USPTO Issues Public Comments for §101 Subject Matter Eligibility

By Brent T. Yonehara

On July 30, 2017, the USPTO released its §101 report, Patent Eligible Subject Matter: Report on Views and Recommendations From the Public.   The report is a rather dry recitation of the §101 legal framework better suited for a Patent Bar Exam prep course.  However, there is an interesting comparative overlay of the patent subject matter eligibility requirements in other jurisdictions around the world, including China, the EPO, Japan, and Korea.

The public comments are rather straightforward, with some saying the Mayo/Alice restrictions on subject matter (PSM) eligibility, and especially the two-step test, are “overly broad” by “devaluing entire patent portfolios,”[1] and “unclear” by creating “unpredictability in the issuance and enforcement of patents.”[2]  Another common criticism of the PSM eligibility was that the Alice test stifles innovative activity and ultimately hurts U.S. businesses by tilting patent protection to large companies and away from startups where new innovations in software need patent protection the most.[3]

On the other hand, the new PSM regime had its supporters.  One supportive comment was that the new Alice regime weeded out overly broad patents, eliminating “low-quality patents” out of the patent ecosystem (i.e., preemption).[4]  Others lauded the new Alice regime as a powerful weapon against patent trolls.[5]  A further, and insightful, supporting comment was that foreign companies have a major stake in the U.S. patent system, and that Mayo/Alice is actually favored by these “geopolitical considerations.”  Along that same line, if a foreign inventor creating innovations overseas gets that patent protection in, say, Europe, but not here in the U.S. due to the Mayo/Alice regime, that innovation still exists; just the patent protection is not available for it on our shores.  This would have the benefit of lowering prices for U.S. consumers since lack of patent protection would open up markets to newer products, thus lowering prices.[6]

The Report ended with legislative recommendations for Congressional action, including proposed §101 amendments from the Intellectual Property Owners Association (IPOA) and the AIPLA.

(Disclaimer: the author is a member of the IPOA)

[1] See Patent Eligible Subject Matter: Report on Views and Recommendations From the Public (“Report”), United States Patent and Trademark Office, July 2017, at 29.

[2] Id. at 29-30.

[3] Id. at 32.

[4] Id. at 24.

[5] Id. at 25.

[6] Id. at 27.

 

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Fed Circuit Watch: Litigation Misconduct and Inequitable Conduct

By Brent T. Yonehara

On July 27, 2017, the Court of Appeals for the Federal Circuit decided Regeneron Pharmaceuticals, Inc. v. Merus B.V.  In Regeneron, the Federal Circuit affirmed a district court’s finding that Regeneron’s patent 8,502,018 was unenforceable due to inequitable conduct.[1]  This case brings up the Therasense New Order of Inequitable Conduct in patent cases.

The law of inequitable conduct has slowly begun to take shape seven years after Therasense[2] was decided by the Federal Circuit.  In Therasense, the Federal Circuit enunciated the elements for determining an inequitable conduct defense.  First, there must be materiality.  Second, there must be intent to deceive the USPTO. [3]

To start with, the duty to disclose and deal in good faith with the USPTO in patent applications extends to the patent applicants, owners, inventors, and patent practitioners of the application.[4]  All of these individuals must disclose information material to patentability (emphasis added).[5]  A prima facie case of unpatentability is established when the information demonstrates that a claim is unpatentable under the preponderance of evidence, with each claim term given its broadest reasonable interpretation consistent with the specification.[6]  Also, information is not considered material if it is cumulative to information already of record.[7]

Further, these individuals must also have a specific intent to deceive the USPTO by failing to disclose information as to the patentability of the claim in question; this must be proved by a much higher clear and convincing evidence standard.[8]  While a direct intent is rarely proven, an inferred intent can be made from indirect and circumstantial evidence which must be the “single most reasonable inference able to be drawn from the evidence.”[9]

In Regeneron, the patent practitioners failed to disclose four prior art references cited by third parties in related U.S. and foreign prosecutions.  The Regeneron practitioners alleged that while the references withheld is not in dispute, the references themselves were merely cumulative of what was already in the file wrapper.  The subject matter of the ‘018 patent in question was the mouse-human chimera, or genetically modified mouse, for purposes of developing genetically modified mouse antibodies to be used in humans to combat certain bacteria or viruses.  Claim 1 recited:

  1. A genetically modified mouse, comprising in its germline human unrearranged variable region gene segments inserted at an endogenous mouse immunoglobulin locus.

