Patent Law Blog (Patently-O)

Hitler on Patent Trolls

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Supreme Court Adds Antitrust Consideration to Patent Settlements.

By Dennis Crouch

FTC v. Actavis, Inc. (Supreme Court 2013)

In a 5-3 Decision authored by Justice Breyer, the US Supreme Court has held that a rule-of-reason analysis applies to determine whether a reverse-payment patent settlement violates federal antitrust laws. The FTC had asked the court to go further and rule that reverse payments are presumptively unlawful. A major factual question going forward in patent-settlement antitrust cases will be whether the patentee settled its lawsuit in order to avoid testing a patent's weakness. Without additional pro-competitive benefits, such a settlement can be deemed anticompetitive under a rule-of-reason.

The conservative dissent written by Chief Justice Roberts argued that patent rights should be seen as an exception to the antitrust laws and that a patentee should have the right to enforce its patents and to settle its patents without regard to the anti-competitive nature of any settlement.

The result here is that the antitrust implications should be considered for any major patent settlement. In addition, the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.

As my law school antitrust professor Randy Picker notes on twitter, the decision admittedly does not offer any clear guidance for how the rule of reason will apply in cases moving forward. Picker writes: applying the "rule-of-reason [on] remand, with the patent overlay and Hatch-Waxman present, will be brutal." The majority opinion says go-to-it: "We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation."

Read the opinion: http://www.supremecourt.gov/opinions/12pdf/12-416_m5n0.pdf

Guest Post by Paul Cole: ASSOCIATION FOR MOLECULAR PATHOLOGY v MYRIAD GENETICS – an isolated decision?

Guest Commentary by Paul Cole,Professor of Intellectual Property Law, Bournemouth University, and European Patent Attorney, Lucas & Co, Warlingham, Surrey, UK.  

ASSOCIATION FOR MOLECULAR PATHOLOGY v MYRIAD GENETICS – an isolated decision?

By Paul Cole[1]

            How does the Supreme Court decision of 13 June 2013 match international opinion on the patentability of biological material? From a European and indeed from an Australian standpoint it can be said with some confidence: not so well.

            In Europe patentability in this genus of fields of endeavour was considered in the 1990’s in a debate that resulted in the passage of the European Biotechnology Directive of  6 July 1998, [1998] OJL 175/1[2]. For the relevant philosophy underlying that Directive it is only necessary to quote the relevant recitals (with emphasis added):

(16) Whereas patent law must be applied so as to respect the fundamental principles safeguarding the dignity and integrity of the person; whereas it is important to assert the principle that the human body, at any stage in its formation or development, including germ cells, and the simple discovery of one of its elements or one of its products, including the sequence or partial sequence of a human gene, cannot be patented; whereas these principles are in line with the criteria of patentability proper to patent law, whereby a mere discovery cannot be patented;

(17) Whereas significant progress in the treatment of diseases has already been made thanks to the existence of medicinal products derived from elements isolated from the human body and/or otherwise produced, such medicinal products resulting from technical processes aimed at obtaining elements similar in structure to those existing naturally in the human body and whereas, consequently, research aimed at obtaining and isolating such elements valuable to medicinal production should be encouraged by means of the patent system;

(20) Whereas, therefore, it should be made clear that an invention based on an element isolated from the human body or otherwise produced by means of a technical process, which is susceptible of industrial application, is not excluded from patentability, even where the structure of that element is identical to that of a natural element, given that the rights conferred by the patent do not extend to the human body and its elements in their natural environment;

(21) Whereas such an element isolated from the human body or otherwise produced is not excluded from patentability since it is, for example, the result of technical processes used to identify, purify and classify it and to reproduce it outside the human body, techniques which human beings alone are capable of putting into practice and which nature is incapable of accomplishing by itself;

(22) Whereas the discussion on the patentability of sequences or partial sequences of genes is controversial; whereas, according to this Directive, the granting of a patent for inventions which concern such sequences or partial sequences should be subject to the same criteria of patentability as in all other areas of technology: novelty, inventive step and industrial application; whereas the industrial application of a sequence or partial sequence must be disclosed in the patent application as filed…

The consequential legislative provision is to be found in Article 3 which was arrived at following a three-year debate involving the EU Commission and the European Parliament:

1. For the purposes of this Directive, inventions which are new, which involve an inventive step and which are susceptible of industrial application shall be patentable even if they concern a product consisting of or containing biological material or a process by means of which biological material is produced, processed or used.

2. Biological material which is isolated from its natural environment or produced by means of a technical process may be the subject of an invention even if it previously occurred in nature.

In Australia the patentability of such materials has recently been confirmed by the Federal Court of Australia in Cancer Voices Australia v Myriad Genetics Inc [2013] FCA 65 (15 February 2013)[3], see Vaughn Barlow, CIPA, March 2013, 122-123. This very well-reasoned and detailed decision considers relevant US and UK opinions including the Kalo v Funk opinion, and explains:

105        In my opinion the patentability of the isolated nucleic acids referred to in the disputed claims does not turn upon what changes have been made to the chemical composition of such substances as a result of them having been isolated. In particular, the question of whether these substances constitute patentable subject matter does not depend upon the type of chemical bond that may have been broken in the process of isolating them. It is inevitable that some bonds will be broken in the course of isolating nucleic acids, but it is not apparent from the evidence that these will necessarily include covalent bonds. As I have already explained, the disputed claims do not require that the isolated nucleic acids they describe differ from those found in the cell in this or any other respect so far as their chemical composition is concerned.

106        Accordingly, the issue in this case turns upon whether an isolated nucleic acid, which may be assumed to have precisely the same chemical composition and structure as that found in the cells of some human beings, constitutes an artificial state of affairs in the sense those words should be understood in the present context. There are three considerations which lead me to think that it does.

107        First, in explaining the concept of manner of manufacture as one involving the creation of an artificial state of affairs, it is apparent that the High Court in NRDC was deliberate in its use of very expansive language. Not only did the High Court emphasise the “broad sweep” of the concept involved, it also made clear that metaphorical analysis may not be helpful in determining whether or not something constitutes patentable subject matter.

108        Secondly, in the absence of human intervention, naturally occurring nucleic acid does not exist outside the cell, and “isolated” nucleic acid does not exist inside the cell. Isolated nucleic acid is the product of human intervention involving the extraction and purification of the nucleic acid found in the cell. Extraction of nucleic acid requires human intervention that necessarily results in the rupture of the cell membrane and the physical destruction of the cell itself. And purification of the extracted nucleic acid requires human intervention that results in the removal of other materials which were also originally present in the cell. It is only after both these steps are performed that the extracted and purified product may be properly described as “isolated” in the sense that word is used in the disputed claims.

109        Thirdly, as Dann’s Patent demonstrates, the isolation of a particular micro-organism may require immense research and intellectual effort. In that case, it was only as a result of an intensive research effort that the isolated micro-organism in question could be made available for use in the manufacture of the new antibiotic. It was fortuitous for the patentee that it was its employees who were first to isolate the new micro-organism and first to deploy it in the manufacture of the new drug. That will not always be so. It would lead to very odd results if a person whose skill and effort culminated in the isolation of a micro-organism (a fortiori, an isolated DNA sequence) could not be independently rewarded by the grant of a patent because the isolated micro-organism, no matter how practically useful or economically significant, was held to be inherently non-patentable. In my view it would be a mistake, and inconsistent with the purposes of the Act, not to give full effect in such situations to the broad language used by the High Court in NRDC.

            The Court went on to explain that its findings were consistent inter alia with a report of the Australian Law Reform Commission of June 2004 entitled Genes and Ingenuity: Gene Patenting and Human Health (ALRC 99, 2004). That report concluded that it would be difficult, on any rational basis, to confine reform to genetic materials and technologies, and that the extension of the reform to other fields – where the patenting of pure and isolated chemicals that occur in nature was uncontroversial – could have unknown consequences.

What a shame that nobody told the Supreme Court of this body of opinion and legislation  in Europe and Australia, which is believed consistent with the opinions and legislation existing in most other countries of the industrialised world, or that if it was aware of this position elsewhere the Court decided to ignore it in favour of a judge-made exception to the express provisions of 35 USC 101!

European equivalents of the patents in issue have been considered by the EPO Appeal Board. For example, T 1213/05 UNIVERSITY OF UTAH/Breast and ovarian cancer[4] concerns the BRCA 1 gene. T 666/05 UNIVERSITY OF UTAH/Mutations[5] relates to the use of the same gene in diagnosis.

