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January 04, 2012

December 08, 2011

Plaintiffs File Petition for Certiorari in AMP v. USPTO

By Kevin E. Noonan --

It should come as no surprise that the American Civil Liberties Union (ACLU) and the Public Patent Foundation (PubPat) filed a petition for certiorari with the Supreme Court on Tuesday. Two questions were presented:

1. Are human genes patentable?

2. Did the court of appeals err in adopting a new and inflexible rule, contrary to normal standing rules and this Court's decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), that petitioners who have been indisputably deterred by Myriad's "active enforcement" of its patent rights nonetheless lack standing to challenge those patents absent evidence that they have been personally and directly threatened with an infringement action?

The basis for the petition can be gleaned (at first glance) from the listing of the reasons for granting the writ:

I. THE QUESTION OF WHETHER HUMAN GENES AND THE INFORMATION THEY CONVEY ARE PATENTABLE IS OF PARAMOUNT IMPORTANCE TO THE FUTURE OF PATENT LAW, THE ADVANCEMENT OF MEDICAL SCIENCE, AND PATIENTS' HEALTH.

II. PATENTS ON "ISOLATED" DNA ARE INVALID UNDER THIS COURT'S SECTION 101 JURISPRUDENCE AND THE U.S. CONSTITUTION.

III. BY HOLDING THAT PETITIONERS LACKED STANDING UNLESS THEY WERE PERSONALLY THREATENED BY MYRIAD, THE FEDERAL CIRCUIT IMPOSED A RIGID STANDING REQUIREMENT CONTRARY TO THIS COURT'S APPROACH

The first reason reiterates the plaintiffs (willful) conflation of the gene itself (patentable under current law) and the information it encodes (which is not patentable and is freely used by all). The second reason presents grounds for the Supreme Court to overturn the Federal Circuit, insofar as the appellate court's grounds for reversing the District Court unconstitutionally extended the scope of patent eligibility under Section 101.

The second Question Presented, and the reasons for it, are a bit curious considering that the Federal Circuit found that at least one named plaintiff, Dr. Harry Ostrer, had standing to bring the lawsuit. But it is clear that plaintiffs and their legal representatives are interested in not only reducing the scope of patent eligibility but in expanding the scope of declaratory judgment jurisdiction, so that members of the public affected by a patent but not threatened by suit would have standing. In many ways, this argument is much more threatening to an effective patent regime in this country, since garnering Supreme Court agreement would make the recent spate of patent litigation (that has raised so many concerns across all technology sectors) look benign (for example, if every consumer who purchases a patented product had standing to challenge the patent).

Patent Docs will provide more in depth coverage of the petition after taking time to consider its implications more thoroughly.

Hat tip to Hal Wegner for alerting the patent community to the petition.

Posted at 11:59 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (4) | TrackBack (0)

December 06, 2011

Mayo Collaborative Services v. Prometheus Laboratories at the Supreme Court: Oral Argument Tomorrow

By Kevin E. Noonan --

Tomorrow, the U.S. Supreme Court will hear oral argument in Mayo Collaborative Services v. Prometheus Laboratories, Inc. The case represents the "other side" of the current foment regarding patent eligibility for methods and reagents related to what can broadly be termed "life sciences" patenting (the other, of course, being the "Myriad gene patenting" case, AMP v. USPTO). And at least some of the frisson that attends this case is the position taken by Justice Breyer (joined by departed Justices Stephens and Souter) in yet another case, Laboratory Corp. of America Holdings ("LabCorp") v. Metabolite Laboratories, Inc., that indicated a disquiet with patent claims that impinge those Justices' concept of medical practice.

As a reminder, the case involves claims directed to methods for determining whether an effective amount of a drug is being administered to a patient. The claims of the patents-in-suit (U.S. Patent Nos. 6,355,623 and 6,680,302) were held invalid by the District Court as being outside the scope of patent-eligible subject matter under 35 U.S.C. § 101, based on its application of the "machine or transformation" test enunciated in In re Bilski. These claims included claims that affirmatively recited an "administrative" step, exemplified by Claim 1 of the '623 patent:

1. A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:
    (a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and 
    (b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder, 
    wherein the level of 6-thioguanine less than about 230 pmol per 8x10⁸ red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and 
    wherein the level of 6-thioguanine greater than about 400 pmol per 8x10⁸ red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

and claims that did not recite such a step, exemplified by Claim 46 of the '302 patent:

46. A method of optimizing therapeutic efficacy and reducing toxicity associated with treatment of an immune-mediated gastrointestinal disorder, comprising:
    (a) determining the level of 6-thioguanine or 6-methylmercaptopurine in a subject administered a drug selected from the group consisting of 6-mercaptopurine, azathiop[u]rine, 6-thioguanine, and 6-methyl-mercaptoriboside, said subject having said immune-mediated gastrointestinal disorder,
    wherein the level of 6-thioguanine less than about 230 pmol per 8x10⁸ red blood cells indicates a need to increase the[] amount of said drug subsequently administered to said subject, and
    wherein the level of 6-thioguanine greater than about 400 pmol per 8x10⁸ red blood cells or a level of 6-methylmercaptopurine greater than about 7000 pmol per 8x10⁸ red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

The Federal Circuit reversed, in turn this decision being reversed on petition for certiorari and remanded from the Supreme Court for consideration in view of the Supreme Court's intervening decision in Bilski v. Kappos. The Federal Circuit again reversed the District Court, finding that the claims recited sufficiently transformative steps that they satisfied the Bilski "machine or transformation" test. The Court rejected the District Court's characterization that the claims consisted of three steps: (1) administering the drug to a subject, (2) determining metabolite levels, and (3) being warned that an adjustment in dosage may be required, wherein the first two steps were "data-gathering," leaving the third step as merely an unpatentable mental step, comprising the correlation, because no step requiring a change in administered dose. The Court agreed that the last (comparison) step was a mental step, but maintained (as it had in the original opinion) that this by itself cannot provide legitimate grounds for invalidating the claims (because the claims must be considered in their entirety).

Review by the Supreme Court will test the panel's understanding of Bilski to have rejected the machine-or-transformation test as the "sole, definitive test," and to have "declined to adopt any categorical rules outside the well-established exceptions for laws of nature, physical phenomena, and abstract ideas, and resolved the case based on its decisions in Gottschalk v. Benson, 409 U.S. 63 (1972), Parker v. Flook, 437 U.S. 584 (1978), and Diamond v. Diehr, 450 U.S. 175 (1981)." The Federal Circuit interpreted the entirety of Supreme Court precedent on patent eligibility to construe patent-eligibility broadly, limiting eligibility to exclude only laws of nature, physical phenomena, and abstract idea (based, the panel suggested, on historical precedent extending back to the 19th century; Le Roy v. Tatham, 55 U.S. (14 How.) 156, 174-75 (1853), continuing in the Court's most recent opinion on this issue (Bilski). The panel also distinguished between finding patent eligible laws of nature, physical phenomena, and abstract ideas with finding specific applications thereof. The Federal Circuit put this dichotomy expressly: do the Prometheus claims recite and preempt a natural phenomenon, alá Benson and Flook, or are they merely a particular application thereof, alá Diehr? The Supreme Court's answer to this question should help flesh out the extent to which the Court is willing to permit the Federal Citcuit to interpret its precedent (as opposed to slavishly following it).

Of course, it is just as likely that the Court's attention will be distracted by the "practice of medicine" argument. There is precedent for letting the political branch, Congress, make this decision: almost a generation ago, 35 U.S.C. § 287(c) exempted from infringement liability the practice of surgical methods by doctors. This remedy may be less apt in this instance, however, since the practice of many such methods is performed not by doctors but by medical laboratories (which are expressly exempted from the scope of § 287(c)).

Patent Docs will report on oral argument, and on selective portions of the parties' briefs and amici, in later posts.

Posted at 11:59 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (3) | TrackBack (0)

September 20, 2011

Deciphering the Patent-Eligibility Message in Prometheus, Myriad and Classen

By Kevin E. Noonan --

A little more than one year after the Supreme Court issued its opinion on the patent-eligibility of (business) method claims in Bilski v. Kappos, the Court has granted certiorari in one case (Prometheus Laboratories, Inc. v. Mayo Collaborative Services) and may consider two others (Classen Immunotherapies, Inc. v. Biogen Idec. and Association for Molecular Pathology v. U.S. Patent and Trademark Office) relating to diagnostic methods. The Court handed down its decision in Bilski on the last day of the 2010 term (June 28, 2010), and shortly thereafter granted certiorari, vacated the Federal Circuit opinion, and remanded both the Prometheus and Classen cases. The Federal Circuit decided the Prometheus case on remand on December 17, 2010, and on June 20, 2011, the Court again granted certiorari. Since the question of patent eligibility is completely dependent on the scope and meaning of properly construed claims (see "Is Claim Construction the Key to Patent-eligibility of Isolated DNA?"), a comparison of the claims in Prometheus, Myriad, and Classen might shed some light on the reasoning used by the Federal Circuit in arriving at the answers to the patent-eligibility question posed in each of these cases.

Perhaps the most clear-cut decision by the Federal Circuit involves the method claims in the patents at issue in the Myriad case. These claims all require the steps of "analyzing" or "comparing" a mutated BRCA gene sequence with the wildtype, "normal" sequence without any express claim language requiring that either sequence be determined as part of the claim:

U.S. Patent No. 5,709,999:

1. A method for detecting a germline alteration in a BRCA1 gene, said alteration selected from the group consisting of the alterations set forth in Tables 12A, 14, 18 or 19 in a human which comprises analyzing a sequence of a BRCA1 gene or BRCA1 RNA from a human sample or analyzing a sequence of BRCA1 cDNA made from mRNA from said human sample with the proviso that said germline alteration is not a deletion of 4 nucleotides corresponding to base numbers 4184-4187 of SEQ ID NO:1.

U.S. Patent No. 5,710,001:

1. A method for screening a tumor sample from a human subject for a somatic alteration in a BRCA1 gene in said tumor which comprises gene comparing a first sequence selected form the group consisting of a BRCA1 gene from said tumor sample, BRCA1 RNA from said tumor sample and BRCA1 cDNA made from mRNA from said tumor sample with a second sequence selected from the group consisting of BRCA1 gene from a nontumor sample of said subject, BRCA1 RNA from said nontumor sample and BRCA1 cDNA made from mRNA from said nontumor sample, wherein a difference in the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said tumor sample from the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said nontumor sample indicates a somatic alteration in the BRCA1 gene in said tumor sample.