Regeneron had argued that under the broadest reasonable interpretation, Claim 1 was limited to a reverse chimeric mouse.  In other words, Regeneron argued for a much narrower construction.  However, Merus argued that constant region of the gene segments in the claimed mouse contained either mouse or human genes, and could be reverse chimeric, humanized, or fully human.  Thus, Merus argued a broader construction of Claim 1.

Regeneron-Claim1-murine-Ig

The court found that the transitional phrase “comprising” was an open-ended term, use of the term did not exclude unrecited elements.[10]  Therefore, the germline was not just limited to mouse and also included human, which further meant the claim language included reverse chimeric, human and fully human genes.[11]

On the intent requirement, inferred intent to deceive was demonstrated by Regeneron’s in-house patent practitioner’s failure to produce discovery documents relevant to the prosecution of the ‘018 patent.  This was deemed the litigation misconduct.  Further, Regeneron had an intent to deceive because their in-house counsel failed to submit the four prior art references during the prosecution of the ‘018 patent, as it was in the belief of the in-house counsel that the references were not material to patentability.   The Federal Circuit pointed out that “Regeneron’s litigation misconduct [] obfuscated its prosecution misconduct.”[12]  Thus, the Federal Circuit held the district court did not abuse its discretion by drawing an “adverse inference of specific intent to deceive”[13] on the part of Regeneron.

Inequitable conduct is a serious issue in prosecution because, as a defense, and if used successfully, it could not only invalidate one claim of a patent but also the entire patent is found unenforceable, which cannot be cured by a reissue.[14]  This may be the reason why these cases have convoluted and lengthy histories because these issues could not be resolved back in the PTAB.

Another post-Therasense case, American Calcar v. American Honda Motor Co., [15]  also went through the numerous machinations of the federal court system, and also turned out badly for the plaintiff.  In that case, a car guidance system patent were at issue.  The Federal Circuit affirmed the district court’s ruling that the patent was invalid under §§102 and 103, and unenforceable due to inequitable conduct due to inventor’s failure to submit prior art.

As for the intent requirement, the court determined that the Calcar inventor knew that his photos of the Honda Acura car were material to patentability, and therefore, withheld them from the Examiner.  In doing so, the Calcar inventor had the specific intent to deceive the USPTO because there was an inference the inventor had undisclosed information about the Honda Acura car system (i.e., the prior art), he knew it was material, and, further, he deliberately withheld it from disclosure as required under 1.56.

These line of cases show that the there are ramifications post-prosecution, and that intent to deceive is not just limited to strictly those required under their 1.56 duty (i.e., the litigation counsel further downstream).  Further, as shown with Regeneron, intent to deceive can go back upstream to the original patent prosecutor when the litigation counsel way down the river engages in litigation misconduct (i.e., it could lead to disciplinary action before the OED).  Based just on this most recent case, the case law is beginning to show a trend of broad interpretation of intent to deceive and materiality required to show inequitable conduct.  As such, this case should be of deep concern for all patent practitioners.

[1] 144 F. Supp. 3d 530 (S.D.N.Y. 2015) (District Court found materiality of the prior art references), aff’d in divided Court, ___Fed. Appx.___ (Fed. Cir. 2017), CAFC No. 16-1346.

[2] Therasense, Inc. v. Becton Dickinson & Co., summ. j. granted, 560 F. Supp. 2d 835, 854, aff’d, 565 F. Supp. 2d 1088, 1127 (N.D. Cal. 2008), aff’d, 593 F.3d 1289, 1311 (Fed. Cir. 2010), reh’g granted, vacated & remanded, 649 F.3d 1276 (Fed. Cir. 2011) (en banc), aff’d upon remand, 864 F. Supp. 2d 856, 858 (N.D. Cal. 2012), aff’d on other grounds, 745 F.3d 513 (Fed. Cir. 2014).

[3] Id., 649 F.3d at 1290-91.