In case T 1213/05, opponents argued that the socio-economic consequences of patenting the claimed subject-matter should be considered under a.53(a) EPC because these consequences touched ethical issues. Patenting of the claimed subject-matter would not only result in increased costs for patients, but would also influence the way in which diagnosis and research would be organized in Europe, which would be clearly to the detriment of patients and doctors. The fact that a particular group of patients, i.e. patients suspected to carry a predisposition to breast cancer, would be faced with severe disadvantages and would become dependent on the patent proprietor was contrary to human dignity so that the claimed subject-matter constituted an exception to patentability under a.53(a) EPC. In rejecting this argument the Appeal Board held that the possible consequences of the exploitation of the patent were are the result of the exclusionary nature of the rights granted by a patent, i.e. the right to stop competitors from using the invention. Logically such an objection applied to the exploitation of any patent and was the same for all patents. A resolution of the European Parliament, P6_TA(2005)0407 of 26 October 2005 "Patents on biotechnological inventions" did not vest the EPO with the task of taking into account the socio-economic effects of the grant of patents in specific areas and of restricting the field of patentable subject-matter accordingly. Similar arguments were rejected by the Board, in a different composition, in Case T 666/05.

In the US litigation it was argued that patents for isolated genomic DNA inhibited more innovation than they incentivised. However, even if that proposition is accepted it appears arguable that this is also the result of the exclusionary nature of the rights granted by a patent and is the same for all patents.

It is submitted that the decision is based on a narrow and short-term view of the public interest. The drug amoxicillin was invented in 1959, became available in 1972 and was the subject of much litigation in the 1960’s and 1970’s in which this author personally participated. The relevant patents have now expired and the drug which continues in widespread use is now a generic in a competitive marketplace. In addition to the US and the UK, the drug is now made in, for example, Brazil, Canada, Italy, Mexico, New Zealand Singapore, Spain, Thailand and South Africa. The well-known Indian generic company Ranbaxy was approved a supplier for the US market by the FDA in 2003.  An invention can enrich the inventor or an employer for a limited period provided by the patent system: mankind is enriched forever.

---

[1] http://www.lucas-uk.com/paul-cole.htm

[2] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31998L0044:EN:NOT

[3] http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2013/2013fca0065

[4] http://www.epo.org/law-practice/case-law-appeals/recent/t051213eu1.html

[5] http://www.epo.org/law-practice/case-law-appeals/recent/t050666eu1.html

Twenty Thoughts on the Importance of Myriad

By Dennis Crouch

I asked a number of colleagues for their thoughts on the Supreme Court's recent Myriad Decision. However, I only allowed a 40 word statement from each.

Most patent law specialists look at Supreme Court review with some trepidation. For many, the split decision comes with a sigh of relief. Gregory Dolin (U Baltimore) writes that "the decision could have been much worse. The decision could have been much worse. After all, the petitioners argued that neither isolated DNA nor cDNA should be patent eligible. So the fact that the Supreme Court concluded that cDNA is patent eligible is a victory for Myriad." Jorge Contreras (American) calls the decision a "common sense" application focused on "the fundamental purposes of the patent system." Professor John Duffy (UVA) sees the decisions as "a half-loss to inventors, a half-loss to advocates for a broader public domain but, unfortunately, a full victory for patent lawyers, who will have lots of business opining on, and litigating, the complexities of this decision." Barbara Rudolph (Finnegan) notes that the decision "could have an immediate [negative] effect on existing patent portfolios of some biotech companies, particularly those in the fields of diagnostics and personalized medicine. . . . It is, however, a positive development for companies that rely on [non-patented] cDNA for the development and manufacture of novel therapeutic proteins."

The decision is in some tension with the Court's most recent prior section 101 case of Mayo. Jeffrey Lefstin (UC Hastings) queries "is Mayo's 'inventive concept' still required for patent-eligibility? The Court's endorsement of cDNA relies on cDNA being 'new' within the meaning of § 101, not whether creation of cDNA involved anything beyond the 'routine and conventional' activity disparaged in Mayo." David Berry (Cooley Law) praised this aspect of the decision because the Court "didn't concoct a new, off-the-cuff standard; punt on fashioning a useful test, confuse 'eligibility' with 'patentability;' use the word 'obvious' to mean something else again; disparage the art of claim drafting; or leave a whole industry up in the air about the limits of patent protection." Along these lines but in a lamenting tone, Timothy Holbrook (Emory) that "sadly the Court provided very little guidance as to future issues relevant to biotech, such as isolated/purified proteins or other organic chemicals. The Court took pains to make the decision narrow, but for the first time since JEM, it did find something to be patent eligible." Mark Lemley (Stanford) argues that Mayo still holds weight: "if I were a biotech patent owner I wouldn't be celebrating just yet. cDNA patents are easier to design around, and under Prometheus v. Mayo they are probably obvious once we assume knowledge of the naturally-occurring gene sequence."

Moving forward, we have a question of whether the reduced coverage of patent law will still provide sufficient incentive to invest in biotech focused research. Jonathan Masur, professor at The University of Chicago School of Law says yes: "This is the rare case in which the Court's reflexive tendency to split the baby worked well. Biotech companies should have sufficient research incentives going forward, without firms like Myriad exerting too much control over consumers and future R&D."

One problem with Supreme Court review of Section 101 cases is the risk of alienating entire market areas from patent protection. That is why many of us support a broader fair-use regime that could be used as a lever for protecting public interest uses of inventions without eliminating the market value of innovation. Along this line Thomas Cotter (Minnesota) writes: "Ultimately the merits depend on whether the benefits of access outweigh the costs to incentives. The ideal policy solution would be for DNA to be patent-eligible, coupled with an experimental use defense and a guarantee of universal health care." Andrew Chin (UNC) agrees here that the scientific and medical progress are not served by this decision. Chin writes: "Patents on DNA probes are problematic for § 101 doctrine and for DNA research regardless of whether the probes are produced by isolation or synthesis. The distinction will distort scientific and medical progress and ultimately prove to be doctrinally unstable." Former Lead House Staffer in the IP area, Christal Sheppard (U Nebraska) agrees that "Naturally occurring versus synthetic is a ridiculous outdated distinction." Her approach, however, would not be to create a fair-use but instead to fall back on the old rules of novelty. Sheppard writes "The proper distinction should be new-ness (novelty) irrespective of origin."

For innovative companies the first question is how they can take advantage of the Opinion. Eileen Kane (Penn State) offers a clue in the distinction as between genetics and chemistry. Kane writes that "the decision recognizes the complexity of DNA for a patent eligibility analysis and finds that genetics trumps chemistry in establishing the isolated gene as an unpatentable natural product." Dan Burk (UC Irvine) nails this further by noting that the "opinion seems to say that had the gDNA claims been drafted in terms of the chemical structure rather than genetic information, Judge Lourie's view from the opinion below might prevail. Perhaps future claim drafters should think like biochemists and not like geneticists." Professor Kane also notes that the decision reaffirms the non-statutory principle that "discovery does not equal invention."

For the past several years, Myriad (and many others) have been relying on trade secrets as part of their intellectual property scheme. Thus, although Myriad disclosed the BRCA1/BRCA2 gene sequences in their patent applications, the company holds a vast amount of information (such as the genetic code of all of its customers) as trade secrets. Brenda Simon (Thomas Jefferson School of Law) notes that Myriad "does not impact one of the most valuable aspects made possible through Myriad's patent protection: a private biobank of patient data containing information about additional mutations that Myriad can maintain as a trade secret." Barbara Rudolph (Finnegan) agrees that the decision "may presage a shift towards more reliance on trade secret protection for DNA-based inventions."

Looking at the trend over the past decade, Andrew Torrance (Kansas) writes: "For better or worse, the Supreme Court's AMP v. Myriad decision caps a decade-long trend away from the patentability of the human body, human embryonic stem cells, human physiology, diagnosis of human disease, human thoughts, and, now, human genes."

Coming Soon: What does Myriad Say about Software Patents? And, in the words of Professor Holbrook "Will they take CLS?" Professor Srividhya Ragavan (Oklahoma) writes that "Too much of anything – even patents - is good for nothing. Charkabarty exemplified patent law's ability to spur invention while Myriad represents the end of an out-of-control patenting phenomenon which became increasingly disconnected with the system's objectives. Time for software patent-holders to take notice."

Finally, Megan Labelle (Catholic University) highlights the value that Dan Ravicher and PubPat have brought to the table. Professor Labelle writes: "The patent community will rightfully spend much time debating the merits of Myriad. While that debate is important, let's remember that there would be nothing to debate if the ACLU and PubPat hadn't filed this suit in the first place. Myriad has, and should continue to, inform the discussion about the role public interest organizations ought to play in our patent system."

Bosch v. Pylon: 1292(c)(2) CAFC Jurisdiction

By Jason Rantanen

Robert Bosch, LLC v. Pylon Manufacturing Corp. (Fed. Cir. 2013) (en banc) Download Bosch v Pylon

Majority opinion written by Judge Prost, joined by judges Rader, Newman, Lourie, and Dyk.  Judges Moore and Reyna concurred and dissented-in-part in separate opinions.  Judges O'Malley and Wallach dissented.

