IBM Calls for an End to the ‘Legal Fiction’ of Current 101 Law

This marks the final installment in my four-part interview with IBM Vice President and Assistant General Counsel Mark Ringes and IBM Chief Patent Counsel Manny Schecter. I found our conversation fascinating and want to thank them both again for their time and insight. Below, we conclude with an in-depth discussion on how the U.S. patent system is affecting startups and the state of enforceability following Director Iancu’s Section 101 Guidance.

QUINN: We were talking previously about the fact that more sophisticated companies seem to have a better chance than SMEs at getting their software patents past the USPTO because they are at a different stage in their development. And there’s nothing wrong with that necessarily, it just seems to me to be, historically, a very European view of the patent system, as it would favor the larger entities. This is not to poke at IBM, because you guys innovate like you’re a smaller entity. You do have a portion of your budget that is devoted to speculative stuff that a lot of other companies just would never undertake. So, a portion of what you do has a very startup-driven mindset, but for the true startup, the U.S. system is very difficult to navigate.

SCHECTER:  Yeah, although, in fairness I would say there’s lots of things about being a startup that you could make that same argument about, right?  I mean, a larger organization always has more learning behind it and more resources in place within the entity.

QUINN:  Yes, but that has never been how the U.S. patent system worked. Our patent system has always been the way that startups grew to become the next big thing—not guaranteed obviously, but you could use the patent system as your leverage point.

RINGES:  And without patents, the startups will get starved of investment funds, right? And that’s one of the purposes of the whole system—to enable money to flow to new inventions, wherever they come from.

SCHECTER:  Of course, not only that, but what people often lose sight of is that patents actually help the little companies and entrepreneurs protect themselves from the large companies. It’s easy for a large company to swoop in when they see a small entity innovating in what they see as a profitable way and implement it for themselves. What stops the large entity from doing that?

QUINN:  Right. Well, we went through it in the 1980s. You would also have the large companies swoop in and just buy whole companies, and then with the patents and the technology and everything, they would have a competitive edge themselves, having bought that against their other larger competitors. That was the whole ecosystem that we had created, and I fear that some of these minor moves on the global chessboard seem to have disproportionately changed the way that business is done in the high-tech world.

SCHECTER:  Well, and data is starting to emerge that shows early stage startup funding is shifting. It may still be growing in most places—it kind of grows normally year to year just because of inflation—but if you look at a lot of the emerging technologies, you are seeing increasing proportions of the early stage funding going to places like China.

QUINN:  Yes, you can’t look at the top line number, you have to look at the pieces of the pie—where is it going?

RINGES:  The proportions, yes; exactly.

SCHECTER:  An increasing portion is going to China, and if they are not ahead in a lot of those areas now, they are on a trajectory where they are clearly going to be.

QUINN:  That’s why I say, if you were going to start your patent system from zero to try and become the dominant system in the world, you would be hard pressed to come up with a better strategy than what China is implementing. And this is not to say that they’ve got it all right, and they are going to make mistakes along the way, but they seem to be moving certainly in the right direction.

RINGES:  They’ve come a long way in an incredibly short period of time. There’s no doubt about that.

Enforceability Post-PTO Guidance

QUINN:  Both of you have mentioned enforceability, so I want to come back to that. I want to throw it out there as a topic, just generally speaking, because Director Iancu has issued some good new guidance—but is that going to matter on the enforceability end?

SCHECTER:  So, two things come to my mind. The first is, with respect to what Director Iancu is doing, he is clearly trying to bring more certainty, and that’s absolutely what he ought to do and I think is the right thing. But what worries me is, no matter how closely we think the language that the USPTO uses in the guidance aligns to what the Supreme Court words were in its case law, I think most of us have a sense that the Supreme Court is trying to be somewhat more restrictive, and we don’t really know at the end of the day whether the effect of what the USPTO does will actually be accepted by the Supreme Court. –

RINGES:  Or the Federal Circuit for that matter.

SCHECTER:  I worry that if the USPTO’s guidance takes us back to that point in time where the Supreme Court seemed to be unhappy with the state of the patent system, the Supreme Court is not going to accept it. That’s still a wildcard that we don’t know. Just how acceptable is what the USPTO has rolled out to the Supreme Court? I just don’t know.