[4] See 37 C.F.R. §1.56(c); MPEP 2001.01.

[5] See 37 C.F.R. §1.56(b); MPEP 2001.05.

[6] See MPEP 2001.05.

[7] See 37 C.F.R. §1.56(b).

[8] See Therasense, supra, 649 F.3d at 1287, 1290.

[9] Id. (citing Star Scient. Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008).  See also Regeneron, supra (slip op. at 40) (Newman, J., dissenting) (noting that inferred intent must still be proven, and “absence of trial findings cannot be substituted by inference.”).

[10] See MPEP 2111.03 (“[t]he transitional term ‘comprising,’ . . . is inclusive or open-ended and does not exclude additional, unrecited elements or method steps.”)

[11] See Regeneron, supra (slip op. at 5-6, 13-14).

[12] Id. (slip op. at 37).

[13] Id. (slip op. at 38).

[14] See MPEP 2016 (“once a court concludes that inequitable conduct occurred, all the claims … are unenforceable.”); MPEP 2012 (“both 35 USC 251 and 37 CFR 1.175 . . . require that the error must have arisen ‘without any deceptive intention.’”).

[15] Am. Calcar, Inc. v. Am. Honda Motor Co., Inc., Case No. 06-cv-02433, 2008 WL 8990987 (S.D.Cal. Nov. 3, 2008), vacated and remanded in part, 651 F.3d 1318 (Fed. Cir. 2011), aff’d upon remand, Case No. 06-cv-0233, 2012 WL 1328640 (S.D.Cal. Apr. 17, 2012), aff’d, 768 F.3d 1185 (Fed. Cir 2014).

SCOTUS Watch: Cert Granted in Oil States: the Constitutionality of IPR Proceedings

By Brent T. Yonehara

On June 12, 2017, the U.S. Supreme Court granted the petition for certiorari in Oil States Energy Services v. Greene’s Energy Group, LLC.[1]  Of the three issues presented by petitioner Oil States, only one will be heard before the Supreme Court, namely:

Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

(for the granted petition, see here.)

The other two issues requested by Oil States will not be addressed before the Court.

Inter partes reviews (IPRs) were one of the adversarial proceedings created by the America Invents Act (AIA) in 2012.  IPRs replaced the inter partes reexamination proceedings following enactment of AIA on September 16, 2012.[2]

The immediate question is whether patents, once issued, are either a private right (i.e., a private property right) or a public right, where the validity or invalidity can be determined by a government agency regulating the issuance of patents.  The Court of Appeal for the Federal Circuit, from where this case was last heard, ruled against Oil States’ contention that patent rights are private rights, not public rights, and are not subject to Article III treatment.  To quote Oil States, “ . . . patent rights are property rights, and property rights are pivate rights – not ‘public rights’.”[3]  There are some commentators who believe the Supreme Court will overturn the decision of the Federal Circuit, as it has been apt to do of late.  However, in the very recent B&B Hardware case, the Supreme Court held that TTAB’s decisions received preclusive effect, essentially holding that TTAB was an Article III court.[4]  While B&B Hardware dealt with issue preclusion and trademarks, it could be seen as a corollary to Oil States and patents in that the the Supreme Court might, consistent with its holding in B&B Hardware, extend this concept of Article III treatment to the patent side of the USPTO.  If it does, the Supreme Court will have the permitted the rare act of affirming a Federal Circuit decision.

Depending on the outcome, this case could demolish the entire AIA review adjudication process within the USPTO.

The case should be heard sometime in Fall 2017, with a ruling delivered sometime in early 2018.

[1] 639 F.App’x 639 (Fed. Cir. 2016), cert granted, ___U.S.L.W.___ (June 12, 2017) (No. 16-712).

[2] MPEP 2601.

[3] See Reply Brief for the Petitioner, at 9.

[4] B&B Hardware, Inc. v. Hargis Industries Inc., 575 U.S.___ (2015) (slip op. at 14-15).

SCOTUS Watch: Supreme Court Redefines the Patent Exhaustion Doctrine

By Brent T. Yonehara

On May 30, 2017, the U.S. Supreme Court decided Impression Products, Inc. v. Lexmark International, Inc.[1], reversing the Court of Appeals for the Federal Circuit on the scope of the patent exhaustion doctrine, also known as the first sale doctrine, and unequivocably stated in its opinion that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”[2]  This will greatly expand the definition of patent exhaustion.