This case deals with the question of whether the Federal Circuit has jurisdiction to entertain appeals from patent infringement liability determinations when damages and willfulness issues remain outstanding.  The court held that 28 U.S.C. § 1292(c)(2) confers jurisdiction in both situations.

Background on the case is available here.  The Federal Circuit requested that the parties brief the following issues:

1. Does 28 U.S.C. § 1292(c)(2) confer jurisdiction on this Court to entertain appeals from patent infringement liability determinations when a trial on damages has not yet occurred?
2. Does 28 U.S.C. § 1292(c)(2) confer jurisdiction on this Court to entertain appeals from patent infringement liability determinations when willfulness issues are outstanding and remain undecided.

Section 1292(c) states that "The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction— (2) of an appeal from a judgment in a civil action for patent infringement which would otherwise be appealable to the United States Court of Appeals for the Federal Circuit and is final except for an accounting."  At issue was whether a trial on damages and willfulness is an "accounting" for purposes of this section.  

An "accounting" includes the determination of a patentee's damages (7-2): The majority, joined by Judge Moore (and in its conclusion by Judge Reyna), first held that an accounting includes the determination of a patentee's damages.  This approach was consistent with both the historical meaning of an "accounting" and the legislative history for the predecessor statute to § 1292.  "The statute’s interpretation through history is clear. An “accounting” in the context of § 1292(c)(2) includes the determination of damages and cannot be limited to a traditional equitable accounting of an infringer’s profits."  Slip Op. at 13. 

Nor does the a request for a jury trial to establish damages change this result: "While we agree with Bosch that an accounting was historically available in equity, we do not agree that a trial on damages falls outside the scope of the accounting described in § 1292(c)(2)."  Id.  The court's summary of its rationale:

We base our conclusion on four points. First, in 1948, Congress expanded jurisdiction over interlocutory appeals from cases in equity to “civil actions for patent infringement which are final except for accounting.” Second, the issues which were historically decided in accountings are the same as those decided during damages trials today. Third, the reasons articulated by Congress for allowing interlocutory appellate jurisdiction over patent cases that are final except for an accounting apply with equal force to a modern damages trial. Finally, stare decisis militates in favor of allowing interlocutory appeals where liability has been established and a damages trial remains.

Slip Op. at 12-13.  The last point in particular caught my eye.  The majority's argument is that the principle of stare decisis should be given weight by the court sitting en banc even when the precedent consists of panel decisions, particularly when dealing with issues of statutory interpretation.

Nonetheless, “because [our precedent] represents the established law of the circuit, a due regard for the value of stability in the law requires that we have good and sufficient reason to reject it at this late date.” Bailey, 36 F.3d at 110. [D.C. Cir sitting en banc] Indeed, panel opinions, like en banc opinions, invoke the principle of stare decisis. Panel opinions are, of course, opinions of the court and may only be changed by the court sitting en banc. It has been the law of this court for at least twenty-five years that an “accounting” under § 1292 includes a trial for the determination of damages under § 284.

Slip Op. at 20.

An "accounting" includes willfulness determinations (5-4): The majority, this time without Judges Moore or Reyna, also concluded that Section 1292(c)(2) confers jurisdiction on the Federal Circuit to hear appeals from patent infringement liability determinations while willfulness issues are still outstanding.  As with damages, the court held that an "accounting" includes willful infringement determinations.  This, the majority wrote, was also consistent with the historical understanding of an "accounting."  "Long before the enactment of § 1292(c)(2)’s predecessor statute in 1927, accounting proceedings included the determination of willfulness by a special master."  Slip Op. at 23.  Post-1927 cases confirmed this view.  "Indeed, after the enactment of § 1292(c)(2)’s predecessor statute in 1927, courts continued to determine willfulness as part of an accounting, which occurred after the finding of liability." Id. at 24. 

Bifurcation is a decision within the district court's discretion: A common refrain in the court's opinion is its comment that it is deciding only the appellate jurisdictional issue; it is not issuing a broader decision on bifurcation of damages and willfulness.  For example, near the end of the opinion the court notes: 

Finally, we wish to make clear that district courts, in their discretion, may bifurcate willfulness and damages issues from liability issues in any given case. District courts have the authority to try these issues together or separately just as they have the authority to try all issues together at the liability stage. They may decide, for example, for reasons of efficiency due to the commonality of witnesses or issues in any particular case, that bifurcation is not warranted. District court judges, of course, are best positioned to make that determination on a case-by-case basis. Today, we answer only the question of whether § 1292(c)(2) grants this court jurisdiction over appeals where the district court has exercised its discretion to bifurcate the issues of damages and willfulness from those of liability.

Judge O'Malley's Dissent: Writing in dissent, and joined by Judge Reyna, Judge O'Malley disagreed with the broad interpretation of Section 1292(c)(2) adopted by the majority.  "As an exception to the final judgment rule, § 1292(c)(2) is to be interpreted narrowly...Because I believe the term “accounting” only applies to a limited class of proceedings before special masters or to those instances in which the trier of fact has decided all matters relevant to a damages determination save the application of those decisions to an undisputed set of numbers, I do not believe § 1292(c)(2) justifies the exercise of jurisdiction over this appeal."  Slip Op. at 54-55. 

In the dissent's view, the majority erred by asking the wrong historical question.  "What we should ask is not what questions may be considered during the course of an “accounting” but whether the procedure that was an “accounting” as of 1927—the one contemplated in § 1292(c)(2)—is the same as or encompasses a jury trial on any of those same questions."  Id. at 56.  This distinction matters because the historical meaning of an "accounting" was tied to the determination by a special master not by a jury. With regard to the majority's historical argument, the dissent wrote:

The majority’s only attempt at a statutory analysis to support its holding is its claim that, by substituting the phrase “civil actions” for “suit[s] in equity” in the jurisdictional grant of § 1292, Congress somehow intended to expand the concept of an accounting to include jury trials on damages. The disregard for the importance of the right to a jury trial and misunderstanding of what a jury trial entails which is evident in this proposition is stunning.

Id. at 57.  Even less defensible, in the dissent's opinion, was the majority's conclusion as to willfulness.  Indeed, even requiring infringement and willfulness determinations to take place before separate juries may be impermissible in itself.  "A bifurcation order which requires that two different juries visit the interwoven issues and overlapping facts involving infringement and validity on the one hand and willfulness on the other would violate the defendant’s Seventh Amendment right to a jury trial."  Id. at 79.

Judges Moore and Reyna: Judges Moore and Reyna wrote separate opinions expressing their views that an "accounting" does not include a willfulness determination but can include the damages enhancement step that occurs following a willfulness determination.  The result is a court in relative agreement on the question of whether Section 1292(c)(2) confers jurisdiction while damages issues remain pending but sharply decided on the question of whether it confers jurisdiction when a willful infringement determination has yet to be made. 

Myriad: The PTO's Preliminary Guidance

By Jason Rantanen

Within hours of the Court's Association for Molecular Pathology v. Myriad Genetics, Inc. decision yesterday, the USPTO published its preliminary guidance to the Patent Examining Corps relating to nucleic acid-related technology.  From the memorandum:

As of today, naturally occurring nucleic acids are not patent eligible merely because they have been isolated. Examiners should now reject product claims drawn solely to naturally occuning nucleic acids or fragments thereof, whether isolated or not, as being ineligible subject matter under 35 U.S.C. § 101. Claims clearly limited to non-naturally-occurring nucleic acids, such as a cDNA or a nucleic acid in which the order of the naturallyoccuning nucleotides has been altered (e.g., a man-made variant sequence), remain eligible. Other claims, including method claims, that involve naturally occurring nucleic acids may give rise to eligibility issues and should be examined under the existing guidance in MPEP 2106, Patent Subject Matter Eligibility.

Read the entire memorandum (it's short) here: Download Myriad_20130613

Myriad: Justice Scalia's Concurrence

By Jason Rantanen

Concurring in part and concurring in the judgment in Myriad, Justice Scalia wrote:

I join the judgment of the Court, and all of its opinion except Part I–A and some portions of the rest of the opinion going into fine details of molecular biology. I am unable to affirm those details on my own knowledge or even my own belief. It suffices for me to affirm, having studied the opinions below and the expert briefs presented here, that the portion of DNA isolated from its natural state sought to be patented is identical to that portion of the DNA in its natural state; and that complementary DNA (cDNA) is a synthetic creation not normally present in nature.

What are your thoughts?  Is the level of detail in the Court's opinion too great, too little, or just right? 