U.S. Patent No. 5,753,441:

1. A method for screening germline of a human subject for an alteration of a BRCA1 gene which comprises comparing germline sequence of a BRCA1 gene or BRCA1 RNA from a tissue sample from said subject or a sequence of BRCA1 cDNA made from mRNA from said sample with germline sequences of wild-type BRCA1 gene, wild-type BRCA1 RNA or wild-type BRCA1 cDNA, wherein a difference in the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA of the subject from wild-type indicates an alteration in the BRCA1 gene in said subject.

U.S. Patent No. 6,033,857:

1. A method for identifying a mutant BRCA2 nucleotide sequence in a suspected mutant BRCA2 allele which comprises comparing the nucleotide sequence of the suspected mutant BRCA2 allele with the wild-type BRCA2 nucleotide sequence, wherein a difference between the suspected mutant and the wild-type sequences identifies a mutant BRCA2 nucleotide sequence.

2. A method for diagnosing a predisposition for breast cancer in a human subject which comprises comparing the germline sequence of the BRCA2 gene or the sequence of its mRNA in a tissue sample from said subject with the germline sequence of the wild-type BRCA2 gene or the sequence of its mRNA, wherein an alteration in the germline sequence of the BRCA2 gene or the sequence of its mRNA of the subject indicates a predisposition to said cancer.

Significantly, other diagnostic method claims, including ones using antibodies to detect altered BRCA proteins, were not recited in the complaint and thus not at issue. Also not recited in these claims were "additional, transformative steps," including "the steps of (1) extracting DNA from a human sample, and (2) sequencing the BRCA DNA molecule, . . . steps [that] necessarily precede the step of comparing nucleotide sequences."

The Federal Circuit panel unanimously agreed that these claims do not satisfy the "machine or transformation" (MOT) test under Bilski. These claims "recite[] nothing more than the abstract mental steps necessary to compare two different nucleotide sequences: look at the first position in a first sequence; determine the nucleotide sequence at that first position; look at the first position in a second sequence; determine the nucleotide sequence at that first position; determine if the nucleotide at the first position in the first sequence and the first position in the second sequence are the same or different, wherein the latter indicates an alternation; and repeat for the next position," according to Judge Lourie's majority opinion. Also significant for the Court is that the specification required the term "sequence" to refer "more broadly to the linear sequence of nucleotide bases of a DNA molecule" per se. The panel found that Myriad's method claims can be satisfied (i.e., infringed) by "mere inspection" alone, and thus encompass merely an abstract idea.

In contrast, on remand, the Federal Circuit found the claims in Prometheus to satisfy the MOT test and thus recite patent-eligible subject matter, whether the claim recites an affirmative administration step or not:

U.S. Patent No. 6,355,623:

46. A method of optimizing therapeutic efficacy and reducing toxicity associated with treatment of an immune-mediated gastrointestinal disorder, comprising:
    (a) determining the level of 6-thioguanine or 6-methylmercaptopurine in a subject administered a drug selected from the group consisting of 6-mercaptopurine, azathiop[u]rine, 6-thioguanine, and 6-methyl-mercaptoriboside, said subject having said immune-mediated gastrointestinal disorder, 
    wherein the level of 6-thioguanine less than about 230 pmol per 8x10⁸ red blood cells indicates a need to increase the[] amount of said drug subsequently administered to said subject, and 
    wherein the level of 6-thioguanine greater than about 400 pmol per 8x10⁸ red blood cells or a level of 6-methylmercaptopurine greater than about 7000 pmol per 8x10⁸ red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

The distinction between the claims in Myriad and claim 1 of the '623 patent can be appreciated in light of the difference in what is being detected in each claim: a naturally occurring nucleic acid in the Myriad claims and an administered drug or its metabolite in Prometheus. Insofar as patent eligibility for method claims must either satisfy the Bilski machine or transformation test or otherwise not be so abstract as to entirely preempt an abstract idea, law of nature, or natural phenomenon, the absence of the drug or its metabolite without administration of the drug would appear to provide the Federal Circuit with its rationale regarding the patent eligibility of claim 1 of the '623 patent. Claim 46 of the '623 patent does not have an affirmatively recited administration step. However, the "detecting" step recites that 6-thiopurine or one of its metabolites is performed on "a subject administered [one of the recited] drug[s]," again encompassing only those patients who have been transformed by drug administration. It would seem that the Court refused to exalt form over substance in making a distinction between claims that recite administration of the drug to a subject and claims that are restricted to detecting a drug or its metabolites only in that subset of subjects to whom the drug has been administered; in either case, the Federal Circuit discerned a transformation. Neither of these considerations are likely to be before the Supreme Court, however, since defendant's certiorari petition focused on the purported interference with the practice of medicine and the non-inventiveness of the portions of the claim that recited the transformation step. In this regard it should be remembered that the case that raised this aspect of medical diagnostic method claims, Laboratory Corp. v. Metabolite Labs., Inc. (LabCorp), was like Myriad, directed at detecting a naturally occurring metabolite, homocysteine, and not an administered drug as in the Prometheus claims.

The most surprising Federal Circuit decision relating to diagnostic method claims is the most recent, in the Classen case. There, a divided panel (Judge Newman joined by Chief Judge Rader, with Judge Moore dissenting) found a distinction between the claims of U.S. Patent No. 5,723,283:

A method of determining whether an immunization schedule affects the incidence or severity of a chronic immune-mediated disorder in a treatment group of mammals, relative to a control group of mammals, which comprises immunizing mammals in the treatment group of mammals with one or more doses of one or more immunogens, according to said immunization schedule, and comparing the incidence, prevalence, frequency or severity of said chronic immune-mediated disorder or the level of a marker of such a disorder, in the treatment group, with that in the control group.

Which the majority found not to be patent-eligible, with the claims of U.S. Patent Nos. 6,420,139 and 6,638,739 (claim 1 of the '739 patent being representative):

1. A method of immunizing a mammalian subject which comprises:
    (i) screening a plurality of immunization schedules, by
        (a) identifying a first group of mammals and at least a second group of mammals, said mammals being of the same species, the first group of mammals having been immunized with one or more doses of one or more infectious disease-causing organism-associated immunogens according to a first screened immunization schedule, and the second group of mammals having been immunized with one or more doses of one or more infectious disease-causing organism-associated immunogens according to a second screened immunization schedule, each group of mammals having been immunized according to a different immunization schedule, and 
        (b) comparing the effectiveness of said first and second screened immunization schedules in protecting against or inducing a chronic immune-mediated disorder in said first and second groups, as a result of which one of said screened immunization schedules may be identified as a lower risk screened immunization schedule and the other of said screened schedules as a higher risk screened immunization schedule with regard to the risk of developing said chronic immune mediated disorder(s), 
    (ii) immunizing said subject according to a subject immunization schedule, according to which at least one of said infectious disease-causing organism-associated immunogens of said lower risk schedule is administered in accordance with said lower risk screened immunization schedule, which administration is associated with a lower risk of development of said chronic immune-mediated disorder(s) than when said immunogen was administered according to said higher risk screened immunization schedule.

Which the panel found were patent-eligible. Judge Moore, on the other hand, found no difference. The difference appears to be in whether the determination of an appropriate immunization schedule directs an affirmative (and transformative) step or steps. In the '283 claim, the majority construed the scope of the claim to encompass mere comparison of the results of immunization schedules that produce a conclusion (i.e., information) without any further steps in the claimed method. The claims in the '739 patent, in contrast, require that an appropriate immunization schedule be determined, and then that a mammal or mammals be immunized according to that schedule to achieve the beneficial result of immunization with the least "incidence, prevalence, frequency or severity" of deleterious side effects.

Seen in this light, the question can be framed (according to Supreme Court precedent) as whether immunizing according to different immunization schedules in the '283 patent is considered "mere data gathering" activity and could be performed by evaluating previously performed immunizations, and whether the immunization step recited in the '739 patent can be considered to be "insignificant post-solution activity." It is evident that the first proposition is better supported that the second; as in the Myriad claims, the structure of the '283 patent claim encompasses activity (immunization according to a plurality of immunization schedules) not performed in the practice of the claimed method (as opposed to the comparison, in this view the only active step in the claim). The immunization step in the '739 patent claim is harder to construe as "insignificant post-solution activity" since the claim is directed towards "a method for immunizing a mammalian subject."

This analysis may seem like an exercise in counting dancing angels on the head of a pin, but it is the path set out by the Supreme Court in Benson v. Gottschalk, Parker v. Flook, Diamond v. Diehr, and Bilski v. Kappos (and for some members of the Court and commentators, LabCorp). While Judge Moore recites a common-sense conclusion that the scope of the '283 and '739 claims should not logically be different, they must be when considered under the relevant Supreme Court rubrics, which give significance (no matter how undeserved) to these distinctions. That is not to say that reciting the immunization step should be enough to render the '739 patent claims patent eligible, but like drug administration in Prometheus, immunization is transformative (as Judge Moore recognized by expressly equating immunization with drug administration).

Perhaps another way of performing the analysis is to recognize that another salient difference between the Myriad claims and the '283 claim in Classen on the one hand, and the Prometheus claims and the '739 patent claims in Classen, on the other, is that the former claims involve producing intangible information, while the latter use the information to direct the claim practitioner to perform a tangible, transformative step. Claims that produce information may not be patent-ineligible per se (see "Patenting Information"); however, as in Bilski (and Benson and Flook) they are more likely to raise patent eligibility concerns. Indeed these considerations arose in the concurring Justices' opinion in Bilski:

For even when patents encourage innovation and disclosure, "too much patent protection can impede rather than 'promote the Progress of . . . useful Arts.'" Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 548 U. S. 124, 126–127 (2006) (BREYER, J., dissenting from dismissal of certiorari). . . . Patents "can discourage research by impeding the free exchange of information," for example, by forcing people to "avoid the use of potentially patented ideas, by leading them to conduct costly and time-consuming searches of existing or pending patents, by requiring complex licensing arrangements, and by raising the costs of using the patented" methods. Id., at 127.

While the Supreme Court gave the Federal Circuit precious little time or opportunity to flesh out its patent eligibility jurisprudence after the Bilski v. Kappos decision by granting certiorari in Prometheus, the Supreme Court's Bilski decision provided no clear instruction for resolving the different results in the Prometheus and Classen cases. Thus, its guidance may be necessary (provided that such guidance is more "pellucid" than the Court's opinion in Bilski).

For biotechnology, it remains the case that including active, technology-dependent steps in method claims is prudent, and to draft claims that minimize the likelihood that the invention will be characterized as merely an "abstract idea."