The Court stated in its analysis by explaining that the Patent Act grants patent holders the right to exclude others from making, offering for sale or selling of the invention (emphasis added).[3]  However, this right to exclude has, at least, one limitation, namely the patent exhaustion doctrine.  When the patentee sells a product, that product no longer is a vestige of the patent monopoly, but rather the private property of the buyer.[4]  Consequently, patent rights are superseded by the principle against restraints on alienation.  The Court noted that while the Patent Act “promotes the progress of . . . the useful arts [] by granting to [inventors] a limited monopoly” to allow inventors to reap the windfall of that monopoly on their inventions.[5]

However, once the windfall of patent law is achieved, the law does not extend any restraint on the “use and enjoyment of the thing sold.”[6]  In other words, while a patentee can control price, negotiations, and sale terms of a product, the patentee cannot control the “use or disposition” of that product after it is sold to the buyer.[7]  Essentially, the sale “terminates all patent rights to the item.”[8]

Further, a contractual restriction will not extend the patentee’s patent rights to the product sold.  Once a patentee “sells a product, under an express restriction, the patentee does not retain patent rights in that product.”[9]

“Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”[10]

With this ruling, Impression Products will bring a level of consistency across other intellectual properties, most notably copyrights, where the Court recently held in favor of international exhaustion in the copyright first sale doctrine in its Kirtsaeng v. John Wiley & Sons, Inc.[11] case.  With these cases, the two intellectual properties described in the Patent and Copyright Clause of the U.S. Constitution[12] will have the first sale doctrine applied uniformly to both patent and copyright licensing.  The Court elucidated that the Patent Act, like the Copyright Act, allows for a state-sanctioned monopoly to inventors (and authors) for a limited period of time, and to recoop their investment in those intellectual and creative endeavors.  However, there are limits to that state-sanctioned right, and once a patentee has sold its first product based on its patent, the legal protections fall outside of the Patent Act and into other areas of law, like contracts or torts.[13]  Indeed, the Court further made clear that:

differentiating the patent exhaustion and copyright first sale doctrines would make little theoretical or practical sense [because] there is a ‘historic kinship between patent law and copyright law’,” and the bond between the two leaves no room for a rift on the question of international exhaustion.”[14]

The decision was unanimous as to domestic patent exhaustion, and 7-1 as to international patent exhaustion, with only Justice Ruth Bader Ginsburg as the lone dissenter.  Impression Products will have a major impact on the patent licensing industry.  Specifically, licensing terms may need to be redefined, and could also severely impact licensing of pharmaceutical or medical device products which have extensive post-sale limitations built into the agreements.

[1] 581 U.S.___ (2017).

[2] Id., slip op. at 13.

[3] Id. at 5.

[4] Id. at 6.

[5] Id.

[6] Id. at 6 (citing United States v. Univis Lens Co., 316 U.S. 241, 251 (1942)).

[7] Id. (citing Univis, supra, at 250).

[8] Id. (citing Quanta Computers, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008)).

[9] Id. at 8 (citing Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8, 17-18 (1918)).

[10] Id. at 11 (citing United States v. General Electric Co., 272 U.S. 476, 489-490 (1926)).

[11] 568 U.S.___, 133 S. Ct. 1351 (2013).

[12] U.S. Const., Art. I, Sec. 8, Cl. 8: “. . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

[13] See Florian Mueller, Supreme Court rules against Lexmark on patent exhaustion, strengthening FTC/Apple cases against Qualcomm, Foss Patents, May 30, 2017 (“No overcompensation.  No overleveraging.  No double-dipping.  No restrictions that go beyond what the Patent Act allows.  That’s the message here.”).

[14] 581 U.S.___, supra, at___ (slip op. at 14-15) (citing Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984)).

Fed Circuit Watch: Helsinn and the On-Sale Bar

By Brent T. Yonehara

On May 1, 2017, the Federal Circuit Court of Appeals decided Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 2016-1284, 2016-1787 (Fed. Cir. 2017), holding that the on-sale bar of pre-AIA 35 U.S.C. § 102(b) invalidated four patents held by Helsinn, for treatment of chemotherapy-induced nausea and vomiting (CINV).