QUINN:  I get what you’re saying, and I have to agree with it. The thing, though, is I think somebody has to do something, right?  Because the Supreme Court seems to have very intentionally said we’re not going to define “abstract idea.” What the Supreme Court has said is, “oh, well, the inferior courts or lower courts or people who aren’t us, will figure it out.” And now we’ve got the Federal Circuit saying, “well, if they don’t have to define it, then we don’t have to define it, we just do a matching game. Is it more like something that was abstract or not?” That’s what Judge Hughes said in Enfish and I think that was–in DC terminology—a gaff, because it was honest; it was the truth.

SCHECTER:  A matching game is doomed to failure.

QUINN:  Well, it’s doomed to failure, but that’s what they are doing.

SCHECTER:  What we are doing here by definition is dealing with things that somebody thinks are new.

QUINN:  I agree.

SCHECTER:  A matching game is looking in the rearview mirror and it can only take you so far.

RINGES:  And on top of that, I don’t know if there is any single mind in the Federal Circuit among those judges as to what the right test ought to be. They are all over the map, and there are some who think that 101 should be a very broad filter and others who would like to see 101 used to shut down most patent infringement litigation. And so, when you have a body that has no consistent view, you’re not going to get consistent answers. There’s no hope of getting a good perspective. You’ve heard the comments from many in the industry that say “you don’t know what your answer is until you see who is on your panel.”

QUINN:  That is exactly right. And so that’s why the Supreme Court won’t do it and the Federal Circuit won’t do it, so that leaves—

RINGES:  That leaves one answer; that is the legislature.

QUINN:  Well, I mean, yeah, right. I mean, the legislature has got to fix it, but in the meantime—

SCHECTER:  The USPTO.

QUINN:  The USPTO. And I wonder if—

RINGES:  Well, Director Iancu has got a specific problem that he has got to deal with, and he says it this way: “I’ve got to examine these patents, that’s what my job is.”

QUINN:  “You guys aren’t helping me.”

SCHECTER:  “And I can’t wait for anybody else.”

RINGES:  “I can’t wait for an answer from whoever might give one, so I’ve got to come up with a response and give them my guidance, and I think he’s doing the right thing. He’s got to provide guidance to his examiners to help them solve this problem. Whether that guidance will have any influence on the Federal Circuit or the Supreme Court, who knows? And my guess is, when we hear the Supreme Court saying that they are not giving any credence to what the administrative agencies do, that seems to be the position the majority of the judges are taking. Then, I don’t know that we can expect that they’re going to pay any attention to what Director Iancu and the patent office says.

The 101 Roadblock

SCHECTER:  Right, so can we come back to enforceability? I was going to make two points before, I want to get to the other point. I know you asked about it and I don’t want to lose it here. I often hear people say you seem to be getting patents, so it can’t be so bad, but what they overlook is the collateral damage that is done on one’s ability to enforce patents, right? When you have uncertainty in the courts, you have the kind of crapshoot mentality for the defendants that no matter what, no matter how credible a patent you bring, no matter how great an invention, no matter how well you document the evidence of infringement, they are going to bring a 101 defense. Right?  You remember how it used to be that every time you enforce the patent, you got an ethics defense. You got a duty of candor issue. Now, I hear lawyers say, well, it’s practically malpractice not to bring a 101 defense if it’s at all close.

So we absolutely see that, every time we try to enforce a patent, we get a 101 defense that comes back at us. And that 101 defense is a terrible stigma that is damaging the really worthy patents being enforced. You can still enforce them, but you have to put up with all the extra arguments you have to make to quash the 101 defense. You have to deal with the delay and the extra expense of outside counsel.

RINGES:  And even if you’re not in court yet, when you are having a licensing conversation, the 101 issue comes up and there’s no clear answer. The licensing target will raise the issue, saying they don’t think it’s subject matter eligible and there’s no way to counter that because of case law. So, you just have an endless dialogue, but no resolution, and that discussion goes nowhere, and you end up having entities continue to practice the patent and dare you to take them to court because they know it’s expensive and there is considerable risk around Section 101. So, at the end of the day, you never know where you are going to end up.

QUINN:  I have two thoughts. The first thought that is most pertinent and direct is the law works best when it is set up so that it keeps people out of court. And right now, we have a law that is forcing people into court.

RINGES:  Absolutely agree.

SCHECTER:  That is a fair description.

QUINN:  That’s one observation. And then the second one is that I was at an event in Chicago at the John Marshall Law School and we were talking about 101 some of the people there wanted change, some didn’t want change, and there were litigators who were there saying all matter-of-factly, “well, yeah, we can have change, we can reform 101, as long as you don’t do anything that will stop me from bringing a motion to dismiss successfully.” But that is the problem.