Posted at 11:59 PM in Federal Circuit, Patentable Subject Matter, Supreme Court | Permalink | Comments (18) | TrackBack (0)

July 19, 2011

Docs at BIO: Panel Session on Recent Supreme Court Patent Decisions

By Kevin E. Noonan --

A panel of former Solicitors General and Assistant Solicitors addressed recent Supreme Court precedent in patent law during the BIO International Convention last month. Moderated by former Federal Circuit Chief Judge Paul Michel, the panel consisted of Seth Waxman, former Solicitor General now at Wilmer Hale; Paul Clement, another former Solicitor General now at Bancroft PLLC; and Thomas Hungar, former Assistant Solicitor General now at Gibson Dunn LLP.

Judge Michel began the discussion with the Microsoft v. i4i case. Mr. Waxman, who represented prevailing respondent i4i, went first. He professed to be unsurprised that the Supreme Court decided the case in favor of the patentee and affirmed the Federal Circuit. Mr. Waxman mentioned the Court's renewed interest in patent cases, and that an affirmance is surprising only because patent cases do not have the possibility of a circuit split, so that when the Court grants certiorari it is usually to reverse. He said he considered the "real stunner" the decision in Stanford v. Roche because the Court sided with the inventor, but he tempered the significance of this decision by remarking that Stanford, the patent-holder, lost. He admitted that the "superficial" view was that the Court was going to reverse in i4i, because the case represented another instance of the Federal Circuit deciding in favor of the patentee based on its particular interpretation of the statutory language. However, he also identified three levels of issues in the case: the proper interpretation of the relevant provisions of the 1952 Patent Act; the Court's own precedent; and the public policy issues of industrial policy and the innovation economy. The latter was the "most Titanic battle" and one the Court purported not to address, in the context of each side arguing that it would be a catastrophe if the other side prevailed.

Mr. Hungar, who represented Microsoft in the case, said that the outcome was best understood as being supported by a line of Supreme Court precedent, particularly from Justice Cardozo that supported i4i's position; he mentioned that he was "bludgeoned" by this precedent by the Court during oral argument. He mentioned that a possible factor in the Court's apparent change of heart regarding patent cases may be the recent change in personnel, noting that Justice Stevens (due to his antitrust experience) was "one of the most skeptical" members of the Court regarding patent rights, and that Justice Souter had also expressed skepticism of "as much legal protection" of patent rights advocated by its proponents. He sees Justices Sotomayor and Kagan as having a different view, admitting that it will take "years" for the effects of their views on patent law to be properly appreciated.

Mr. Clement next provided his comments, and took a slightly broader view. He reminded the audience that in the seven patent cases decided in the past five years (including eBay Inc. v. MercExchange, L.L.C., KSR Int'l Co. v. Teleflex Inc., MedImmune, Inc. v. Genentech, Inc., Microsoft Corp. v. AT&T Corp., and Quanta Computer, Inc. v. LG Electronics, Inc., excluding Bilski v. Kappos) the Court ruled 59-2 (with 2 recusals) against the Federal Circuit. Thus, this term is the anomaly he said, particularly when it is remembered that the Court reverses generally about 70% of the time.

Mr. Clement also mentioned the lack of circuit split in Federal Circuit cases, which skews the results even more in favor of reversal: the Court takes some cases based on the existence of a circuit split even if they believe the appellate court came to the right decision just to resolve the split, and that possibility does not exist for Federal Circuit cases. He said that while it may be expected that the Court would show "some greater sense of deference" to the Federal Circuit's expertise, the present situation may be the result of how the Court reacted to the creation of the Federal Circuit 30 years ago. It appeared, he said, that the Court "breathed a sigh of relief" that it did not need to consider patent cases as it had previously, and that the Federal Circuit "took its cue" from the Court and began to act as a "court of last resort" regarding patents. As a consequence, Mr. Clement posited that the Federal Circuit came up with rules that would make it easier to handle its docket and to give relatively clear rules to district courts that otherwise rarely encountered a patent case.

In addition, Mr. Clement suggested that the Court "gently walked away" from statements by Justices like Cardozo and Douglas that "really didn't make a lot of sense." When the Supreme Court began to review Federal Circuit decisions, it relied on its own precedent -- including those Justice Cardozo and Justice Douglas opinions -- and did not take into account 20 years of (relatively unfettered) Federal Circuit precedent and the "settled expectations" it raised. Because he doesn't see this "basic dynamic" to have changed, he thinks the recent affirmances will not become a trend but rather that the Court will continue to reverse the Federal Circuit. While he agrees that the new Justices have apparently differing views on patenting than the Justices they replaced, he also noted again that the lopsided nature of the Court's opinions reversing the Federal Circuit are not likely to be affected by their votes.

Mr. Clement also credited the Solicitor General's views as being important in the Court's i4i decision, saying that when the parties and amici argue (as they did in i4i) that "commerce as we know it will grind to a halt" if the other parties' views are upheld, the Court looks to the Solicitor General as an "honest broker." In this regard he noted that the Court "almost routinely" sides with the SG's position, and that since the SG has recently sided with the accused infringer, the Court's decisions have predominantly been against the patentee. Part of the "differential dynamic" between the Supreme Court and the Federal Circuit is that it is rare for the SG to file an amicus brief in the appellate court, according to Mr. Clement (a comment that should resonate with anyone contemplating a possible Supreme Court decision in AMP v. USPTO).

Mr. Waxman also mentioned the role of the Solicitor General, and recounted his experience that a great deal of "heated advocacy" occurred within the Executive Branch in an effort to influence the Solicitor General's position. Typically in patent cases this involves debate between the Patent and Trademark and Copyright Offices on the one hand and the Federal Trade Commission and the Antitrust Division of the Department of Justice on the other; he characterized these as the "liveliest of bloody debates," which occur before the Solicitor files its brief. He noted a potentially "harmful" effect of this tendency (coupled with the Supreme Court's penchant for relying on the Solicitor as an "honest broker" that reflects the "broad, long-term interests of the U.S."): while the Supreme Court Justices are not technically trained and do not have a deep understanding of patent law, the lawyers in the Solicitor General's office and the government in general have no expertise in commerce -- "people in government tend to be people who have been in government" and not involved in innovation or who have an understanding of how innovation works. While he credits these people as being "well meaning and smarter and more hard-working than people in commerce," he argued that they lacked the critical expertise in "the market and labs and the venture capital world."

Judge Michel raised the issue of the role of Congress in defining patent law, and the changes over the past 30 years on the perception of patenting and the economy. He noted in this regard President Obama's mention of patents in his State of the Union address and elsewhere, and how patent stories have moved from the business section (and obscure positions there) to the front page, so that the Federal Circuit no longer works in "relative obscurity." Returning to the Supreme Court, Judge Michel noted that the KSR case was the first time the Court had considered obviousness since the late 1960's and that Justice Stevens was the only member of the Bilski Court that had considered subject matter eligibility previously (Parker v. Flook, Diamond v. Chakrabarty, Diamond v. Diehr). He stated his belief that one possibly positive consequence of the Court's renewed interest in patent cases could be greater familiarity with patent law.

Mr. Clement responded to Judge Michel's comments by stating that he believed the Court's interest in patent cases is "here to stay" because patents are "too darned important" to be left to the Federal Circuit. He said that patent reform (while "like the poor is always with us") is important because the Supreme Court decides many patent cases as statutory interpretation cases, frequently finding little support for the Federal Circuit's interpretation of the statute in the statutory language itself. For a "textually focused" Court, it is easy to overrule the Federal Circuit's more specific rules in favor of the Court's more general standard based on the statutory language. However, if Congress speaks clearly, the Court may be less likely to rely on 19th Century precedent or language from Justice Cardozo in deciding patent cases according to Mr. Clement.

In response, Judge Michel noted that the 1952 Patent Act was written very tersely and reads "more like a constitution than a statute," noting the difference between this way of writing a statute and how statutes are written today. This has led to judicial interpretation of the statute (subject to Supreme Court interpretation and revision), which may be less likely if Congress amends patent law to be more definite.

Mr. Hungar agreed with these sentiments, and with Mr. Clement's point that the Supreme Court is very confident in construing statutes but is less confident in the patent area, based on the Justices' recognition that their expertise does not lie in either patent law or the real world consequences that may arise from their pronouncements. This results in a reluctance for bright line rules and a tendency for the Court to "muddy up" Federal Circuit rules that are too restrictive, citing the Court's Bilski decision as an example. This leads to another of the Court's tendencies, to decide patent cases on a "case-by-case" basis.

Judge Michel then asked the panel whether the Supreme Court utilized what he called its "constitutional law mode" of decision-making when deciding patent cases, invoking multifactor weighing tests that result in there being no answer to any question until the Court has opined. He noted that in his view the consequences of this way of addressing patent cases ignore the reality that most of what happens in patenting does not happen in court, but in the real world where clients need guidance with predictability if not certainty about what they can do and what they cannot do. Mr. Waxman followed up on these thoughts by noting that companies and investors in some industries, like biotechnology, have "substantial lead times" and require equally substantial investment, and that venture capitalists in their amicus brief in i4i voiced their view that they could not function in a world where their patent attorneys could only say "who the hell knows?" about patent validity and viability based on uncertainties introduced by general guidance in Supreme Court opinions. He said that these actors told the Court that if this were to be the case, they would move to a different technology (or a different country) with all the negative consequences that would entail for American innovation. He also characterized as "scary" the prospect that "nine unelected Justices" would enunciate specific rules that would apply "for all time," acknowledging that the Justices appreciated their inability to make such universal rules in the face of the inherent uncertainty about where innovation will arise in the future.

Mr. Hungar raised the point that cases like eBay and MedImmune must be appreciated differently than cases like KSR and Bilski based on how the Court views them. In the former cases, the Court "gets its mojo back" because it understands the issues -- the standard for granting an injunction, when a party is entitled to declaratory judgment jurisdiction -- and applies generally applicable standards that apply in all other areas of the law. In patent law-specific cases, the Court is reluctant to engage in the kind of judicial lawmaking that characterized its explication of the Sherman Act in the last century, because judicial lawmaking is not well suited to making economic policy. In contrast, the Court has a "serious adverse reaction" to Federal Circuit decisions that apply patent-specific interpretations to standards such as when a prevailing party is entitled to an injunction -- "they want none of it." Mr. Waxman (who represented eBay) noted the incongruity that arose in the eBay case, where both the district court and the Federal Circuit each applied the four-factor test for granting an injunction (albeit coming to different conclusions), in the face of a Supreme Court mandate that the courts apply the four-factor test on remand. He also said that the consequence of the Court's eBay decision has been "utter confusion" in the district courts and that "untold amounts of money" have been spent in legal fees litigating injunctions in the face of this uncertainty. He also noted that, perversely, the eBay decision created an incentive for patent holders to sue, if they could, before the International Trade Commission, where the prevailing patentee is entitled to an injunction by statute. He also said that the Court's eBay decision upset the calculus of damages calculations, because in the absence of the possibility of an injunction, patentees were faced by de facto compulsory licenses.