The patents at issue were, 7,947,724, 7,947,725, 7,960,424, and 8,598,219.  All of these patents shared a priority date of January 30, 2003, and a critical date of January 30, 2002 for purposes of pre-AIA 35 U.S.C. § 102(b).  Helsinn and MGI Pharma, Inc. entered into a sales agreement which was signed on April 6, 2001.  This agreement was then announced in a press release and in an SEC filing with a copy of the agreement, albeit in redacted form, on April 25, 2001.  This April 25, 2001 date would, therefore, represent a public disclosure of the invention’s subject matter prior to the critical date of January 30, 2002.

Claim 2 of the ‘724 patent and Claim 1 of the ‘219 patent were deemed representative of the asserted claims:

2.  A pharmaceutically stable solution for reducing emesis or reducing the likelihood of emesis comprising:

a) 5 mg/mL palonosetron hydrochloride, based on the weight of the free base, in a sterile injectable aqueous carrier at a pH of from 4.5 to 5.5;

b) from 0.005 mg/mL to 1.0 mg/mL EDTA; and

c) mannitol in an amount sufficient to tonicify said solution, in a concentration of from about 10 mg/ml to about 80 mg/ml.

  1. A pharmaceutical single-use, unit-dose formulation for intravenous administration to a human to reduce the likelihood of cancer chemotherapy-induced nausea and vomiting, comprising a 5 mL sterile aqueous isotonic solution, said solution comprising:

palonosetron hydrochloride in an amount of 0.25 mg based on the weight of its free base;

from 0.005 mg/mL EDTA; and

from 10 mg/mL to about 80 mg/mL mannitol,

wherein said formulation is stable at 24 months when stored at room temperature.[1]

The on-sale bar invalidates a patent if the patented subject matter is (i) subject of a commercial sael or offer for sale prior to the critical date of the patent, and (ii) ready for patenting.[2]  Both pre-AIA and post-AIA treatments of § 102 utilize the Pfaff steps of  the on-sale bar.

Pre-AIA 35 U.S.C. § 102(b) barred a patent if: “…(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of application for patent in the United States.”[3]

AIA 35 U.S.C. § 102(a)(1) barred a patent if: “…the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.”[4]

(Emphasis added.)

The Federal Circuit held that sale agreement between Helsinn and MGI constituted a commercial sale for purposes of 35 U.S.C. § 102(b) on-sale bar because the facts met the definition of the on-sales bar of § 102(b).  As noted by the Federal Circuit, Helsinn did not require confidentiality with its execution of the sales agreement, and was an unambiguous contemplation of a sale between Helsinn and MGI.[5]

The Federal Circuit also held that, for purposes of an on-sale bar under AIA 35 U.S.C. § 102(a)(1), “ after AIA, if the existence of the sale is public, the details of the invention need not be publicly diclosed in the term of sale.”[6]  Helsinn had argued that for AIA purposes, the on-sale bar did not apply until the sale disclosed the subject matter of the invention to the public.  The Federal Circuit disagreed, rationalizing that preventing such a bar would be “a foundational change in the theory of the statutory on-sale bar.”[7]  Rather, all that is required is if there is a sale or offer to sell which embodies the invention, and that sale is then made public.[8]

As for whether the claims were “ready for patenting,” the Federal Circuit found that the 0.25 mg of palonosetron formulation met the burden, and that evidence was “overwhelming” that the formulation was properly reduced to practice work for its intended purposes for limiting the likelihood of emesis.[9]

The implications of this case could be quite profound.  For purposes of the AIA 35 U.S.C. § 102(a)(1) on-sale bar, public disclosure of a sale of a patented invention could effectively invalidate that patent even though the invention’s specifics were not disclosed in the public disclosure of that sale.

[1] Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 2016-1284, 2016-1787 (Fed. Cir. 2017), slip op. at 5.

[2] Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998).

[3] 35 U.S.C. § 102(b) (pre-AIA); MPEP 2133.

[4] 35 U.S.C. § 102(a)(1) (AIA); MPEP 2152.

