ve noticed for a long time. The Supreme Court relies on facts filed in amicus briefs that were never brought up at trial and never litigated. Amicus briefs are more important now at the Supreme Court and Federal Circuit than they’ve ever been. So maybe you have clients that you could combine together to put the amicus in, or maybe you could join an amicus that’s already being created. But we’ve got to get off the sidelines and try and do something.
I think that’s all the time we have. Thank you for having me. I’ll be happy to talk to any of you about any of these issues during any of the breaks for later today. [Clapping]