In the panel's final topic for discussion, Judge Michel stated his belief that much of what the Supreme Court decides is framed by the language -- and rhetoric -- of how the questions and arguments are presented to the Court, noting the possibility for disconnect with reality; for example he professed his view that there was never a Federal Circuit "rule" that a prevailing patentee "always" was entitled to an injunction. In this regard, he discussed the Bilski opinion and the argument that all business method patents were "bad" and how in Prometheus, the same argument was being made regarding diagnostic method patents. Judge Michel also mentioned Justice Stevens' idea that patent claims should be "deconstructed" to their "core" in deciding questions of patent eligibility, and the theoretical and practical deficiencies of that approach. Mr. Hungar voiced the view that the Court generally saw beyond (or through) the rhetoric, and Mr. Clement stated his view that the greater frequency of the Court addressing patent issues should result in the Court becoming more adept at appreciating the subtleties in those issues and arguments.

Posted at 11:49 PM in Supreme Court | Permalink | Comments (3) | TrackBack (0)

June 16, 2011

2011 BIO International Convention Preview - Part I

BIO and the Supreme Court

By Andrew Williams --

The 2011 BIO International Convention in Washington D.C. is less than two weeks away. If you are planning on attending, you probably already know that the amount of information and opportunities available at BIO can be daunting. Therefore, over the next week, Patent Docs will be highlighting a few sessions or other opportunities, in thematic fashion, to help you navigate your way through the convention. For example, today we present opportunities for those intested in learning more about how the Supreme Court is impacting the BIO community. Of course, Patent Docs authors and contributors will be present at BIO as part of the MBHB contingent, and Patent Docs readers are encouraged to stop by the MBHB booth (#4723 – Hall C).

For BIO attendees interested in learning more about the Supreme Court and the BIO community, there are several sessions devoted exclusively to the topic, and that will highlight the impact of recent Supreme Court decisions on specific issues of interest to the BIO community. Of course, in just the past month, the Supreme Court has issued three opinions that will impact the biotech community, so it is no surprise that there is such interest in the Court at this year's convention. These recent opinions include Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (2011), which established that, for federally funded inventions, the Bayh-Dole Act did not alter the principle that the rights in an invention belong to the inventor; Microsoft Corp. v. i4i Limited Partnership (2011), which reaffirmed that patent invalidity must be proved by clear and convincing evidence; and Global-Tech Appliances, Inc. v. SEB S.A. (2011), which established the standard for inducement of infringement.

The first stop for someone interested in this topic will likely be a session devoted exclusively to this topic, "Patents in the Supreme Court," which will take place from 10:00 to 11:30 AM on Tuesday, June 28. The panel for this session includes two former Solicitors General of the United States, and a former Deputy Solicitor General, who together have argued over 100 cases before the Supreme Court. This panel promises to explore why the Supreme Court is increasingly interested in patent law, and what the likely issues will be that the Supreme Court will take up next (including a prediction of the outcomes). The panel includes:

• Paul Clement of Bancroft PLLC, who was the 43rd Solicitor General of the U.S. from July 2004 through June 2008 and who has argued over 50 cases before the Supreme Court;

• Thomas G. Hungar of Gibson Dunn & Crutcher LLP, who was Deputy Solicitor General of the U.S. from 2003 until 2008 and who has argued over 24 cases before the Supreme Court, including KSR Int'l Co. v. Teleflex Inc. and Quanta Computer, Inc. v. LG Electronics, Inc.; and

• Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr LLP, who was the 41st Solicitor General of the U.S. from 1997 through January 2001, and who has argued over 56 cases before the Supreme Court, including most recently the Microsoft v. i4i case. Mr. Waxman also represents BIO as amicus curiae in Association for Molecular Pathology v. USPTO.

This panel will be moderated by former Retired Chief Judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit.

Another session in the Biotech Patenting and Tech Transfer Track that promises to touch on the Supreme Court's 2010-2011 patent docket, and discuss issues that will could soon reach the Supreme Court, is "The Myriad Case and the Patentability of Isolated DNA Molecules." This session will take place from 8:30 to 9:45 AM on Tuesday, June 28, just before the previously discussed panel. In fact, this session is moderated by Mr. Waxman, and the panel consists of the legal team at WilmerHale that drafted BIO's amicus brief in the Association for Molecular Pathology v. USPTO (i.e., the Myriad Genetics) case. The panel will discuss the progress of this case through the District Court and Federal Circuit, as well as predict the future of this issue at the Supreme Court.

However, there are sessions in tracks outside the Biotech Patenting and Tech Transfer Track that nevertheless will be of particular interest to those following the impact of the Supreme Court on the BIO community. First, the Biomarkers Track will be presenting "IP issues Affecting Biomarker-Based Diagnostics" on Monday, June 27, at 3:45-5:00 pm. This session is an update of a well-attended session from 2010 regarding the challenges for securing IP protection for biomarker diagnostics. The panelists will be discussing how the Supreme Court's Bilski v. Kappos decision is affecting biomarker diagnostics, as well as other important cases before the Federal Circuit (including the Myriad Genetics case, and the Prometheus and Classen cases). In addition, the panel will provide a perspective on the same issues before the European Patent Office and other jurisdictions of interest. The panel includes: Thorlakur Jonsson, Director of Intellectual Property of deCODE genetics ehf; Simon O'Brien, Chartered Patent Attorney with D. Young & Co.; and Jan Skouv, Director IPR of Exiqon A/S. This session will be moderated by David Gass of Marshall, Gerstein & Borun, LLP.

Finally, the Food and Agriculture Track will be presenting "Environmental Review of GE Food and Agriculture Products" on Thursday, June 30, from 10:00 to 11:30 AM. This session will discuss, among other things, the Supreme Court case Monsanto v. Geertson Seed Farms, and its impact on the complexity of the regulatory landscape related to new GE products. The panel will explore the successful legal challenges to GE products, and discuss ways in which parties seeking regulatory approval can increase their chances of surviving a lawsuit. The panel includes Jay Johnson of Dorsey & Whitney LLP; Mark McCaslin, President of Forage Genetics; and Larisa Rudenko, Senior Advisor for Biotechnology at the FDA-CVM. Michael Smith, Senior Manager at ICF International will moderate.

Posted at 11:37 PM in Conferences & CLE's, Supreme Court | Permalink | Comments (0) | TrackBack (0)

June 09, 2011

Microsoft Corp. v. i4i Limited Partnership (2011)

Supreme Court Holds That Invalidity Must Be Proved by Clear and Convincing Evidence

By Donald Zuhn --

In the third patent decision to be issued by the Supreme Court in little more than a week, the Court in Microsoft Corp. v. i4i Limited Partnership held today that 35 U.S.C. § 282 requires an invalidity defense to be proved by clear and convincing evidence. Justice Sotomayor delivered the opinion of the Court, and was joined by all but Justice Thomas (who concurred in the judgment) and Chief Justice Roberts (who took no part in the decision). Justice Breyer authored a concurring opinion, in which he was joined by Justices Scalia and Alito.

Justice Sotomayor begins by noting that Congress has charged the U.S. Patent and Trademark Office with the task of examining patent applications and issuing patents where "the applicant is entitled to a patent under the law" (35 U.S.C. § 131), and that Congress has set forth the prerequisites that the Office must evaluate in determining whether a patent should be issued. The opinion also notes that a patent grants exclusive rights to the holder, including the exclusive right to use the claimed invention, which can be enforced by bringing a civil action for infringement. An accused infringer may counter by asserting one of the defenses under 35 U.S.C. § 282, including that the patent is invalid (i.e., "never should have issued in the first place"). The opinion points out that in asserting an invalidity defense, the accused infringer "must contend with the first paragraph of §282, which provides that '[a] patent shall be presumed valid' and '[t]he burden of establishing invalidity . . . rest[s] on the party asserting such invalidity,'" and that under the Federal Circuit's reading of § 282, the presumption of validity can only be overcome by persuading the factfinder of the patent's invalidity by clear and convincing evidence. Justice Sotomayor notes that in American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F. 2d 1350 (Fed. Cir. 1984), Judge Rich -- citing Radio Corp. of America v. Radio Engineering Laboratories, Inc. ("RCA"), 293 U. S. 1 (1934) -- concluded that:

[Section] 282 creates a presumption that a patent is valid and imposes the burden of proving invalidity on the attacker. That burden is constant and never changes and is to convince the court of invalidity by clear evidence.

In the case before the Court, i4i brought suit against Microsoft in 2007, asserting that Microsoft's manufacture and sale of Microsoft Word infringed i4i's patent to an improved method of editing computer documents. Microsoft denied infringement and counterclaimed for a declaration of invalidity and unenforceability. With regard to its invalidity defense, Microsoft contended that i4i's sale of the S4 software program rendered the asserted patent invalid under 35 U.S.C. § 102(b). At trial, Microsoft objected to i4i's proposed instruction that Microsoft was required to prove invalidity by clear and convincing evidence because the S4 program had never been presented to the USPTO during prosecution of the asserted patent, and requested the following instruction:

Microsoft's burden of proving invalidity and unenforceability is by clear and convincing evidence. However, Microsoft's burden of proof with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit is by preponderance of the evidence.

The District Court rejected Microsoft's hybrid standard of proof and instructed the jury that "Microsoft has the burden of proving invalidity by clear and convincing evidence." The jury found that Microsoft failed to prove invalidity and that Microsoft had willfully infringed the i4i patent. The Federal Circuit affirmed, saying that it could discern no error in the jury instruction requiring Microsoft to prove invalidity by clear and convincing evidence. In response to this affirmance, Microsoft petitioned for certiorari, contending that the proper standard for proving invalidity is preponderance of the evidence, and at the very least, that the preponderance of the evidence standard should apply when an invalidity defense rests on evidence that was never considered by the USPTO during examination of the asserted patent.