[5] Helsinn, slip op. at 16-17.

[6] Id. at 27.

[7] Id. at 22.

[8] Id. at 23.

[9] Id. at 30.

SCOTUS Watch: TC Heartland LLC v. Kraft Foods Group Brands LLC

By Brent T. Yonehara

On May 22, 2017, the U.S. Supreme Court handed down an important ruling, TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S.___ (2017), in patent venue, and specifically limited the ability of patent litigation plaintiffs to file in nearly any U.S. District Court in the country, and held a defendant domestic corporation can only be sued for patent infringement only in its state of incorporation.

Venue for patent cases is delineated by 28 U.S.C. § 1400(b): “any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where defendant has committed acts of infringement and has a regular and established place of business.”[1]  Note that for purposes of the TC Heartland case, the Court only addressed the defendant’s “residence,” and not “place of infringement.”

Also, and more importantly,  § 1400(b) differs from the general venue statute, 28 U.S.C. § 1391(c): …(2) an entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question and, if a plaintiff, only in the judicial district in which it maintains its principal place of business. [2]

(Emphasis added).

The Court analyzed Congressional enactment of both venue statutes, as well as the Court’s own decision in Fourco Glass Co v. Transmirra Prods. Corp., 353 U.S. 222 (1957), noting that § 1400(b) is the “sole and exclusive provision controlling venue in patent infringement actions, and . . . is not supplemented by [] § 1391(c).”[3]  In other words, the general venue statute does not override the patent venue statute.  The Court decidedly overruled the Federal Circuit’s 25 year expansive patent venue.

This ruling will have an emasculation effect on the Non-Practicing Entities (NPEs, or “patent trolls”)’s ability to control patent infringement cases especially if they are not able to file their complaint in their choice of district court.  Some commentators have been quite harsh about reigning in the patent trolls’ venue selection.  The biggest patent litigation venue, by far, has been the Eastern District of Texas, a rural district known to be pro-plaintiff.  Patent trolls flocked to the E.D. Texas with 87% filing their patent infringement suits in that district.  The District of Delaware, Northern District of California, Central District of California, and Northern District of Illinois were far behind.  These latter four districts appear to be the heavy beneficiaries of TC Heartland, as many companies are either incorporated in Delaware, or headquartered in Silicon Valley or San Francisco.

While this ruling will not end the patent troll phenomenon, it will place hindrances on this type of litigant.

[1] 28 U.S.C. § 1400(b).

[2] 28 U.S.C. § 1391(c).

[3] 581 U.S.___ (2017) (slip op. at 5, citing Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. at 229).

ALICE IN WONDERLAND: SOFTWARE PATENTS IN LIGHT OF ALICE CORP. v. CLS BANK INT’L

By Brent T. Yonehara

INTRODUCTION

Alice Corporation v. CLS Bank International was recently decided by the U.S. Supreme Court in the closing days of its 2013-2014 term.[1] In Alice, the Supreme Court found that patent claims that do not “transform” from patent-ineligible subject matter to a patent-eligible invention were abstract ideas outside the scope of 35 U.S.C. §101.[2] News has been mostly favorable of the Alice decision.[3] However, it has not been unanimous. Critics’ comments of the Alice ruling range from indignant[4] to excoriating.[5] This paper examines the Alice decision by analyzing its new test to determine whether software claims are patent-eligible subject matter.

DISCUSSION

Analyzing Alice

Software patents, and business methods, may occupy a demilitarized zone of questionable claims construction.[6] The Supreme Court has long held that “laws of nature, natural phenomena, and abstracts ideas are not patentable.”[7] In Alice, The Supreme Court begins its analysis by reviewing its previous ruling in Mayo v. Prometheus. [8] In Mayo, patents involving therapeutic drugs were at issue.[9] Independent claim 1, a method claim, was directed toward the drug and dosage administration[10] and the process in which the thiopurine compounds metabolize to produce the therapeutic result.[11] The Court held that this process was nothing more than a law of nature, and thus not patentable.[12] The Mayo Court further enunciated a two-step test to determine patentability.[13] This test was then applied by the Alice Court to determine whether software patent claims are patentable.[14]