Myriad: Isolated DNA out, cDNA in

By Jason Rantanen

Association for Molecular Pathology v. Myriad (2013)  Download 12-398_8njq

In an unanimous opinion, this morning the Supreme Court drew a sharp line between isolated DNA (not patentable subject matter) and cDNA [synthetic versions of DNA that omit non-coding portions] (patentable). There is a curious concurrence by Justice Scalia that I'll post about separately.

The Court's basic rationale is similar to Judge Bryson's dissent in the Federal Circuit opinion. DNA is really about information, Myriad's patent claim treats it as if it's about information, and that's how the Court treats it as well.  Because the minor chemical differences between naturally occurring DNA and isolated DNA don't change the informational component of DNA relative to its naturally ocurring state, isolated DNA is not patentable.  However, the creation of cDNA in the laboratory does affect this informational component by removing the non-expressing portion of the DNA sequence, thus producing a non-naturally ocurring DNA sequence.  This change in the informational content is sufficient to render the cDNA sequence patentable.

The 101 Standard: The court applied an incentive/preemption framework for analyzing the patentable subject matter issue:

As we have recognized before, patent protection strikes a delicate balance between creating “incentives that lead to creation, invention, and discovery” and “imped[ing] the flow of information that might permit, indeed spur, invention.” (quoting Mayo v. Prometheus, at 23)

Isolated DNA: Simlar to its approach in other patentable subject matter cases, the Court first looked to the essence of what Myriad had done.  "Myriad’s principal contribution was uncovering the precise location and genetic sequence of the BRCA1 and BRCA2 genes within chromosomes 17 and 13. The question is whether this renders the genes patentable....In this case, [] Myriad did not create anything. To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention."  Slip Op. at 12.

In reaching its conclusion as to the unpatentability of isolated DNA, the Court adopted an information-centric view of DNA as opposed to a chemical-structural approach: 

Nor are Myriad’s claims saved by the fact that isolating DNA from the human genome severs chemical bonds and thereby creates a nonnaturally occurring molecule. Myriad’s claims are simply not expressed in terms of chemical composition, nor do they rely in any way on the chemical changes that result from the isolation of a particular section of DNA. Instead, the claims understandably focuson the genetic information encoded in the BRCA1 and BRCA2 genes. If the patents depended upon the creation of a unique molecule, then a would-be infringer could arguably avoid at least Myriad’s patent claims on entire genes (such as claims 1 and 2 of the ’282 patent) by isolating a DNA sequence that included both the BRCA1 or BRCA2 gene and one additional nucleotide pair. Such a molecule would not be chemically identical to the molecule “invented” by Myriad. But Myriad obviously would resist that outcome because its claim is concerned primarily withthe information contained in the genetic sequence, not with the specific chemical composition of a particular molecule.

Slip Op. at 14-15.

cDNA Patentable: The Court reached a different result for cDNA:  

cDNA does not present the same obstacles to patentability as naturally occurring, isolated DNA segments. As already explained, creation of a cDNA sequence from mRNA results in an exons-only molecule that is not naturally occurring. Petitioners concede that cDNA differs from natural DNA in that “the non-coding regions have been removed.” Brief for Petitioners 49. They nevertheless argue that cDNA is not patent eligible because “[t]he nucleotide sequence of cDNA is dictated by nature, not by the lab technician.” Id., at 51. That may be so, but the lab technician unquestionably creates something new when cDNA is made. cDNA retains the naturally occurring exons of DNA, but it is distinct from the DNA from which it was derived. As a result, cDNA is not a “product of nature” and is patent eligible under §101, except insofar as very short series of DNA may have no intervening introns to remove when creating cDNA. In that situation, a short strand of cDNA may be indistinguishable from natural DNA.

Slip Op. at 16-17 (emphasis added).  Note that under the last bit, a cDNA sequence may not be patent eligible subject matter in some circumstances.

What are the consequences?  My immediate reaction is that for most practical applications, the Court's holding means that even though the broadest possible biotechnology product claims (to the isolated DNA itself) aren't going to be patentable, the key elements in making and using a biotechnology-based invention are still going to be protectable via patents (Part III of the Court's opinion makes this especially clear).  This will allow researchers and competitors a little bit of wiggle room to design around biotechnology patents because they can use the basic isolated sequence but there will still be substantial limitations on what they can do with that isolated sequence.  For this reason, I'm skeptical that the Court's opinion will have a negative effect on the incentives for creating biotechnology-based applications.  To the contrary: by affirming that cDNA can be patented, it may strengthen the incentives for investing in research in this area.

In terms of the effects on my friends here at the University, I can see at least two consequences. First, it may allow researchers more freedom to engage in whole-genome sequencing because they won't need to deal with a multitude of isolated DNA patents for individual sequences.  On the other hand, because early-stage research on newly discovered DNA sequences cannot be patented, it may encourage companies - and perhaps universities - to pursue greater secrecy over those early stage discoveries.  Social research norms may cut against this - particularly in universities - but there may be some increased pressure, particularly at the margins, towards secrecy of potentially valuable inventions.

Update: In the short term, this case may have an immediate impact on BRCA testing.  Via Brian Love at Santa Clara, Hank Greely just tweeted that: "Ambry announces its own BRCA 1/2 sequence test. $2200, a 30%+ cut from Myriad. They'll do deletes/dups for $500. Price hemorrhaging begins!" 

Monsanto Wins Again in Federal Circuit: Organic Farmers Have No Standing to Challenge Patent

By Dennis Crouch

Organic Seed Growers and Trade Ass'n v. Monsanto Company (Fed. Cir. 2013)

In 2011, Dan Ravicher at PubPat led a group of 23 plaintiffs in a lawsuit against Monsanto seeking declaratory judgment of non-infringement and invalidity of Monsanto's genetically modified seed patents. Although not directly related, the patents challenged here are the same as those that Monsanto has asserted against dozens of farmers for growing unlicensed versions of its Round-Up Ready Soybeans. See, e.g., Bowman v. Monsanto (2013). In the present case, however, none of the plaintiffs want to grow genetically modified crops. Instead, the case asserts that the organic and heritage seed growers are in fear of becoming liable for inadvertently growing patented seeds. In many ways, patent infringement can be considered a strict liability tort and, as such, the unknowing use of another's patented invention still creates liability for patent infringement. Thus far, Monsanto has promised that it will not sue farmers who inadvertently grow its patented crops so long as the farmers do not take advantage of their glyphosate resistant properties and so long as the farmer's do not intentionally re-plant GM progeny. However, Monsanto has not offered any clear covenant-not-to-sue for inadvertent growing. Recent news that Monsanto's experimentally genetically modified and non-FDA approved wheat has inadvertently spread even though Monsanto had attempted to destroy all of the crops.

The district court dismissed the case for lack of subject matter jurisdiction – finding that there was "no justiciable case or controversy" as required under Article III of the U.S. Constitution. On appeal, the Federal Circuit has now affirmed -- holding that "appellants have not alleged any circumstances placing them beyond the scope of [Monsanto's] assurances."

In dicta, the court spelled out the no-fair-use doctrine of patent law – writing that even trace amounts of infringing material can still constitute infringement. See SmithKline Beecham Corp. v. Apotex Corp., 403 F.3d 1331 (Fed. Cir. 2005); Abbott Labs. v. Sandoz, Inc., 566 F.3d 1282 (Fed. Cir. 2009); and Embrex, Inc. v. Serv. Eng'g Corp., 216 F.3d 1343 (Fed. Cir. 2000) (Rader, J., concurring). The court also recognized that it is "likely inevitable" that conventional crops are contaminated with genetically modified crops. However, the fact that someone is likely infringing does not create declaratory judgment jurisdiction. Rather, the patentee must have taken some additional step to create some threat of enforcement and here, Monsanto has only stated that it will not sue unless the farmers take advantage of the patented seeds unique properties. The plaintiffs case here fails because they "have not made any allegations that they fall outside Monsanto's representations."

In sum, Monsanto's binding representations remove any risk of suit against the appellants as users or sellers of trace amounts (less than one percent) of modified seed. The appellants have alleged no concrete plans or activities to use or sell greater than trace amounts of modified seed, and accordingly fail to show any risk of suit on that basis. The appellants therefore lack an essential element of standing. The district court correctly concluded that it lacks Declaratory Judgment Act jurisdiction.

Dismissal Affirmed

Fight Litigation Misconduct, But Not Through Hyperbole

By Dennis Crouch

In a recent NYTimes op-ed, Chief Judge Randall Rader joined professors David Hricik and Colleen Chien in calling for judicial action in awarding attorney fees under Section 285 of the Patent Act as well as Rule 11 of the Federal Rules of Civil Procedure. See "Make Patent Trolls Pay in Court." The Op-Ed's focus is on the problem of nuisance suits brought by patent licensing companies against a large number of entities – many of which include small companies.