Justice Sotomayor (at left) first notes that "by its express terms, §282 establishes a presumption of patent validity, and it provides that a challenger must overcome that presumption to prevail on an invalidity defense," adding that "while the statute explicitly specifies the burden of proof, it includes no express articulation of the standard of proof." Turning to the issue of standard of proof, the opinion points to RCA (cited by Judge Rich in American Hoist & Derrick Co.), in which Justice Cardozo explained that "there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence," and added that "one otherwise an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance." Justice Sotomayor therefore concludes that:

The common-law presumption [i.e., the pre-1952 Act presumption] . . . reflected the universal understanding that a preponderance standard of proof was too 'dubious' a basis to deem a patent invalid. . . . Thus, by the time Congress enacted §282 and declared that a patent is "presumed valid," the presumption of patent validity had long been a fixture of the common law. According to its settled meaning, a defendant raising an invalidity defense bore "a heavy burden of persuasion," requiring proof of the defense by clear and convincing evidence.

Although § 282 does not expressly specify a standard of proof, the opinion states that "[u]nder the general rule that a common-law term comes with its common-law meaning, we cannot conclude that Congress intended to 'drop' the heightened standard [of] proof from the presumption simply because §282 fails to reiterate it expressly." Pointing again to RCA, Justice Sotomayor writes that the case "leaves no doubt that attached to the common-law presumption of patent validity was an expression as to its 'force,' that is, the standard of proof required to overcome it" (citation omitted). Although Microsoft argued that the Court had applied a clear-and-convincing standard of proof in only two limited circumstances in its pre-1952 cases, Justice Sotomayor responds that:

Squint as we may, we fail to see the qualifications that Microsoft purports to identify in our cases. They certainly make no appearance in RCA's explanation of the presumption of patent validity. . . . Nor do they appear in any of our cases as express limitations on the application of the heightened standard of proof.

As for Microsoft's argument that that a preponderance of the evidence standard should at least apply where the evidence before the factfinder was not before the USPTO during the examination process, the opinion states that "[t]he question remains, however, whether Congress has specified the applicable standard of proof," and responds that "Congress did just that by codifying the common-law presumption of patent validity and, implicitly, the heightened standard of proof attached to it." Justice Sotomayor notes that "[o]ur pre-1952 cases never adopted or endorsed the kind of fluctuating standard of proof that Microsoft envisions," adding that "the Court's statement [in RCA] that a 'dubious preponderance' will never suffice to sustain an invalidity defense, admitted of no apparent exceptions" (citation omitted). In footnote 10, Justice Sotomayor points out the "impracticalities" of Microsoft's fluctuating standard of proof, observing that because an examiner has no duty to cite every reference considered, whether an examiner has considered a particular reference will often be "a question without a clear answer."

Justice Breyer, who joined the Court's opinion, writes separately to "emphasiz[e] that in this area of law as in others the evidentiary standard of proof applies to questions of fact and not to questions of law." He adds that "[w]here the ultimate question of patent validity turns on the correct answer to legal questions -- what these subsidiary legal standards mean or how they apply to the facts as given -- today's strict standard of proof has no application." Looking to lower courts for help, Justice Breyer writes that "[b]y preventing the 'clear and convincing' standard from roaming outside its fact-related reservation, courts can increase the likelihood that discoveries or inventions will not receive legal protection where none is due." Justice Thomas, while concurring with the Court's judgment, differs with the Court as to whether Congress' use of the phrase "[a] patent shall be presumed valid" codified a standard of proof. He reaches the same outcome as the Court, however, because § 282 is silent as to the standard of proof. As a result, Justice Thomas writes that § 282 did not alter the common-law rule, which he characterizes as a "heightened standard of proof set forth in Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U. S. 1 (1934) -- which has never been overruled by this Court or modified by Congress."

Microsoft Corp. v. i4i Limited Partnership (2011)
Opinion of the Court by Justice Sotomayor, joined by Justices Scalia, Kennedy, Ginsburg, Breyer, Alito, and Kagan;
Concurring opinion by Justice Breyer, joined by Justices Scalia and Alito;
Opinion concurring in the judgment by Justice Thomas;
Chief Justice Roberts took no part in the consideration or decision of the case.

Posted at 06:40 PM in Supreme Court | Permalink | Comments (2) | TrackBack (0)

June 06, 2011

Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (2011)

Supreme Court Sets Limits on the Bayh-Dole Act

By Kevin E. Noonan --

The Supreme Court today handed down its opinion in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. The opinion begins (and could have ended) with a recitation of a fundamental premise of U.S. Patent Law: "[s]ince 1790, the patent law has operated on the premise that rights in an invention belong to the inventor." The question here, according to the Court, is whether Congress acted to overrule that principle for federally funded inventions under the Bayh-Dole Act and automatically vest title in the federal contractor. The Court's opinion is that it does not.

The dispute arose when a research scientist at Stanford, who had signed (as part of his employment agreement) an agreement to assign to Stanford all federally funded inventions, performed research at Cetus and, as a condition for performing that work, signed an agreement to assign any inventions to the company. This work resulted in methods for detecting HIV virus in patient samples, which are used to assess the effectiveness of AIDS treatments. Stanford later obtained several patents on these inventions and sued Roche Molecular Systems (who had acquired Cetus) when the company marketed a diagnostic test that incorporated these methods. The Federal Circuit below made a distinction between an "agreement to assign" to Stanford and the agreement to Cetus, which read that the scientists "will assign and hereby assigns" all inventions to the company. For the appellate court, the language that the scientist "agreed to assign" to Stanford amounted to a promise to assign inventions not yet made and thus, under contract law, was insufficient to divest Cetus of title under the "will assign and hereby assigns" language of that agreement.

The Supreme Court affirmed, in an opinion by Chief Justice Roberts joined by all but Justices Breyer and Ginsberg (Justice Sotomayor filed a concurring opinion). In doing so, the Court did not pass judgment on the Federal Circuit's interpretation of contract law, however, but focused on the preclusive effect, if any, of the Bayh-Dole Act on the inventor's interests in the invention. The Court recited the several provisions of the Patent Act that require that an inventor is entitled to a patent (subject to the specific provisions of the Act; § 101); that the inventor must sign an oath or declaration attesting to inventorship (§ 115); and that a patent is issued to the inventor or the inventor's assignee (§§ 151, 152, and 261). The primacy of the inventor as patentee is supported by precedent cited by the Court, including Gayler v. Wilder, 10 How. 477, 493 (1851); Solomons v. United States, 137 U.S. 342, 346 (1890); United States v. Dubilier Condenser Corp., 289 U.S. 178, 188 (1933), and under treaty, according to the Court. While much of this same precedent supports the right of an inventor to assign rights to an invention to another, the patent right, ultimately, "must trace back to the inventor." Mere employment is not enough to convey title to an invention from the employee to the employer, "unless there is an agreement to the contrary," and thus the issue before the Court was whether (or which of) the agreements was effective in transferring title.

The Court characterizes the position taken by Stanford and the U.S. as amicus curiae, to be that Congress altered this traditional relationship regarding title to inventions made using monies from the Federal Government. The Court rejected this view, saying that when Congress intended to do so in the past it had done so expressly. The Court cited statutory provisions regarding nuclear energy (42 U.S.C. § 2182), NASA (51 U.S.C. § 20135(b)(1)) and the Department of Energy (42 U.S.C. § 5908) as examples of such express vesting of title of private patents to the U.S. Such express language is "notably absent" from the Bayh-Dole Act, according to the Court, which stated that:

Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions. Instead, the Act provides that contractors may "elect to retain title to any subject invention." 35 U. S. C. §202(a).

The Court noted that, under § 201(e), "[a] 'subject invention' is defined as 'any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.'" The Court explicitly rejected Stanford's reading of the phrase "invention of the contractor" to perform the vesting function, saying that to do so would "assume that Congress subtly set aside two centuries of patent law in a statutory definition" and would render the phrase "of the contractor" superfluous. By this interpretation, the Act is limited to those inventions "owned by or belonging to the contractor," which would require assignment from the inventor to the university in order to be satisfied. While noting that Stanford's reading of the phrase "the invention of the contractor" to mean "all inventions made by the contractor's employees is 'plausible in the abstract,'" the opinion expressly rejected the analogy with the products of other employees in other contexts (such as automobile manufacturing), saying that "patent law has always been different." The Court rejected the idea that employment is enough, absent an agreement, to vest ownership of a patented invention. The language of the Act specifying that the contractor can elect to retain title supports this view, in the Court's opinion, saying that "you cannot retain something unless you already have it," citing as an example Alaska v. United States, 545 U.S. 75, 104 (2005). In the Court's opinion, "[t]he Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have."

The opinion contains two other important statements. First (and in a footnote), the Court rejects the dissent's assertion that Executive Order 10096 acts to vest title in the government, saying that this Executive Order applies to federal employees, and that recipients of federally funded contracts are not federal employees. Second, the Court rejected the interpretation that § 210 of the statute, which states that "it 'take[s] precedence over any other Act which would require a disposition of rights in subject inventions . . . that is inconsistent with' the Act" displaces the inventor's rights in favor of the university. This can happen only with regard to "subject inventions," which the Court interprets to mean "inventions of the contractor," i.e., only after an inventor has assigned rights in the invention to the university. This argument leads to the second statement: the Court finds that the Act is limited to the "order of priority rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more." The Court says that this interpretation is supported by the absence of any provisions regarding third parties "that have neither sought nor received federal funds" such as Roche. The absence of such remedies "would be deeply troubling," according to the opinion, "[i]n a world in which there are frequent collaboration between private entities, inventors and federal contractors." The opinion also states that Stanford's interpretation would vest title in inventions "even if the invention was conceived before the inventor became a University employee, so long as the invention's reduction to practice was supported by federal funding," and that title would vest in the university "even if only one dollar of federal funding was applied towards the invention's conception or reduction to practice."

Finally, the opinion reviews other portions of the Act, such as § 202(d), which relate to the inventor "retaining" rights to the subject invention if the university declines to retain title. The use of the word "retention" in the statute "would be odd," says the Court, if the inventor did not have rights in the invention to retain.

Justice Breyer's (at right) dissent is based on his belief that the answer to the question presented to the Court "turns on matters that have not been fully briefed (and are not resolved by the opinion of the Court)." In an opinion further supporting the Justice's role as this Court's Justice Douglas when it comes to patents (going so far as citing Heller and Eisenberg's discredited (by experience) "tragedy of the anticommons" article published more than a dozen years ago), the dissent sets forth a dichotomy. On the one hand, the Justice writes, patents "help to elicit useful inventions and research and [] assure public disclosure of technological advances." On the other hand, patents "sometimes mean unnecessarily high prices or restricted dissemination . . . [that] sometimes discourage further innovation and competition by requiring costly searches for earlier, related patents or by tying up ideas, which, were they free, would more effectively spur research and development."