The first question is whether the claims at issue are directed toward an unpatentable subject matter.[15] If the answer is “yes,” then the second question is whether taking the claim individually and “as an ordered combination” produce any other elements to transform the claim into a patentable subject matter.[16]

The Alice method claims in U.S. Patent No. 5,970,479 (‘479) at issue were directed toward intermediated settlement.[17] The Court found that the Alice’s claims were only abstract ideas.[18] Additionally, the Court found that these claims failed to transform the mere idea into something patentable.[19] The claims merely required rudimentary computer implementation, which was not enough “transformation” to a patent-eligible invention.[20] The Court noted that the introduction of a computer did not make the invention “substantial and meaningful.”[21] Furthermore, the Court observed that the functions performed by a computer during each step of the method claim’s process were only “conventional,” and taken “as an ordered combination” did not add anything that “[was] already present when the steps [were] considered separately.” [22] As such, the Court invalidated the Alice method claims.[23]

Analyzing the Alice Aftermath

So, what is the practical effect of Alice? Certainly, the standard for what is patentable software and what is unpatentable ideas has gotten higher.[24] The software industry has been mostly exuberant, if not cautious, about the result from Alice. One commentator sees the Alice patents invalidation as necessary to “ridding the American patents of poor software, business process, and genetic patents.”[25] Another commentator seemed effusive since rendering some software patent claims as non-patentable ideas would be an additional weapon in the industry’s battle against patent trolls.[26] (I note, however, an errata in this commentator’s article – he noted that some in the industry want to move toward having software trademarked. Software, of course, cannot be trademarked, per se, although the trade name could be. The source code has long been protected as copyrightable media of expression.)[27]

Legal experts and commentators have been less than complimentary to the high court’s decision-rendering. One commentator labels the decision as “intellectually bankrupt,” since it makes issuing software patent claims (method, system, or computer-readable medium) more difficult.[28] A former United States Patent and Trademark Office (USPTO) director expressed disappointment because Alice did not provide needed clarity in determining patent-eligible software claims.[29] A law professor commentator, though, had the exact opposite reaction, noting that Alice provided a clearer path than the Bilski case enunciated with business methods.[30]

One thing of interest to note is the reaction from Australia’s high-tech community, and the intellectual property office, in particular. Since the now invalidated ‘479 patent claims priority to Australian patents, and which also provide priorities for European, Japanese, Chinese, Canadian, and New Zealand patents,[31] the Supreme Court’s invalidation could spur cancellation or invalidation proceedings in these respective jurisdictions.

CONCLUSION

Alice brought some finality, and for some, a little more certainty, for software patents after the Federal Circuit’s mess in the appellate ruling from over a year ago.[32] Like the fictional Alice, who fell into a world of amazement and wonder, the Alice ruling has dropped upon the high tech world a bit of both, as well. Some may be amazed (or, for others, dazed) by what is now plausible – a test which can determine what software claims are patentable and what are not. Still others will wonder about the day when software can be deemed patentable at all, or not. Until that day arrives, it keeps the rest of us in the IP world occupied with our day jobs.

By Brent Yonehara. Originally published at http://yonaxis.blogspot.com/2014/06/alice-in-wonderland-software-patents-in.html (June 26, 2014).

[1] See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S.___ (2014) (slip op.), available at http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf.

[2] Id. at___ (slip op. at 5-6).

[3] See, e.g., Julie Samuels, Patent Trolls Are Mortally Wounded, Slate, at http://www.slate.com/articles/technology/future_tense/2014/06/alice_v_cls_bank_supreme_court_gets_software_patent_ruling_right.html (June 20, 2014, 1:47 PM) (stating Alice Corp. furthers the goal of moving away from poorly-drafted software patents); Business Software Alliance, Supreme Court’s CLS Bank Decision Is a Victory for Innovation, Says BSA, at http://www.bsa.org/news-and-events/news/2014/june/06192014clsdecision (June 19, 2014) (noting the Court came to the right decision in Alice).

[4] See Free Software Foundation, US Supreme Court Makes Right Decision to Nix Alice Corp. Patent, but More Work Needed to End Software Patents for Good, at https://www.fsf.org/news/fsf-statement-on-alice-corp-v-cls-bank (June 19, 2014, 4:55 PM) (“Software patents are a noxious weed that needs to be ripped out by the roots.”).