In addition to being more aggressive in awarding attorney fees under the rules, the authors suggest particular factors that may lead to awards against patent trolls:

One sign of potential abuse is when a single patent holder sues hundreds or thousands of users of a technology (who know little about the patent) rather than those who make it — or when a patent holder sues a slew of companies with a demand for a quick settlement at a fraction of the cost of defense, or refuses to stop pursuing settlements from product users even after a court has ruled against the patentee.

Other indications of potential bullying include litigants who assert a patent claim when the rights to it have already been granted through license, or distort a patent claim far beyond its plain meaning and precedent for the apparent purpose of raising the legal costs of the defense.

One of the bases for the article is that the patent trolls face very low risk in filing lawsuits since they can't be countersued for infringement (they don't make anything) and, unlike a university, they typically have no ancillary reputation that can be tarnished by the suit. Moreover, the cost of discovery for trolls is typically very low and they typically work through contingency fee litigators. The result here is "trolls can afford to file patent-infringement lawsuits that have just a slim chance of success. When they lose a case, after all they are typically out little more than their own court-filing fees."

It is often true that the marginal cost of filing a thirty first lawsuit on the same patent can be quite small – especially when the new defendant is using the invention in the same way that other defendants are using the invention. However, the Op-Ed fails to mention the great risk of preclusion associated with each lawsuit. Under the law, each and every defendant has the opportunity to fully challenge the patent before either a judge or jury and, if the patent is ever found invalid then that ruling will preclude the patentee from ever enforcing the same patent rights again against any party. Even apart from preclusion, the organization of a patent enforcement campaign is not a simple endeavor, but rather an expensive process that involves extensive analysis of potential patent rights, an exhaustive search for financial backing and litigation counsel, and a one-business-at-a-time analysis to ensure that the patentee has a reasonable basis to believe that any accused infringers actually is infringing. In a typical case, the would-be troll follows thousands of dead leads and failed negotiations before ever filing a single infringement lawsuit. The point here is one that every patent litigator understands – enforcing patents is an expensive proposition and the notion that a patentee only risks $350 to file a lawsuit is ridiculous. Now, we can debate whether all this expense is a waste of resources that should be avoided as a matter of public policy. On that point I will only note the reality that the rise of patent enforcement and patent licensing companies has revived the market for buying and selling of patents from small companies and individuals in a way that allows those entities to actually monetize their innovations.

All this is a bit of an aside because I agree completely that courts should exercise their discretion to deal harshly with litigation misconduct both through Rule 11 and Section 285.

The European Unitary Patent System – 5 things Patent Attorneys need to know now

US patentees have many questions regarding the new Unitary Patent system in Europe. Gwilym Roberts of Kilburn & Strode in the UK offers this brief post on practical issues to and immediate action items. - DC

= = =

There has been a lot of talk about the new Unitary Patent system in Europe. As there are so many unknowns at the moment, it is sometimes difficult to work out what the practical implications now are. This brief post highlights the main points.

Overview

The proposed Unitary Patent system has two main components:

Firstly, for patents issued by the EPO, patentees will be able to choose between a) the existing system of multiple national validations from a European Patent, wherein separate renewal fees are paid for each national validation nationally or b) designating the Unitary Patent covering multiple EU countries, wherein a single renewal fee will be payable to the EPO and a single translation required.

Secondly, and separately, a Unified Patent Court will be established, alongside existing national courts, allowing a single action to cover multiple jurisdictions providing wider injunctive and damages type relief than the current fragmented system.

Things you need to understand now

1. The system isn't here yet. The most optimistic predictions are for early 2015.

2. Any European patent or application (whether or not it designates a "Unitary Patent") will then be under Unified Patent Court jurisdiction by default. Although details are not known yet, it will however be possible to opt patents back out for at least seven years from entry into force of the new system. This may well be attractive, given that it will then be possible to opt back in. Fees to opt out and to opt back in will be applicable but are not yet known.

There is one key thing that not everyone is understanding: if you designate a Unitary Patent then you are tying yourself into the Unified Patent Court system, but possibly making a saving on translation and renewals. However, the Court will have jurisdiction over both types of patents that are issued by the EPO. Even if you do not designate a Unitary Patent, the Unified Patent Court will still apply to your patent unless you opt out.

Action now: Monitor for further details of the opt out process and consider opting -out.

3. As the Unified Patent Court system will apply to all European patents and applications, whether or not a Unitary Patent has been designated, then there is an opportunity to target competitor patents in Europe for multi jurisdiction revocation in a single action, even if the 9 month post grant opposition period has expired. However, you will need to do this before the patentee opts out and there may therefore be a race on day one.

Action now: Monitor updates on how opt out timing will work, if you see revocation opportunities.

4. A lot of the uncertainty arises because we don't know how good the Unified Patent Court itself will be. But given that the judges are likely to be the same people who are already operating in Europe - and some of these judges are fantastic – let's assume that the courts are going to work. That makes the question much simpler – do I want to enforce a patent in multiple jurisdictions in a single action, balanced against the risk of central revocation?

Action now: Start thinking about the tactical pros and cons of multi jurisdiction enforcement and revocation – assume the courts will be good!

5. If you like the idea of the Unified Patent Court and wish to obtain coverage for multiple EU countries, then the Unitary Patent designation may be attractive to you. You cannot request it now, but it will be available for European patents that are granted after the new system enters into force. Given the backlog in prosecution at the EPO at the moment, you may well have applications which are pending now which could grant after the new system comes into force.

Action now: Consider whether it is worth delaying any key patent applications, if you definitely want Unitary Patent protection.

Conclusion

There has been nothing here about costs, languages, translations, procedure etc. – these are important details, but shouldn't affect your basic decisions. There is not a lot to do now; consider delaying, keep watching and start thinking.

Bits and Bytes by Dennis Crouch

• Kevin Noonan at PatentDocs reviews the recent Special 301 report by the U.S. Trade Representative focusing on the protection and enforcement of Intellectual Property Rights. "The Priority Watch List in the Report lists Algeria, Argentina, Chile, Chine, India, Indonesia, Pakistan, Russia, Thailand, and Venezuela."
• Eric Goldman review's Vermont's "First Anti-Patent Trolling Law." Prof. Goldman highlights a key problem for all nuanced anti-abusive-litigation statutes. He writes: "I'm skeptical of this attempt to distinguish legitimate from illegitimate patent assertions."
• Michael C. Smith writes on a recent court ruling that allows expert testimony that applies the "entire market value rule" in calculating damages.
• Bill Vobach highlights the fact that Raymond Chen's nomination to the Federal Circuit has been voted out of the Judiciary Committee and now moves to the full Senate for Consideration.
• The ELS Blog calls for papers on Trademark Data.
• Job: Berkeley needs a new Associate Director of its IP Law Clinic [Link]

Upcoming Events:

• IP Strategy Summit: Silicon Valley on June 19th & June 20th at the Four Seasons in Palo Alto
• Chisum Patent Academy (Featuring Professors Don Chisum and Janice Mueller). July 31 – August 2, 2013 in Seattle.

Jobs:

• Patent Prosecution in Portland with Marger Johnson McCollom
• Patent Agent in Carlsbad California with ViaSat
• Practice Patent Law in NC Research Triangle with Smith & Hopen
• Patent Attorney in Tysons Corner, Virginia with Roberts Mlotkowski Safran & Cole
• Bring your Patent Business to Morristown NJ with Pergament Gilman & Cepeda LLP
• Patent Prosecution in West Palm Beach with Akerman Senterfitt

Patent Reform 2013: Adding Clarity and Transparency to the System

By Dennis Crouch

President Obama today released information on planed executive orders and push for new legislation that will attempt to block companies from asserting their patents unless they are also manufacturing a product based upon the patented design. And at the same time, the President's National Economic Council and Council of Economic Advisers released a report a report titled "Patent Assertion and U.S. Innovation." The report generally takes the viewpoint that Patent Assertion Entities are bad for the US Economy and makes the bold claim that, in the past year PAE's have threatened "over 100,000 companies with patent infringement." The bulk of the report that identifies the "problem" is based upon the work of professor Colleen Chien (Santa Clara); Jim Bessen & Mike Meurer (BU); Mark Lemley (Stanford) and Michele Boldrin (WUSTL) & David K. Levine (WUSTL).

Despite the unknowing hyperbole of the report, the suggested actions are, for the most, welcome and will benefit the patent system as a whole. In fact, this move to finally address the problem of predictability of patent scope and patent validity hits the sweet spot of where problems emerge in the system. Of course, the devil will be in the details of these approaches.

Executive Actions:

1. Knowing Who Owns the Patents: Through the PTO a new rule will require patent applicants and owners to regularly update ownership information with the "real party of interest" so that the assignment records are accurate complete.

2. Tightening Functional Claiming. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.

In my view, these two elements are sorely needed and will generally improve the patent system without actually limiting the ability of patent assertion entities to derive value from their innovations through patent assertion. In addition, the PTO will begin a number of outreach mechanisms intended to provide assistance to non-patent-insiders who receive patent demand letter.