The dichotomy is given historical personification, between Jefferson discussing the "embarrassment of an exclusive patent" and Madison favoring a "'patent monopoly'" as "'compensation for' a 'community benefit.'" Accordingly, the Justice is concerned about situations where the public must "pay twice" for inventions produced using federal funding. In support of these concepts, he cites statutory provisions form before Bayh-Dole was enacted, which it should be recognized reflect a situation that the Act was intended (in part) to change, because it limited the capacity for publicly supported research to be commercialized. Justice Breyer recognizes these pubic policy concerns -- he states in his opinion that the desire to "encourage those institutions to commercialize inventions that otherwise might not realize their potentially beneficial public use" constitutes "a special public policy reason" expressly recited in the Act (§ 200).

These concerns inform Justice Breyer's reticence to join the majority in permitting an inventor to assign an invention made using federal funds to a third party, "thereby taking that invention out from under the Bayh-Dole Act's restrictions, conditions, and allocation rules." To do so would be "inconsistent with the Act's basic purposes" and could "significantly undercut the Act's ability to achieve its objectives." The detriment to the public would be to permit a situation where an invention for which the public has paid would "avoid the Act's . . . restrictions and conditions" and (paradoxically) "makes the commercialization and marketing of such an invention more difficult" due to questions about title like the ones raised in this case.

Justice Breyer's dissent concentrates on the contract law interpretations of the Federal Circuit and, since he disagrees with them, would use that as the basis for reversing the decision below and remanding. He notes that the Federal Circuit had relied upon an earlier opinion of that Court, FilmTec Corp. v. Allied-Signal, Inc., 939 F. 2d 1568 (1991), for the principle that "'[o]nce the invention is made and [the] application for [a] patent is filed, . . . legal title to the rights accruing thereunder would be in the assignee [i.e., Cetus] . . . , and the assignor-inventor would have nothing remaining to assign.'" In Justice Breyer's opinion, this makes "too much of too little," since the scientist's agreement with Stanford "conveyed equitable, but not legal, title," and that under the circumstances of this case, equitable title would be all that the scientist could have conveyed to Cetus as well (relating to "present assignment of future inventions"). And "as between these two claims in equity," Justice Breyer would vest title in Stanford, because its equitable interest arose first and Stanford thereafter obtained express assignment of the inventions.

In Justice Breyer's view, the FilmTec case was decided with "no explanation for what seems a significant change in the law" and its application to this case "undercuts the objectives of the Bayh-Dole Act." Indeed, the Justice characterized the Federal Circuit's decision as producing "a technical trap for the unwary."

Justice Breyer is careful to note that his views are 'tentative" because these issues were not briefed and were not the basis for the Court's decision. However, although he doesn't believe the majority opinion "forecloses" these issues being raised by "similarly situated part[ies]" in a future case, since he believes they are important, he dissents. Justice Sotomayor writes separately to concur because she, too, believes that these issues need to be considered when again properly raised.

The real world consequences of the Court's decision today should be minimal, provided the Court is correct regarding the "common practice among parties operating under the Act." These include policies to obtain assignments from inventor-employees and requirements (or at least expectations) from funding agencies that such assignments will be routinely obtained (the Court cited policy provisions promulgated by the NIH). While this may be true, for university clients it is important to review such policies, not only to ensure they are in compliance with federal funding agency requirements but that university personnel (professors, students, and researchers) are aware of their obligations. The Court's decision may not have, in fact, increased the burden on universities to protect these inventions, but it increases the vigilance that technology transfer offices and university officials must exercise in order to prevent loss of rights to third parties. And it should not escape our notice that the Court's emphasis on the primacy of the inventor as a Constitutional limit on the powers of Congress in the exercise of the patent grant suggests that attempts to change U.S. Patent Law to a "first to file" system may not meet the standard set forth by the Supreme Court today.

Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (2011)
Opinion of the Court by Chief Justice Roberts, joined by Justices Scalia, Kennedy, Thomas, Alito, Sotomayor, and Kagan
Concurring opinion by Justice Sotomayor
Dissenting opinion by Justice Breyer, joined by Justice Gisburg

Posted at 11:25 PM in Supreme Court | Permalink | Comments (1) | TrackBack (0)

May 31, 2011

Global-Tech Appliances, Inc. v. SEB S.A. (2011)

Supreme Court Renders Opinion on Induced Infringement

By Kevin E. Noonan --

The Supreme Court issued its opinion today in Global-Tech Appliances, Inc. v. SEB S.A., affirming the Federal Circuit decision upholding a jury verdict that defendants were liable for inducing infringement. As was the case in Bilski v Kappos, the opinion today spends little time discussing why the Federal Circuit decision was correct. Instead, it concerns itself with construing the inducement statute and criticizing the appellate court for applying the wrong standard to arrive at the right result. In doing so, the High Court evinces again its penchant for reaching far afield (here, criminal law) for principles that permit it to criticize the Federal Circuit in the exercise of its role in defining the contours of U.S. patent law, its recognized area of expertise.

Here, the Federal Circuit was confronted with the following factual situation. The District Court had upheld (by denying defendants' motion for judgment as a matter of law) a jury verdict that defendants were liable for inducing infringement of the patent-in-suit. The facts supporting this decision were these:

• Defendants had copied "all but the cosmetics" of one of patentee's commercially available deep fryers;

• The copied article was purchased (and copied) outside the country, where no U.S. patent markings were placed on the article;

• Defendants obtained an opinion of counsel regarding freedom to operate, but did not inform the patent attorney performing the patent search that the article had been copied;

• Defendant's president was "well versed" in U.S. patents (holding several himself) and was aware that the patentee was also "cognizant of patent rights" from prior dealings; and

• There was no exculpatory evidence that defendants had any actual belief that the copied article was not protected by a patent.

The Federal Circuit, in an opinion by (then) Circuit Judge Rader joined by Circuit Judges Bryson and Linn, recognized that there was no direct evidence that defendants were aware of a patent, and yet this pattern of behavior is certainly suggestive that the defendants had done everything they could to remain ignorant of the existence of any patent covering the copied product. In this absence of evidence of actual knowledge the panel turned to Supreme Court precedent, applying the "deliberate indifference" standard. This standard, adopted from "a different civil context" was "not necessarily a 'should have known' standard," since "[t]he latter [i.e., the "should have known" standard] implies a solely objective test, whereas the former may require a subjective determination that the defendant knew of and disregarded the overt risk that an element of the offense existed," citing Farmer v. Brennan, 511 U.S. 825, 840 (1994). Expanding on how the panel applied this test, the opinion stated that "an accused infringer may defeat a showing of subjective deliberate indifference to the existence of a patent where it shows that it was genuinely 'unaware even of an obvious risk'" and that "the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge," citing examples from its sister circuits. Thus, contrary to its traditional tendency to establish objective, bright-line tests that can be clearly understood by patentees and accused infringers alike (and after a decade of Supreme Court reversals of their efforts), the Federal Circuit applied a subjective test for inducing infringement that defendants clearly satisfied. The panel was even careful to eschew any interpretation that the opinion was intended to be definitive:

This opinion does not purport to establish the outer limits of the type of knowledge needed for inducement. For instance, a patentee may perhaps only need to show, as Insituform []Techs., Inc. v. CAT Contracting, Inc., 161 F.3d 688, 695 (Fed. Cir. 1998) suggests, constructive knowledge with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement in § 287(a) . . . . This court does not set those boundaries now, just as it did not set them in DSU Med. [Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc)].

These efforts did not satisfy the Supreme Court. Writing for an 8-1 majority (with dissenting Justice Kennedy espousing an even more stringent "actual knowledge" standard), Justice Alito first parsed 35 U.S.C. § 271(b) for exactly what knowledge the accused infringer needed to possess: whether it is just that "the inducer lead another to engage in conduct that happens to amount to infringement" or whether the inducer knows that the induced conduct is infringing. The statute is unclear, or at least ambiguous, according to the Court, since it can be sensibly read either way. The Court found the case law to be equally unavailing, since cases prior to enactment of § 271 as part of the 1952 Patent Act included under "inducing infringement" conduct now codified as inducing infringement (§ 271(b)) and contributory infringement (§ 271(c)). Reviewing those cases, the opinion finds that what is now called contributory infringement was "more common" but that the cases contain "conflicting signals" as to the nature and extent of the required knowledge.

The Court finds precedential its decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476 (1964), where the Court found that contributory infringement under § 271(c) required that an infringer "must know 'that the combination for which his component was especially designed was both patented and infringing," despite the Court's characterization that Aro was "a badly fractured decision"; indeed, the principle relied upon by the Court was contained in Justice Black's dissent (because he disagreed with the judgment; however, he was in the majority with respect to the interpretation of § 271(c), and his opinion sets out the reasoning of the majority on this point). This decision had stare decisis effect, because "[t]he 'holding in Aro II has become a fixture in the law of contributory infringement under [section] 271(c),'" citing 5 R. Moy, Walker on Patents § 15:20, p. 15–131 (4th ed. 2009). Further, the opinion noted that respondent SEB "has not asked us to overrule it" and that "Congress has not seen fit to alter §271(c)'s intent requirement in the nearly half a century since Aro II was decided." The Court thus assessed the meaning of § 271(b) "on the premise that §271(c) required actual knowledge of the patent that is infringed." Using this premise, the Court finds that "the same knowledge is needed for induced infringement under §271(b)," in view of the "common origins" of the two statutory provisions and their similar language. "It would thus be strange to hold that knowledge of the relevant patent is needed under §271(c) but not under §271(b)," Justice Alito concludes.

Having determined that some knowledge regarding infringement was required, the majority then turned to the quality and quantity of that knowledge. Without extensive comment on their reasoning, the majority states baldly that, in the absence of evidence of actual knowledge (which would satisfy the statutory requirement), "we agree [with defendant-petitioner] that deliberate indifference to a known risk that a patent exists is not the appropriate standard under §271(b)." Instead, the opinion adopts the "willful blindness" doctrine from criminal law as the appropriate standard. This standard requires "(1) the defendant must subjectively believe that there is a high probability that a fact exists [here, presumably, the existence of a patent] and (2) the defendant must take deliberate actions to avoid learning of that fact." As applied in the criminal law, "defendants cannot escape the reach of these statutes [that require knowing or willful acts] by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances" and thereby are as culpable as defendants who have "actual knowledge." Citing the ALI Model Penal Code, § 2.02(7), the standard includes "a situation in which 'a person is aware of a high probability of [the fact's] existence, unless he actually believes that it does not exist.'" The Court further defines how the concept of willful blindness is to be applied by stating that it "surpasses recklessness and negligence," because "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known of the critical facts," citing G. Williams, Criminal Law § 57, p. 159 (2d ed. 1961). The opinion contrasts this level of culpability with recklessness, where the defendant "merely knows of a substantial and unjustified risk of such wrongdoing," citing ALI Model Penal Code § 2.02(2)(c) (1985), and with negligence, where the defendant "should have known of a similar risk but, in fact, did not," citing ALI Model Penal Code § 2.02(2)(d).