[5] See Gene Quinn, SCOTUS Rules Alice Software Claims Patent Ineligible, IPWatchdog Blog, at http://www.ipwatchdog.com/2014/06/19/scotus-rules-alice-software-claims-patent-ineligible/id=50120/ (June 19, 2014, 6:44 PM) (commenting, unapologetically, that Alice was naively written and is an “asinine” decision.).

[6] See Daniel Fisher, Alice Corp. Patent Ruling Is Good For Software Firms, Bad News For Trolls, Forbes, at http://www.forbes.com/sites/danielfisher/2014/06/19/patent-lawyers-software-companies-like-alice-corp-ruling-trolls-not-so-much/ (June 19, 2014, 2:39 PM) (inferring, with some reluctance, that Alice was correct but currently business methods are tenuously patentable subject matter.).

[7] See Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S.___ (2013) (slip op., 11).

[8] See Mayo Collaborative Services v. Prometheus Labs., Inc., 566 U.S.___ (2012) (slip op., 8-10), available at http://www.supremecourt.gov/opinions/11pdf/10-1150.pdf.

[9] Id. at ___ (slip op., 4-5).

[10] Id. at___ (slip op., 5-6).

[11] Id. at___ (slip op., 8).

[12] Id. at___ (slip op., 8-9).

[13] Id.

[14] See Alice, supra note 1, at___ (slip op., 7).

[15] Id.

[16] Id.

[17] See CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1285, 106 U.S.P.Q.2D 1696 (Fed. Cir. 2013) (en banc). Method claim 33 of Patent No. 5,970,479 states: “A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for each transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and

(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credit or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions. Id.

[18] See Alice, supra note 1, at___ (slip op., 7).

[19] Id. at___, (slip op., 10).

[20] Id. at ___, (slip op. 10-11).

[21] Id. at___, (slip op., 14).

[22] Id. at___, (slip op., 15).

[23] The system claims and computer-readable medium claims were also thrown out by the Alice Court. Id. at____, (slip op., 16).

[24] See Brian Fung , The Supreme Court’s Decision on Software Patents Still Doesn’t Settle the Bigger Question, The Washington Post, available at http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/20/the-supreme-courts-decision-on-software-patents-still-doesnt-settle-the-bigger-question/ (June 20, 2014).

[25] See Steven J. Vaughan-Nichols, Software Patents Take a Hit, But They’re Far From Dead, ZDNet, at http://www.zdnet.com/software-patents-take-a-hit-but-theyre-far-from-dead-7000030745/ (June 19, 2014, 14:10 PDT).

[26] See Seth Rosenblatt, Supreme Court Raises Bar on Software Patent Claims, CNET, at http://www.cnet.com/news/despite-supreme-court-decision-software-still-eligible-for-patents/ (June 19, 2014, 1:36 PM PDT).

[27] In all fairness, however, I should give this commentator the benefit of the doubt; he does not have a legal background nuanced in the idiosyncrasy of intellectual property laws.

[28] See Quinn, supra note 5 (quoting Q. Todd Dickinson, Director of the USPTO under President Clinton, stating that the Court should have given more clarity to the issue of software patent claims).

[29] Id.

[30] See Rob Preston, Supreme Court Toughens Business Process Patent Test, InformationWeek, at http://www.informationweek.com/software/enterprise-applications/supreme-court-toughens-business-process-patent-test/a/d-id/1278736 (June 20, 2014, 11:16 AM) (quoting Professor Robin Feldman of University of California, Hastings College of the Law in stating that “the Court sent a strong message with the Alice decision.”) See also Bilski v. Kappos, 561 U.S. 593, 599 (2010) (holding business method claims directed toward financial risk hedging was too abstract an idea to be patentable).

[31] See ESPACENET database search, conducted June 26, 2014, at http://worldwide.espacenet.com/publicationDetails/inpadocPatentFamily?CC=US&NR=5970479A&KC=A&FT=D&ND=3&date=19991019&DB=EPODOC&locale=en_EP (June 26, 2014).

[32] See CLS Bank Int’l, supra note 17.