“The saga provoked by Kyle Bass provided a rare glimpse into the under belly of lawmaking, and the extreme consequences paid for the miscalculation of pharma advisors with respect to passage of the AIA.”
This year, we wind down not only the year, but the decade. So, it is time to reflect upon the biggest patent related stories of the last ten years. As with any Top 10 list or ranking, there will undoubtedly be disagreements. For example, be forewarned, Mayo v. Prometheus did not make the list, but rest assured the ineptitude of the Supreme Court with respect to patent eligibility is well represented.
Before jumping to the top 10, represented in chronological order, I want to mention several honorable mention stories that were close but didn’t make the list. First, although completely inconsequential, on June 22, 2015, in Kimble v. Marvel, the United States Supreme Court rejuvenated a 50-year-old rule that limits collecting patent royalties after a patent expires. In that decision the Supreme Court cited the importance of stare decisis, saying that there needs to be an overwhelmingly important rationale for disturbing well settled law, which is laugh-out-loud funny given how they did precisely that when they completely rewrote all of patent eligibility law with Bilski, Myriad, Mayo and Alice this decade. I’m sorry, but the Supreme Court citing stare decisis shows just how out of touch and ignorant they have collectively become.
Second, the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), did not make the cut either. The decision seemed big at the time, but as it turns out many companies are actually located in the Eastern District of Texas after all, and many others are located in the Western District of Texas, where Judge Alan Albright has shown he enjoys patent cases and is not afraid to rule in favor of patent owners. So, Texas continues to play an important role in patent litigation regardless of the Supreme Court’s ill-advised decision to accept a writ of mandamus on cert.
Now, without further ado, here are the top 10 patent stories of the decade – according to me!
Creation of the Patent Trial and Appeal Board (2011)
At exactly 11:42am on September 16, 2011, President Barack Obama signed the America Invents Act (AIA) into law. As President Obama put his pen down, he said: “All right guys, congratulations, the bill is signed.” It was at this precise moment that U.S. patent laws dramatically changed forever. See The Bill is Signed: President Signs America Invents Act and Brave New World: First to File Becomes Law.
There had been much debate and discussion about the U.S. moving from a first to invent system to a first to file system. Without a doubt, however, the biggest change to the U.S. patent system was the creation of the Patent Trial and Appeal Board (PTAB) and the simultaneous creation of three new opportunities for challengers to invalidate patent claims at the U.S. Patent and Trademark Office (USPTO). Inter Partes Review (IPR); Covered Business Method (CBM) Review and Post Grant Review (PGR) have been extraordinarily controversial. Indeed, many of the Administrative Patent Judges (APJs) seemed to believe they were hired to invalidate patent claims rather than call balls and strikes in an impartial manner, leading former Federal Circuit Chief Judge Randall Rader to refer to the PTAB as a “death squad”.
As we close out the decade, the PTAB continues to be the center of controversy. The Supreme Court is poised to decide whether it is the PTAB’s prerogative to institute challenges even AFTER the statute of limitations has expired. It is that mind-numbing lunacy that has plagued the PTAB, and patent owners, from the very onset.
Alice v. CLS Bank (2014)
On Thursday, June 19, 2014, the United States Supreme Court issued its decision in Alice Corp. v. CLS Bank, 134 S.Ct. 2347 (2014), which significantly changed the way courts and patent examiners evaluated patent eligibility of computer implemented innovation in the United States. In a unanimous decision authored by Justice Thomas the Supreme Court held that because the claims are drawn to a patent-ineligible abstract idea, they are not eligible for a patent under Section 101.
While the Supreme Court ostensibly extended the patent eligibility analysis applied in the life sciences context that had previously been adopted in Mayo Collaborative v. Prometheus Labs., 132 S.Ct. 1289 (2012), even a cursory review of allowance rates from the USPTO and invalidity rates in federal courts shows that Alice changed the prevailing analysis in profound ways.
Almost immediately after Alice, patent examiners started to issue new subject-matter eligibility rejections for computer implemented innovations using the abstract idea exception to the statutory categories of patent eligibility. “The ubiquity of subject-matter eligibility rejections in office actions exploded, leading many to wonder whether software implemented inventions remained patentable at all,” explained Kate Gaudry and Samuel Hayim, who have done a series of articles on IPWatchdog detailing their statistical analysis. “This effect was largely centered in business method art units of [USPTO technology center] (TC) 3600. For example, the number of allowances issued from business-method art units dropped from 24% in the months before Alice was decided to about 3% in months after.”
While many will not cry a river over innovations that have been routed to the business method art units suffering the indignation of insurmountable Alice rejections, in the aftermath of Electric Power Group, LLC v. Alstom, S.A., 830 F.3d 1350 (Fed. Cir. 2016), the USPTO started issuing patent eligibility rejections in the Artificial Intelligence (AI) art units. And not just issuing rejections, but rejections on a frequency and difficulty level commensurate with the level of Section101 rejections found in the business method art units. Not surprisingly, investment in AI technologies has been leaving the U.S. in favor of Chinese startups.
This past spring Senator Chris Coons (D-DE), Senator Thom Tillis (R-NC), Congressman Doug Collins (R-GA), Congressman Hank Johnson (D-GA) and Congressman Steve Stivers (R-OH) held roundtable discussions in search of a potential legislative solution. Those efforts have failed, at least for now. Ironically, the best hope for a solution to the patent eligibility crisis originally caused by the Supreme Court lies with the Supreme Court changing its mind.