The Court's opinion states that the Federal Circuit test departs from the proper willful blindness standard in two important respects:

First, it permits a finding of knowledge when there is merely a "known risk" that the induced acts are infringing. Second, in demanding only "deliberate indifference" to that risk, the Federal Circuit's test does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.

Despite these criticisms, the majority upheld the Federal Circuit's decision affirming the District Court judgment below that defendants were liable for inducing infringement.

Reviewing the two opinions, the Supreme Court clearly believes that the difference in their approach and the standard applied by the Federal Circuit is that willful blindness requires not only the existence of a known risk but a high probability of that risk that is appreciated by the defendant, coupled with active efforts by the defendant to avoid knowing that the induced activities are infringing. The latter is subject to objective evidentiary support, being based on conduct that can be interpreted regarding its intent. The former requirement, however, is expressly subjective and perhaps not as amenable to competent proofs sufficient to establish infringement. In this sense, the Court's opinion has increased the burden on patentees to enforce their patent rights.

In a biotech/pharma context, the effects of the opinion may be less negative. For pharmaceutical products regulated by the FDA, the Orange Book provides not only actual notice but would be expected to vitiate any claim that an accused defendant did not appreciate the existence of the risk of patent infringement; the complex patent infringement portions of the recently enacted "follow-on biologics" approval pathway similarly make lack of appreciation of the known risk an unlikely defense. In other aspects, particularly regarding method claims, the Court's decision may indeed make inducing infringement a less likely source of protection against infringement.

A careful consideration of the Court's opinion reveals parallels between the types of factual situations that arise in the inducing infringement context with another aspect of patent law where an accused malefactor's subjective knowledge and intent are at issue -- inequitable conduct. While perhaps resulting in a different outcome, the application of the willful blindness standard to inducing infringement has obvious analogies with the question of the intent required to show a patentee's intent to deceive by failing to disclose information or references material to patentability. There are certainly distinctions, in view of the "special relationship" traditionally recognized between the PTO and patent applicants and the duty of candor imposed upon applicants by Rule 56 and Supreme Court precedent, compared with a third-party infringer and the question of whether the existence of a patent and induced infringement thereof can be established by a patentee. However, in both instances the accused's behavior and the intent of that behavior is at issue; it may be profitable to assess, in each instance, whether the principles enunciated today regarding the standard for inducing infringement may be adopted to defeat a charge of inequitable conduct.

Global-Tech Appliances, Inc. v. SEB S.A. (2011)
Opinion of the Court by Justice Alito, joined by Chief Justice Roberts and Justices Scalia, Thomas, Ginsburg, Breyer, Sotomayor, and Kagan;
Dissenting opinion by Justice Kennedy.

Posted at 11:59 PM in Infringement - Contributory or Induced, Supreme Court | Permalink | Comments (2) | TrackBack (0)

May 16, 2011

Cert. Denied in Eli Lilly v. Sun Pharmaceuticals

By Kevin E. Noonan --

The Supreme Court refused today to grant certiorari in Eli Lilly & Co. v. Sun Pharmaceutical Industries, Ltd. on the question of obviousness-type double patenting. In doing so, the Court let stand precedent that seriously expands the scope of the obviousness-type double patenting standard, turning a legal principle that was "clear" to one "distorted by divergent statements[] leading to [a] flawed ruling," according to Judge Newman (joined by Judges Lourie and Linn and Chief Judge Rader) in dissent from denial of Eli Lilly's petition for rehearing en banc.

To recap, a Federal Circuit panel (opinion by Judge Prost, joined by Judges Gajarsa and Bryson) affirmed the District Court judgment that claims of Eli Lilly's U.S. Patent No. 5,464,826 ("the '826 patent) were invalid for obviousness-type double patenting over another Lilly patent, U.S. Patent No. 4,808,614 ("the '614 patent") (see Patent Docs report). The '614 patent claims gemcitabine, and methods of using gemcitabine to treat viral infections, while the '826 patent claims methods of using gemcitabine for treating cancer. Eli Lilly markets the drug GEMZAR®, which contains gemcitabine as the active ingredient, for the treatment of various forms of cancer. Accordingly, both the '614 and '826 patents were listed in the Orange Book with respect to GEMZAR®. Sun filed an ANDA in 2006 to market a generic version of GEMZAR®, and filed a declaratory judgment action in 2007, asserting, among other things, that the '826 patent was invalid. The U.S. District Court for the Eastern District of Michigan granted Sun's motion for partial summary judgment that the asserted claims of the '826 were invalid based on obviousness-type double patenting.

The history of these patents and their interrelationship were important factors leading to the panel decision. The '614 patent was a continuation-in-part of a priority patent that disclosed gemcitabine and its antiviral activity. The application that eventually gave rise to the '614 patent contained additional disclosure regarding the anticancer activities of gemcitabine but contained no claims to this activity. The '826 patent, in an application filed on the same day as the application that resulted in the '614 patent, both disclosed and claimed this activity and methods for exploiting the anticancer properties of gemcitabine in methods for treating cancer with the drug. Thus, the '614 patent was entitled to the priority claim to the original patent while the '826 patent was not.

The panel opinion relied on two earlier cases, Geneva Pharm., Inc. v. GlaxoSmithKline PLC, 349 F.3d 1373 (Fed. Cir. 2003), and Pfizer, Inc. v. Teva Pharm. USA, Inc., 518 F.3d 1353 (Fed. Cir. 2008) in deciding that the '826 claims were invalid over the '614 patent in obviousness-type double patenting grounds. These cases can be distinguished, however, since in both cases the specifications disclosed one and only one activity (or use) for the claimed compound, not (as here) an additional, new use. Also, the panel used what was disclosed, rather than just what was claimed in the '614 patent in making its obviousness-type double patenting rejection of the '826 patent, and this is where the opinion veered significantly from prior precedent. In doing so, the panel created a per se rule of obviousness-type double patenting that, while promoting certainty also "upsets the settled expectations of the patenting community" by significantly expanding the scope of the obviousness-type double patenting doctrine.

Specifically, under the rule established by the panel opinion, if the earlier of two co-owned patents includes claims to a compound and discloses one or more uses for the compound in the specification, under the Federal Circuit's ruling any claim(s) in a later patent to any method of use disclosed (but not claimed) in the specification of the earlier patent are per se invalid based on obviousness-type double patenting. This rule is contrary to prior case law, both in removing flexibility in considering the effect of the later patent on "improperly extending 'protection, beyond the date of expiration of the [earlier] patent, of the very same invention claimed therein . . . or of a mere variation of that invention which would have been obvious to those of ordinary skill in the relevant art,'" In re Kaplan, 789 F.2d 1574, 1579-80 (Fed. Cir. 1986), but also by collapsing the obviousness-type double patenting analysis into obviousness under 35 U.S.C. § 103 (using the patentee's own prior patent as if it were prior art under 35 U.S.C. § 102). This constitutes a new, non-statutory type of prior art, a patentee's own prior patent application that was not "by another" and did not constitute a statutory bar (i.e., the patentee's own earlier work disclosed more than a year before the later application's filing date). This is expressly contrary to the Federal Circuit's earlier precedent, e.g., General Foods Corp. v. Studiengesellschaft Kohle mbH, 972 F.2d 1272 (Fed. Cir. 1992), that a commonly owned, prior patent disclosure cited in support of a double patenting rejection cannot be used as though it were prior art. Specifically, the earlier-filed patent disclosure is not to be considered in making an obviousness-type double patenting rejection. In re Kaplan, 789 F.2d 1574 (Fed. Cir. 1986).

Despite this disjunction between prior precedent and the panel opinion, the Federal Circuit declined to rehear the case en banc, in a 5-4 ruling from a diminished number of active judges. Thus, Eli Lilly's only recourse was to appeal to the Supreme Court; however, consideration by the Court was unlikely, for several reasons. First, the Supreme Court is a generalist court interested in the more significant, "high profile" cases that have characterized the Court's patent jurisprudence for the past decade (including KSR Int'l Co. v. Teleflex Inc., eBay Inc. v. MercExchange, LLC, Quanta Computer, Inc. v. LG Electronics, Inc., Microsoft Corp. v. AT&T Corp., Dickinson v. Zurko). The obviousness-type double patenting doctrine lies deep in the minutiae of patent law and was unlikely to attract the Court's attention. The Court also takes interest in patent law questions from the Federal Circuit where the court seems divided (such as Warner-Jenkinson Co. v. Hilton Davis Chemical Co. and Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.). This question was important (for the pharmaceutical industry in general) but it will take the Federal Circuit in its entirety to choose a case where the irregularities introduced into this important patent law doctrine will be set straight.

Patent Docs filed an amicus case in support of certiorari in this case.

Posted at 11:46 PM in Double Patenting, Supreme Court | Permalink | Comments (5) | TrackBack (0)

March 24, 2011

Supreme Court Increases Disclosure Burdens on Pharma Companies

By Kevin E. Noonan --

As it has done in other areas of the law recently (such as Bell Atlantic Corp. v. Twombly), the Supreme Court on Tuesday addressed the requirements for pleadings sufficient to survive a motion to dismiss a complaint for securities law violations, in Matrixx Initiatives Inc. v. Siracusano. The Court's decision provides a reasoned basis for where it decided to draw the line for such pleadings. However, by engaging in its penchant for "totality of the circumstances" analyses, its decision did little to clarify the behaviors pharmaceutical companies should exhibit to avoid the kinds of liability that Matrixx will be put at risk at trial.

The case involved Zicam Cold Remedy, an over-the-counter zinc gluconate formulation used to combat the common cold that was responsible for about 70% of the company's sales. During the relevant time period, Matrixx was alleged to have become aware from several sources of a serious side effect of using Zicam, specifically anosmia or loss of the sense of smell. In 1999, a customer service representative was told by the neurological director of the Smell & Taste Treatment and Research Foundation, Ltd. that a "cluster of patients" had suffered from anosmia after using Zicam to treat their cold symptoms (and including an individual who did not have a cold when she used the product). Three years later, the company's Vice President for Research and Development contacted a scientist, Dr. Miriam Linschoten, at the University of Colorado Health Sciences Center after receiving a complaint about Zicam-induced anosmia, and the scientist recounted the results of "previous studies linking zinc sulfate [a different zinc-containing compound] to loss of smell." This scientist followed up with abstracts from these studies, dating from the 1930's and 1980's that "confirmed '[z]inc's toxicity.'" And about a year later, one of Dr. Linschoten's colleagues, Dr. Jafek, "observed 10 patients suffering from anosmia after Zicam use," and together these scientists prepared a poster for presentation at a meeting of the American Rhinologic Society. Upon hearing of these plans, the company warned the scientists that they did not have permission to use the Matrixx company name or the names of the company's products (Zicam) and the scientists deleted this information from their poster presentation. Shortly thereafter, two patients sued Matrixx in a products liability lawsuit based on Zicam-related anosmia; this number had increased to nine patients and four lawsuits by the end of the relevant time period in this case.