Legislative Actions:

1. Require patentees and applicants to disclose the "Real Party-in-Interest," by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance. [DC: This would add statutory back-up for the PTO rulemaking]

2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney's fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases). [DC: This can be helpful if allowed to go both-ways, although courts generally find that patent litigators are the most well-prepared and honorable of any that they see in court.]

3. Expand the PTO's transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB). [DC: This has the potential of capturing a substantial percentage of issued patents, but that may be fine.]

4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer. [DC: We are on our way here toward a fair use of patents.]

5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts. [DC: The focus here is to get patent assertion entities out of the ITC]

6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public. [DC: This sounds good, I wonder how those writing demand letters would respond.]

7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges. [DC: However, must ensure that the flexibility is not used to hire because of particular political bent.]

Dey v. Sunovion

By Jason Rantanen

Dey, L.P. v. Sunovion Pharmaceuticals, Inc. (Fed. Cir. 2013) Download 12-1428.Opinion.5-16-2013.1
Panel: Newman (dissenting), Bryson (author), O'Malley

Although decided under the "old" version of 35 U.S.C. 102, Dey v. Sunovion has broad ramifications for both current and future patents.  At issue was whether a clinical study - conducted by the accused infringer in this case - constituted an invalidating "public use."  All three judges agreed that the district court erred in granting summary judgment that the study was a public use. Judge Newman would have gone further and granted summary judgment that the study was not a public use.

A Classic Issue With a Twist: In the 1990s and 2000s, Dey and Sunovion both developed pharmaceutical products containing the compound formoterol for treating pulmonary disease.  Both filed for and obtained patents and both conducted clinical trials. 

In a twist on a classic issue, Sunovion - the accused infringer - asserted that its clinical trials were an invalidating public use against Dey's patents because they involved the accused formulation and took place well before Dey's 102(b) critical date.  During Sunovion's clinical trials, participants were given treatments to take home and self-administer twice daily.  Participants were also given some information about the study (but not the specific formulation) and signed a consent form stating that the medications must only be taken by the person for whom it was intended and that they would have to keep usage logs and return unused medications.  Test administrators signed a confidentiality agreement. The district court granted summary judgment in Sunovion's favor and Dey appealed.

The Law of Public Use: On appeal, the Federal Circuit applied the public use framework articulated in Invitrogen v. Biocrest:  "To decide whether a prior use constitutes an invalidating 'public use,' we ask 'whether the purported use: (1) was accessible to the public; or (2) was commercially exploited.'"  Slip Op. at 6, quoting 424 F.3d 1374, 1380 (Fed. Cir. 2005).  Here, the case turned on the "accessible to the public" form of public use, a fuzzy determination guided by the policies underlying the pubic use bar and a multi-factor analysis including "the nature of the activity that occurred in public; the public access to and knowledge of the public use; [and] whether there was any confidentiality obligation imposed on persons who observed the use."  Id., quoting Bernhardt v. Collezione Europa USA, 386 F.3d 1371, 1379 (Fed. Cir. 2004).  The court held that this approach applies equally to alleged third party public uses. 

Against this backdrop, the CAFC reversed the district court's grant of summary judgment of invalidity.  First, the majority viewed the issue of whether the use of Batch 3501A by study participants was "indisputably open and free" as opposed to "sufficiently controlled and restricted" as a factual determination.  "The fact that a tiny fraction of the thousands of vials were lost without penalizing the responsible test subject(s), or that the practicalities of the study required self-administration at home rather than physician administration in a closed facility, does not preclude a reasonable jury from concluding that the use of Batch 3501A was sufficiently controlled and restricted, rather than unfettered and public."  Id. at 9.  Similarly, the issue of the confidentiality obligations imposed in the study was open to dispute.  "Because a finder of fact could conclude that the study was conducted with a
reasonable expectation of confidentiality as to the nature of the formulations being tested, summary judgment on the public use issue was inappropriate."  Id. at 11.  

Public Use or Public Knowledge?: One of the main tensions in determining whether there has been an invalidating public use has long been the question of whether it is the use of the invention in public that matters or whether knowledge of the invention by the public is necessary.   In my classes, I use the classic case of Egbert v. Lippman to start the discussion: is it a public use because Samuel gave the corset springs to Frances without restriction or is it a public use because Frances wore the corset springs under her clothes in public?  Here, the court adopted the former view: what mattered in Egbert was the giving of the corset springs without restriction to the public (Frances), not the wearing of the springs in a concealed manner in public. 

In adopting this view, the majority rejected the approach of  New Railhead Mfg., L.L.C. v. Vermeer Mfg. Co., 298 F.3d 1290, 1299 (Fed. Cir.2002), which quoted another classic case, City of Elizabeth v. American Nicholson" for the proposition that "the core issue is not public knowledge of the invention, but the public use of it":

The language quoted from New Railhead derives from the seminal “experimental use” case, City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126, 136 (1877), and it makes good sense in that setting: During experimentation, the public might have knowledge of an invention (because they see it), but may not be using the invention within the meaning of the statute (because the inventor is experimenting).⁴ As for Egbert, although the invalidating use in that case was not visible to the general public, the case turned on the lack of control the inventor maintained over his invention.

⁴ In New Railhead, the invalidating public use took place at a public commercial job site, with the knowledge of the patentee inventor. 298 F.3d at 1293, 1298. “Commercial exploitation is a clear indication of public use,” even absent separate consideration of public accessibility,
Invitrogen, 424 F.3d at 1380, and “secret commercialization” by a third party is not public use, even if it might have resulted in forfeiture were the third party the one filing the patent application, W.L. Gore, 721 F.2d at 1550.

Slip Op. at 14-15. 

Consequences for Arguing the Issue of Public Use: One major consequence of this opinion is that is makes the argument against clinical trials being public uses much easier and simpler.   Rather than attempt to deal with the complexity of arguing that a clinical trial falls into the experimental use exception to public use (a challenging task, given Federal Circuit precedent over the last decade), Dey provides an excellent grounding for the argument that many clinical trials are not public uses at all. 

Guest Post on Using the Antitrust Laws to Police Patent Privateering

Editorial by David A. Balto.  Mr. Balto is an antitrust attorney in Washington D.C. whose representations include high technology firms.  In addition to his practice, Mr. Balto was formerly a policy director of the Federal Trade Commission, attorney-adviser to Chairman Robert Pitofsky, and an antitrust lawyer at the U.S. Department of Justice.  He has also published research and authored scholarship for Google on technology policy topics.

Using the Antitrust Laws to Police Patent Privateering

By David Balto

In the ongoing debate over patent assertion entities, increased attention is being paid to “patent privateering”: the practice of operating firms transferring patents to non-practicing entities in order to bring patent litigation against their rivals. As I explained in a recent article:

“Privateering is the practice by which established operating companies arm trolls with patents and deploy them to engage in expensive, incessant litigation against competitors. This Trojan horse approach allows companies to accrue the benefits of the egregious troll conduct without incurring any of the risks. And more often than not it is used as a competitive weapon to try to raise costs and dampen competition from rival operating companies.”

Firms like Google, BlackBerry and Red Hat recently filed comments with the Federal Trade Commission and Department of Justice, explaining the substantial concerns that patent privateering raises from a competition perspective.

This begs the question: is there an antitrust solution to the privateering problem?

A recent article by Mark Popofsky and Michael Laufert provides a thoughtful roadmap on how the antitrust laws can be used to police privateering. It’s a must-read for businesses and policymakers concerned that patents are becoming strategic tools for anticompetitive conduct.

In the current patent ecosystem, large operating companies accumulate patents in part for defensive purposes.  Those companies are unwilling to use their patents in certain strategic fashions because they fear that the same will be done to them.  These patent portfolios help assure patent peace because they assure that any strategic conduct will be met with a similar response – so-called mutually assured destruction.

Popofsky and Laufert outline three concerns around privateering transfers to PAEs that upset that balance. Privateering lets operating companies evade “[mutual assured destruction] or reputational constraints to raising rivals’ costs” and “FRAND or other licensing commitments,” and provides a method for “strategic outsourcing to PAEs to hinder rivals.”  Essentially, privateering companies are use PAEs because they have the incentive and ability to engage in strategic conduct that is prevented by current market forces.

The article gives a prime example of these concerns: the well-reported patent transfer from Nokia and Microsoft to patent troll MOSAID. After the failure of Nokia’s open source Symbian mobile operating software, Nokia joined forces with Microsoft and adopted its Windows Phone 7 platform. Nokia had originally supported open source software and made numerous FRAND commitments, but these commitments became a hindrance when Android (open source) became Nokia’s chief competitor. Microsoft and Nokia orchestrated a transfer of 2,000 of Nokia’s patents, 1,200 of which were standards essential patents (SEPs) with FRAND commitments, to MOSAID for a nominal fee. As part of the deal MOSAID has to pay Microsoft and Nokia 2/3 of the patent royalties and meet strict “royalty protection provisions and milestone payments calculated to maximize . . . revenue.”