RINGES:  That’s exactly the point.

QUINN:  That is the problem, because when they say it almost glibly like that, and they weren’t being glib, I’m being glib now, but they were being serious. They were laughing about it in a way because I think they couldn’t help but realize just how it sounded I suppose, but they were being serious. They were saying, “Our clients need the motion to dismiss.”  So, you can’t take that away, but when you stop and you think about it, it’s like, just how stupid does that sound?  What other area of law do lawyers sit around fretting about whether or not you’re going to make it past a motion to dismiss. And for the non-lawyer, they say, “oh well, yeah, if there is no merit to it, just get rid of it,” but that’s not what motions to dismiss are about.

SCHECTER:  And specifically in the case of what we’re talking about, it seems ironic. It doesn’t make sense to me to dismiss a case based on Section 101 when you haven’t even figured out what the claim means yet.

QUINN:  Amen.

SCHECTER:  You’re basically eliminating what seems like due process that is needed as part of the patent record.

QUINN:  Why hasn’t anybody made that argument yet? I haven’t seen it raised yet and I don’t know why, because they are construing the claims in order to determine what the claim is directed to, but how can you possibly know what the claim is directed to if you don’t know what the claim covers?  If you haven’t construed the claims?

SCHECTER:  And then what you end up with is are these silly parsings that we see that just make no sense to any of us.

QUINN:  So, I don’t know. Hopefully we will start to see that. I get frustrated because sometimes lawyers will send me stuff before they file things asking “can you take a look at this” or “can you take a look at that?”  And I’ll take a look and I will say, “well, I really would encourage you to do this or don’t do that” and frequently they say, “OK, thank you very much, but, we decided not to do that.”  So, I’m thinking to myself, so in other words, you are going to say no to the winning argument and you’re going to continue forward with this losing argument, and it gets frustrating for me to see because I think there are winning arguments that could possibly be made if they would just be raised.

RINGES:  Well, I think another challenge that we deal with is the District Court judges other than, perhaps Delaware, the eastern district of Texas, and the northern district of California, many of these District Court judges don’t just see a lot of patent cases, so they don’t know how to deal with them and they don’t know how to wrestle these issues to the ground.

QUINN:  Yeah, and I don’t know that one would win at District Court, just to be clear, and it wouldn’t win certainly if you didn’t have the right panel of the Federal Circuit, which you’re not going to know until the day you walk in. But you’ve at least got, what, probably a 50-50 shot?

Sometimes I think what I need to do is sit down and say, “please start making these arguments” and write the arguments up for them, and just say, “cut and paste this into your briefs.”

RINGES:  Well, in some ways the Berkheimer decision has taken us down that path, right?  Because there are factual issues that need to be decided that are not appropriate to decide in a motion to dismiss. It will be very interesting to see whether that case gets taken up by the Supreme Court on cert. Who knows?

Looking Ahead

QUINN:  I really appreciate you taking the time to chat with me today about this. This has been great. But before we go, I’d like to give both of you a chance, a final chance to give me your parting thoughts, if you will, on 101, whether it be where we are now or where you see us going in the next year. Manny?

SCHECTER:  I would just say the time has come for us to do away with a legal fiction that has been foisted upon us that 101 should be a tool to get rid of some patents that people don’t like. Virtually every case I read about Section 101 gets into inventiveness. That’s the domain of the other sections of the law. We ought to just get off trying to bend 101 into an inventiveness determination. It’s not.

RINGES:   I think what I’d like to say is that I’m encouraged that we are starting to see some momentum. It’s very early stages, but there is some momentum around moving toward a legislative approach to add clarity. We’re hearing some positive messages from Congress, from Senator Coons and Tillis, especially. Director Iancu is certainly using his office to highlight the need for clarity in the patent system. We’ve got some agreement around approaches with AIPLA and IPO, so I am starting to feel some momentum. I realize there is a long slog ahead of us before we get to where we need to be, but I’m encouraged, and I think the narratives that are opposing changes to 101 are more easily swatted down, the troll issue is much less of an issue than it has been for many years through a number of mechanisms, such as post-grant procedures and others, so, I believe that, in 2019, we should be seeing some more encouraging approaches toward getting us to where we need to be. We are still a long way from being there, but as compared to where we were a year and a half or two years ago, I think we’re heading on the right path, which is something that makes me feel better about where the system is.

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