The Alleged Abuse of Kyle Bass Challenging Pharma Patents (2015)
In April 2015, the Wall Street Journal published an article explaining the novel strategy of Kyle Bass, head of Hayman Capital Management, to make money by invalidating patents. Bass, who has teamed up with Erich Spangenberg, has filed several petitions for inter partes review (IPR) at the USPTO asking the PTAB to invalidate patent claims covering drugs. After filing the IPR Bass then either shorted the stock of the company owning the patent, or he bought shares in companies that would be benefited by the patent claims becoming invalidated.
Given the purpose for creating new post grant challenges was to create a low-cost alternative to litigation to determine the validity of patent claims that should never have issued in the first place, it is difficult to understand why the Bass challenges were ever appropriately considered abusive. Certainly, neither Congress nor the pharmaceutical industry thought this type of challenge would occur, but the challenge that Bass and Spangenberg bought against these pharma patents was absolutely allowed under the rules and laws.
So, why is this one of the biggest moments and not just worth honorable mention? What became the AIA passed in large part because big pharma and big biotech companies relented and joined big tech. Pharmaceutical companies and biotechnology companies were absolutely convinced that they had nothing to worry from the PTAB because no one would ever challenge their patents with an IPR proceeding. Particularly the pharmaceutical companies thought with the Hatch-Waxman regime there would be no reason for anyone to rely on an IPR challenge. I never understood their confidence, which Bass and many generic companies have since demonstrated to be wholly misplaced. So misplaced and miscalculated was the pharmaceutical belief that they had nothing to worry from the PTAB that once challenges started flying they sought a carve out that would exempt pharmaceutical patents. Therefore, the saga provoked by Kyle Bass provided a rare glimpse into the under belly of lawmaking, and the extreme consequences paid for the miscalculation of pharma advisors with respect to passage of the AIA.
Sequenom v. Ariosa Diagnostics (2015)
If a medical test that reduces risk from a potential catastrophic event to no chance of a catastrophic event is not patent eligible, something has gone significantly wrong. Surely the Supreme Court didn’t mean for this to happen and would step in and modify its decision in Mayo v. Prometheus. But the Supreme Court did not step in and that was precisely the outcome of Sequenom v. Ariosa.
In June 2016, the United States Supreme Court denied certiorari to Sequenom, Inc., which let stand a decision of the United States Court of Appeals for the Federal Circuit that ruled a truly revolutionary medical test to be patent ineligible. This marked the moment in time when the industry realized the Supreme Court just didn’t care or didn’t understand enough about the consequences of their decisions to care.
This refusal by the Supreme Court to hear this case easily earns a place on this list above Mayo v. Prometheus because when the Supreme Court decided Mayo it could be said the Court was invalidating claims that everyone agreed should have been invalid for lack of novelty (i.e. under 35 U.S.C. 102) or invalid as being obvious (i.e., under 35 U.S.C. 103). Furthermore, when deciding Mayo, the Supreme Court might not have understood the magnitude of the harm – or put another way how they would destroy the research and development of medical diagnostics in America. But by the time Sequenom arrives with a medical test that is recognized as being truly revolutionary and new, but not patentable, the Supreme Court refusing the case is simply inexcusable, period.
Examiner A Submits Fraudulent Time Sheets (2015) and Commerce Department Uncovers Patent Examiner Fraud (2016)
On August 31, 2016, the Inspector General of the United States Department of Commerce released a scathing report titled Analysis of Patent Examiners’ Time and Attendance, which painstakingly detailed what appears to be widespread patent examiner financial fraud on the Patent Office. The investigative report, prompted by interest caused by the infamous “Examiner A,” who falsely claimed he worked 730 hours in fiscal year 2014, concluded that for the 15-month period of August 10, 2014 through November 28, 2015, patent examiners submitted 288,479 hours that could not be supported or verified as being worked. These unsupported hours equated to $18.3 million in over payments.
To be fair there has been a difference of opinion between respected and thoughtful commentators on the findings of the Inspector General. While I have been critical of the 400 or so patent examiners noted as engaging in what appears to be fraud, legitimate questions about the report have been raised. See Inspector General’s Hyperbolic Report Distracts From Improving Patent Quality and Time and Attendance Report has No Merit.
Still, what remains true is there have been patent examiners who have commented here on IPWatchdog.com and have admitted to fraud, which was pointed out by the Inspector General during a December 2016 hearing on Capitol Hill. And sources tell IPWatchdog that Examiner A was advised to quit by the union rather than have anything negative placed in his/her employment file. Moreover, the district attorney in Alexandria refused to prosecute Examiner A for the nearly 5 months of time he/she claimed to have worked but did nothing.
Why resurrect this episode in Patent Office history? There will no doubt be some who are offended by this story making the cut, but this story speaks to a much larger problem the federal government has generally speaking, and for our purposes the USPTO specifically. The single most asked question I receive from patent practitioners is this: How do I get an examiner removed from a case? The answer is absent malfeasance you can’t, period. But this episode tells us that there is a small but not insignificant percentage of patent examiners who use questionable time keeping accounting methods. If they are doing that what else are these less than stellar employees doing? Can the Director and Commissioner really police patent examiners? When there are patent examiners employed by the Office who have not issued patents for years one has to wonder. So, again, this makes the cut not because of the episode itself but because of what this story necessarily means for the system at large.
Continue Reading —> 6 – 10 of the Top 10 Patent Stories of the Decade.
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