The MOSAID transfer exhibits all three of the anticompetitive concerns. MOSAID has the incentive and ability to engage in strategic patent litigation.  Nokia could not assert these 2,000 patents without breaking patent peace and risking counter-suits for patent infringement. MOSAID can use these patents without fear because MOSAID does not practice in the industry and immune to countersuits. The transfer also allows Nokia to evade a FRAND commitment not to charge more than 2% total royalty for all the wireless SEPs in Nokia's portfolio. MOSAID did not make this promise, and even if it honored Nokia's promise and only charged 2% for the 1,200 SEPs MOSAID received the total fees could still double for competitors.

Nokia later transferred portions of its SEP portfolio to patent trolls Sisvel and Vringo. These transfers could potentially quadruple the licensing cost of these SEPs. MOSAID also can’t collect royalties from “third parties implementing certain Microsoft software in their mobile devices.” However, MOSAID must meet revenue expectations or it risks activating a default provision in the transfer contract that would allow Nokia to take those patents back for only $10,000. This creates serious strategic interests for MOSAID to aggressively target Microsoft and Nokia’s rivals.

Fortunately, Popofsky and Laufert offer several ways to challenge these troubling transfers to patent trolls under the existing antitrust laws. This outsourcing of patent litigation might “form part of a scheme to maintain or obtain monopoly power” in violation of Section 2 of the Sherman Act which prohibits monopolization. A plaintiff would have to prove that transfers to patent trolls are a part of an exclusionary strategy to obtain or maintain monopoly power by raising rivals costs. The first part of the strategy is to create patent-holdup by making FRAND commitments to get patents into a standard and then evading those FRAND commitments through transfers to patent trolls. The second part of the strategy is to raise licensing fees by arming patent trolls that have no incentive to negotiate license rates because they have no risk of patent counter-suits or injury to their reputation. If proven, a private plaintiff could receive an award of treble damages and the government can secure injunctive relief.

The transfer can also be challenged under Section 7 of the Clayton Act which prevents mergers and acquisitions if they are likely to substantially lessen competition or tend to create a monopoly. Patent acquisitions can be challenged under Section 7.  The article notes that the Department of Justice has already used this power in 2011 to prevent Microsoft from acquiring Novell’s patents to which Microsoft already had a license. This agency action was made to prevent a transfer whose only logical purpose was to attack open source software. The government can continue to use its Section 7 power to block transfers to patent trolls and it can challenge these transfers before they inflict harm.

The Section 7 power should be fully explored.  The National Restaurant Association and Food Marketing Institute have suggested that the agencies need to increase their scrutiny of patent transfers to PAEs and they offer an important tool.  They suggest that the FTC and DOJ adopt regulations to make more of these transfers reportable under the Hart Scott Rodino Act. This would give the agencies far stronger tools to fully investigate and challenge these transfers.

The transfers could also be challenged as a restraint of trade under Section 1 of the Sherman Act. Michael Carrier has commented that the MOSAID transfer “could present a Section 1 concern similar to a pooling arrangement the Supreme Court declared per se illegal in Singer Manufacturing Co.” Transfers running afoul of Section 7 can also "be recast as violations of Sherman Act Section 1."

Finally, the FTC can also challenge transfers that seek to dodge FRAND and other commitments through Section 5 of the FTC Act. The FTC has already done this in a consent order with N-Data Solutions. The FTC Act gives the Federal Trade Commission the power to prevent "unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce."

The Popofsky/Laufert paper should be required reading for the regulators at the FTC and DOJ. Well conceived enforcement actions against transfers to trolls would be one of the most effective ways to deal with the growing privateering problem.

Congratulations to 2013 Mark T. Banner Award Recipients!

By Jason Rantanen

I'm very happy to announce that my Iowa Law colleague, Christina Bohannan, has been selected to receive the ABA Intellectual Property Law Section's 2013 Mark T. Banner Award for her contributions to intellectual property law.  Professor Bohannan will be receiving the award alongside the Hon. Pauline Newman at the Banner Award Luncheon during the ABA's Annual Meeting in San Francisco in August.  She is both the youngest person and first academic to receive the award.

You can read more about the Mark T. Banner award, and about Mark Banner himself, on the ABA's website. Past recipients of Banner award are the Hon. Richard Linn, Marybeth Peters, former Registrar of Copyrights and director of the Copyright Office, and the Hon. James F. Holderman. 

Small Entity Patenting

The chart above is based primarily on maintenance fee data that includes statements regarding whether the patentee is a "small entity" and also from the recent inclusion of small entity information in the USPTO annual reports. 

Recent Scholarship: Investing in America's Future by David Kappos

Last fall, then-PTO Director David J. Kappos delivered a speech on software patents, the PTO, and innovation, in which he strongly defended software patents.  Below, Director Kappos, now with Cravath, Swaine & Moore, summarizes an article that he recently published in the Stanford Technology Law Review that expands on that theme.  - Jason

"Investing in America’s Future Through Innovation" appearing in the Stanford Technology Law Review

By: David J. Kappos

While the smart phone patent wars have ignited debate about the patent system, the discussions are about far more than smart phones and software patents.  These disputes, and the accompanying critiques, raise a more fundamental question about the willingness of the United States to invest in our future.  We Americans need to make up our collective mind about whether we are satisfied with short-term gratification to get the newest technology at the absolute lowest price or whether we are willing to invest in the long-term. At their core, patents, and intellectual property in general, represent that investment.

Drawing on recent patent quality metrics, my article appearing in the Stanford Technology Law Review brings balance to the heated rhetoric surrounding the smart phone patent wars, explaining why the best evidence available shows that these disputes are not about low quality software patents or an ineffective patent system.  In fact, and in contrast to the many critiques that offer no empirical evidence, the data shows that low quality patents are not the problem. Instead, the real issue is the historical tension between the necessary long-term incentives that form the basis for the patent system, versus the desire of consumers to have products and services today at the lowest prices possible. To move beyond the rhetoric of the current debate, we must continue to have faith in allowing our national innovation system to grow and develop as it has over 200+ years so that we and our children will have even more, and better, innovations to enjoy in the future.

The article is available on the Stanford Technology Law Review's website at: http://stlr.stanford.edu/2013/05/investing-in-americas-future-through-innovation/

Judge Mayer: Subject Matter Eligibility Must be Decided First Even if Not Raised by Either Party on Appeal

By Dennis Crouch

Alexsam, Inc. v. IDT Corp. (Fed. Cir. 2013)

I recently posted on Alexsam's pending litigation in the Eastern District of Texas. In that case, the jury sided with the patentee Alexsam and rejected the defendants' arguments that the patent was invalid. The appeal here involves the same patents directed to a system for activating gift cards at the time that they are purchased. See U.S. Patent No. 6,000,608. The most interesting aspect of the decision comes from Judge Mayer's dissent where he argued that asserted patent claims "disclose nothing more than an abstract idea for making a business run more efficiently, thereby failing to meet the subject matter eligibility requirements set forth in 35 U.S.C. § 101."

The claim issue (Claim 57) reads as follows:

A multifunction card system comprising:

a. at least one card having a unique identification number encoded on it, said identification number comprising a bank identification number approved by the American Banking Association for use in a banking network;

b. a transaction processor receiving card activation data from an unmodified existing standard retail point-of-sale device, said card activation data including said unique identification number;

c. a processing hub receiving directly or indirectly said activation data from said transaction processor; and

d. said processing hub activating an account corresponding to the unique identification number, thereby permitting later access to said account.

To reach his conclusion that the claim fails to disclose eligible subject matter, Judge Mayer first began by identifying the core inventive concept of the claim. Here, the idea behind the patent is that it allows a card to be activated by swiping it through the terminal used for processing credit card transactions rather than having a dedicated activation terminal. The benefit of that approach is that no special equipment is needed for activating gift cards and the patent application states that no new technology is required in order to allow standard point-of-sale devices to activate gift cards.

The way Judge Mayer describes this setup immediately raises novelty and obviousness concerns in my mind. Indeed, Judge Mayer writes that the case "presents the anomalous situation in which a patentee attempts to preserve the validity of his claims by arguing that they contain nothing new." Ordinarily, when patent claims "contain nothing new," they are found invalid for lacking novelty or nonobviousness. Indeed, millions of patent claims are rejected each year by the USPTO for this very reason. And, the primary thrust of the US patent examination system is to ensure that patents are only issued for inventions that are sufficiently new. In this case, the defendants argued that claims were obvious and anticipated as a matter of law. However, instead of addressing that issue that was actually appealed, Judge Mayer focused on the Subject Matter Eligibility that was not raised on appeal – seeing subject matter eligibility as a threshold issue that must be decided first:

Whether claims are directed to statutory subject matter is a "threshold" question, Bilski v. Kappos, 130 S. Ct. 3218, 3225 (2010), which must be addressed before this court can consider subordinate issues related to obviousness and infringement. See Parker v. Flook, 437 U.S. 584, 593 (1978) ("Flook") (emphasizing that "[t]he obligation to determine what type of discovery is sought to be patented" so as to determine whether it falls within the ambit of section 101 "must precede the determination of whether that discovery is, in fact, new or obvious" (emphasis added)); In re Comiskey, 554 F.3d 967, 973 (Fed. Cir. 2009) ("Only if the requirements of § 101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under § 102 and . . . non-obviousness under § 103." (citations and internal quotation marks omitted)).

In our 2010 article, Professor Robert Merges and I argued that the law does not require the "threshold" question be decided in any particular order. See Dennis Crouch & Robert P. Merges, Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010). Indeed, thresholds are crossed all throughout a journey. Judge Mayer is in the minority on this point of doctrinal ordering. Although rejecting some of our arguments, the CLS Bank plurality opinion agreed with Merges and myself that "district courts may exercise their discretion to begin elsewhere when they perceive that another section of the Patent Act might provide a clearer and more expeditious path to resolving a dispute." (Citing Merges & Crouch).

The second major problem with Judge Mayer's dissent is the implicit ruling that Subject Matter Eligibility is not waivable and instead should be raised sua sponte by an appellate court. Here, the §101 eligibility question was not raised by the defendant-appellants in the appeal, nor were they discussed in oral arguments. In the past, both Judges Mayer and Dyk have raised §101 issues sua sponte on appeal -- essentially finding that subject matter eligibility questions are on par with the issue of a court's subject matter jurisdiction.

Finally, Judge Mayer's decision highlights the failure the CLS Bank decision – because there was no majority opinion in that case, Judge Mayer did not feel the need to even cite that recent pronouncement by the court that directly relates to the case at hand.

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Sanctions: The district court awarded sanctions to the patentee for the defendants' litigation misconduct in failing to provide to satisfy the appropriate discovery requests regarding the accused systems. The sanction was quite harsh. In particular, the district court deemed several accused systems were infringing as a sanction for ITD's failure to disclose the fact that its cards contain BINs in their card numbers. On appeal, the Federal Circuit affirmed the sanction. I suspect that the "Patent Abuse Reduction Act" would further embolden accused infringers to play discovery games by avoiding disclosing key information or admitting key facts that would greatly simplify the litigation.

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Unpaid License Still a License: Some of IDTs systems use the MasterCard computer network. That is important because MasterCard has obtained a license from Alexsam to practice the invention. The agreement specifically states that other parties (such as IDT) that are using the MasterCard computer network will be "deemed sublicensed under an implied sublicense." As part of the agreement, MasterCard is also required to report the total number of licensed transactions to Alexsam at the end of each month, and to pay a fee for each transaction. In this case, however, MasterCard never reported IDT as a sublicensee or paid the required royalties. On appeal, the Federal Circuit agreed with IDT that the MasterCard related sales were licensed and that IDT is therefore not liable for those. In reaching its conclusions, the court noted that the MasterCard agreement did not condition the sublicense on payment of the royalties. Further, the court the cited to its decision in Tessera, Inc. v. Int'l Trade Comm'n, No. 2010-1176, 2011 WL 1944067 (Fed. Cir. 2011) where it held that failure to pay royalties "did not convert authorized sales into unauthorized sales."

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What Is Happening In Vermont? Patent Law Reform From The Bottom Up

Guest post by Camilla A. Hrdy, Resident Fellow at the Yale Law School Information Society Project.

Although there have been various proposals for curbing abusive threats of patent litigation by Patent Assertion Entities (PAE's), or so-called patent "trolls," and the Federal Circuit appears willing to sanction PAE's for baseless lawsuits, the U.S. Patent Act does not directly address the problem. Dissatisfied with this situation, the state of Vermont has just passed a new and innovative law amending its Consumer Fraud statute to prohibit "bad faith assertions of patent infringement" against individuals or companies based in Vermont. The law creates a factor-based test for courts to determine when acts constitute "bad faith assertions," and lists several non-exhaustive factors that courts may consider as evidence of bad faith, including sending demand letters that lack basic information about the infringement claim or that seek payment of unreasonable royalty fees. Targets of bad faith assertions can bring actions (in state or federal district court¹) to obtain compensatory damages and exemplary damages, plus costs and fees. Vermont's Attorney General simultaneously filed a complaint under existing Vermont consumer protection law against a PAE that sent out demand letters to thousands of small businesses in Vermont and around the country.

Some commentators suggest Vermont's new law is preempted by federal patent law. This is not necessarily the case – so long as courts apply the law in a way that satisfies the Federal Circuit's standard for a finding of "bad faith." This requires, at minimum, "clear and convincing evidence" that the infringement assertions are "objectively baseless" to avoid dismissal on summary judgment or a motion to dismiss. As the Federal Circuit explained in Globetrotter, the idea is that patent holders should not be penalized simply for asking the government to enforce their patent rights. That said, as Vermont Attorney Justin McCabe points out, if courts do adhere to the Federal Circuit's current standard, this will certainly weaken the Vermont law's utility as a supplement to current options.

Putting aside the question of whether the Vermont law will be preempted, should it be? According to Eric Goldman, we should be wary of state-by-state contributions to patent law (and IP law in general) for numerous reasons, including higher costs for patent owners to enforce their rights and comply with different or inconsistent state standards. Goldman concludes that while he would "enthusiastically favor a nation-wide threats action," if the choice is between no threats action at all versus state-level threats actions, he might favor the former.

I disagree.

There are certainly costs to introducing decentralization into the patent system, just as there are for any area of law where state and federal governments have concurrent power (immigration, tax, corporate law, to name just a few). But the creation of a novel, state-level solution to the problem of unfounded patent assertions highlights the reasons we accept some of these costs by continuing to support a system of dual sovereignty. Robust federalism can produce a range of benefits, including involvement from local officials in designing policies to support their jurisdictions' development goals, promoting intergovernmental competition and experimentation, and diffusing authority among different sovereigns in order to avoid consolidation of power in a single lawmaking body or administrative agency (i.e. the U.S. Patent & Trademark Office).

But for federalism to actually benefit patent law and innovation policy generally, states require some autonomy to disagree with federal patent policy and to use state law to grow local innovation ecosystems, like California has with Silicon Valley. According to the preamble of the new law, Vermont is "striving to build an entrepreneurial and knowledge based economy." State representatives decided the law will facilitate their goal of attracting IT and other knowledge based companies facing costly threats of litigation from PAE's. Vermont has every right to make this attempt, and we should encourage other states to do the same.

Obviously, as the Supreme Court has made clear, state laws should be preempted when they interfere with the goals and objectives of federal patent law. But Vermont's law doesn't: like U.S. patent law, it strives to promote innovation and does not interfere with inventors' decision to file for U.S. patents and disclose information about their inventions to the public.² Far from needlessly raising the cost for patent owners to enforce their rights, Vermont's local solution to a national problem is a prime example of how federalism is supposed to work.

As I argue in a forthcoming article and a recent essay, given the benefits of state involvement in patent law and innovation policy, federal courts should be wary of preempting state laws that attempt to influence national patent policy. I hope the Vermont law is the first, not the last, of its kind, and that it inspires other states to take a greater role in helping federal institutions fix the patent system's problems. Meanwhile, innovators themselves – whether businesses aggrieved by PAE's or inventors who are dissatisfied with patent law's emphasis on propertization versus free access to knowledge – should begin to actively encourage their state and local governments to dissent against federal patent norms by experimenting with laws to make the system work better for everyone. We may ultimately decide that some, or even all, state patent policy innovations are not workable in practice. But the results of a bottom up reform movement will inevitably surprise us. And this is the point.

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1. Federal district courts have exclusive jurisdiction over patent cases, and the jurisdiction statute was recently amended to clarify that "[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights." 28 U.S.C. §    338(a). However, if none of the claims for relief under the Vermont law necessarily requires the resolution of a patent law issue, then federal district courts would not have jurisdiction absent diversity citizenship. See ClearPlay, Inc. v. Nissim Corp., 602 F.3d 1364, 1369 (Fed. Cir. 2010).

2. The same cannot be said for state trade secret laws, which we permit despite the risk that inventors of patentable inventions will keep their inventions secret, due to the independent benefits derived from more information sharing within companies and protection of valuable, if not always patentable, information from misappropriation by competitors. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490-93 (1974).