According to plaintiff/respondent investors, Matrixx reacted to these events with a series of public statements that were misleading and amounted to securities fraud. These statements related in large part to the company's financial prospects, including estimates that "revenues 'would be up in excess of 50%'" as well as similar predictions regarding share earnings for investors. Later, the company increased its rosy forecast to have revenues increasing by 80%. The company acknowledged the products liability suits in required SEC filings (Form 10-Q) but did not disclose that such suits had already been filed. In addition, the company responded to a Dow Jones Newswires story relating to reports of anosmia as a consequence of Zicam use (and the concomitant drop in share price by almost 12%) by releasing a statement that the company believed the allegations that Zicam use caused anosmia were "completely unfounded and misleading," further stating that:

In no clinical trial of intranasal zinc gluconate gel products has there been a single report of lost or diminished olfactory function (sense of smell). Rather, the safety and efficacy of zinc gluconate for the treatment of symptoms related to the common cold have been well established in two double-blind, placebocontrolled, randomized clinical trials. In fact, in neither study were there any reports of anosmia related to the use of this compound. The overall incidence of adverse events associated with zinc gluconate was extremely low, with no statistically significant difference between the adverse event rates for the treated and placebo subsets.

A multitude of environmental and biologic influences are known to affect the sense of smell. Chief among them is the common cold. As a result, the population most likely to use cold remedy products is already at increased risk of developing anosmia. Other common causes of olfactory dysfunction include age, nasal and sinus infections, head trauma, anatomical obstructions, and environmental irritants.

These statements resulted in an almost complete rebound of Matrixx's share price. The share price plummeted even further, however, (by over one-quarter of their value) when Good Morning America aired a segment highlighting Dr. Jafek's research results relating Zicam use to anosmia and disclosing the existence of four product liability lawsuits. Matrixx persisted in its public statements that the link between Zicam use and anosmia was without merit, and filed documents (SEC Form 8-K) that it had convened a scientific panel that had concluded that there was "insufficient scientific evidence" that Zicam affected sense of smell in users. These statements formed the basis of plaintiff/respondents' complaint.

Plaintiff/respondents brought a class action lawsuit for securities fraud under Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, codified at 17 C.F.R. § 240.10b.5, for actions and statements by the company made between October 22, 2003 and February 6, 2004, which were allegedly misleading based on Matrixx's knowledge of the adverse events. The District Court dismissed, based on a failure of plaintiffs to allege a "statistically significant correlation between [Zicam use] and anosmia," which made the failure to disclose the University of Colorado study insufficient to be a material omission. The District Court also held that plaintiffs did not plead scienter with sufficient specificity. The Ninth Circuit reversed, holding that the District Court erred in requiring statistical significance and that Matrixx's actions constituted a "strong inference of scienter." The Supreme Court granted certiorari and affirmed the District Court.

Writing for a unanimous Court, Justice Sotomayor started with the language of the statute, that Section 10(b), Securities and Exchange Act and SEC Rule 10b-5 made it unlawful for "any person" to "make any untrue statement of a material fact or to omit to state a material fact necessary . . . to make the statements . . . not misleading." The standard for prevailing in a complaint for securities fraud under the statute is "'(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation,'" citing Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008). Here, Matrixx had alleged that plaintiff/respondents had not plead the material misrepresentation/omission element and the scienter element, both based on the failure to allege that Matrixx had statistically significant evidence linking Zicam use with anosmia.

The Court categorically rejected the view that a material misrepresentation/omission required this level of scientific evidence. Citing Basic Inc. v. Levinson, 485 U. S. 224, 236 (1988), the materiality requirement can be satisfied "when there is "'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.'" The intention, according to the Court's opinion, was to enunciate a standard that would not encourage a company to "bury the shareholders in an avalanche of trivial information," which would presumably be just as harmful to an investor as a failure to disclose. The Court cited Basic for the proposition that materiality, which is an inherently fact-specific element, should not be decided on the basis of any "single fact or occurrence," because that approach would be "necessarily [] overinclusive or underinclusive." The Court characterized Matrixx's position as requiring a "bright-line rule" for materiality in securities fraud actions relating to adverse event reports for pharmaceuticals, i.e., to require statistically significant evidence thereof before a disclosure requirement was triggered under the securities laws. Behind this position was the idea that "reasonable investors would not consider such [adverse event] reports relevant unless they are statistically significant," because otherwise such "anecdotal" reports could not "'reflect a scientifically reliable basis for inferring a potential causal link between product use and adverse event."

The Court in rejecting this argument asserted that under such a bright-line standard information that "would otherwise be considered significant to the trading decision of a reasonable investor" would be "artificially exclude[ed]," because such a standard "rests on the premise that statistical significance is the only reliable indication of causation." "This premise is flawed," according to the Court, because there are "multiple factors" that medical researchers use to assess causation (citing the government's amicus curiae brief). In some cases, statistically significant data is simply not available, such as when an adverse event is "subtle or rare," the Court states, citing an amicus brief from the Medical Researchers, or "ethical concerns" may preclude the kinds of clinical studies necessary to establish statistical significance. The Court noted a plethora of other "relevant factors" for assessing adverse events, including "the strength of the association between the drug and the adverse effects; a temporal relationship between exposure and the adverse event; consistency across studies; biological plausibility; consideration of alternative explanations; specificity (i.e., whether the specific chemical is associated with the specific disease); the dose-response relationship; and the clinical and pathological characteristics of the event," citing defendant/petitioners and an amicus brief for the Consumer Healthcare Products Assn. et al.; these are also factors that the FDA takes into account before "taking action against pharmaceutical products" according to the Court, citing the FDA Guidance for Industry: Good Pharmacovigilance Practices and Pharmacoepidemiologic Assessment 18 (2005). Further citing FDA standards, the opinion noted that the Agency frequently takes action (such as requiring warning labels) "as soon as there is reasonable evidence of an association of a serious hazard with a drug" without requiring that causation has been established. Indeed, in this case the FDA issued a warning letter (in 2009) that "[a] significant and growing body of evidence substantiates that the Zicam Cold Remedy intranasal products may pose a serious risk to consumers who use them" based on evidence of 130 adverse event reports of anosmia as well as scientific journal articles.

In view of the fact that "medical professionals and regulators act on the basis of [scientific] evidence of causation that is not statistically significant," the Court asserted that it "stands to reason" that the reasonable investor might also be able to do so. Thus, the question of the materiality of such information, and whether it needs to be disclosed under the securities laws is "fact-specific" and requires an assessment of "the source, content and context of the reports" -- in other words, the totality of the circumstances surrounding the evidence of adverse events (designated in Basic and cited here with approval as the "total mix" standard). The opinion noted that it does not intend to interpret the securities laws as "creating an affirmative duty to disclose any and all material information," including adverse event information but only that information that is necessary to make statements not misleading. "Even with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market."

Here, the Court held that plaintiff/respondents had adequately plead materiality based on the totality of the circumstances surrounding Matrixx's statements (noting in Footnote 10 that this conclusion "accords with the views of the SEC" as evidenced by the Commission's amicus brief).

The opinion turns but briefly to the question of whether plaintiff/respondents adequately plead the scienter element, noting that Matrixx argued "in summary fashion" that the absence of statistical significance was sufficient to defeat this prong of the required pleading. The Court disagreed, stating that the inference that Matrixx acted "recklessly (or intentionally, for that matter) is at least as compelling, if not more compelling, than the inference that it simply thought the reports did not indicate anything meaningful about adverse reactions" to Zicam administration. The Court noted the company's actions both to investigate the alleged connection between Zicam and anosmia and to suppress this information, as well as its statements "suggested that studies had confirmed that Zicam does not cause anosmia when, in fact, it had not conducted any studies relating to anosmia and the scientific evidence at that time, according to the panel of scientists, was insufficient to determine whether Zicam did or did not cause anosmia." The totality of these circumstances (or "[t]hese allegations 'taken collectively'") was enough for the Court to conclude that plaintiff/respondent's allegations of scienter in their pleadings were sufficient to withstand a motion to dismiss (but "[w]hether respondents can ultimately prove their allegations and establish scienter is an altogether different question").

While not an unreasonable conclusion, the Court's decision imposes additional and unpredictable burdens on pharmaceutical companies even under conditions that may on their face appear less egregious than in this case. With regard to materiality, the "totality of the circumstances" standard replaces a scientific basis for assessing the significance of adverse events with a court's ex post facto view of what should or should not have been disclosed. There are certainly instances where the circumstances will make such a determination readily apparent, but there will also be others where some objective standard is not only necessary but also responsible if drugs are to timely come to market. While not discounting the deleterious consequences of some adverse events, it is not possible for any pharmaceutical to have no adverse events; the standard must take into account the frequency and severity of such adverse events in balancing the relative good with harm for any particular drug. Statistical significance is one but not the only standard, as the Court rightly concludes, but it has the advantage of being an objective basis that can be successfully used to distinguish from the merely anecdotal. It is foolish not to recognize that courts by necessity act well after the fact, and it is perhaps easier to assess the "totality of the circumstances" from their viewpoint. This decision does not reach the merits, but it does illustrate that eschewing scientific standards for judicial second-guessing can be fraught with unforeseen and unnecessary dangers for pharmaceutical companies and their customers alike.

Posted at 11:59 PM in Miscellaneous, Supreme Court | Permalink | Comments (2) | TrackBack (0)

March 07, 2011

Supreme Court Refuses to Review Reverse Payments

By Kevin E. Noonan --

The Supreme Court today denied certiorari in Louisiana Wholesale Drug Co. v. Bayer AG (decided below as In re Ciprofloxacin Antitrust Litigation; see also "Second Circuit Denies En Banc Reconsideration in Cipro® Case"). According to the Court's website, neither Justice Sotomayor nor Justice Kagan participated in the decision.

The case arose from the Second Circuit's decision that a "reverse payment" agreement between Bayer and Barr Laboratories was not illegal under the antitrust laws. Bayer holds U.S. Patent No. 4,670,444 claiming generically certain antibiotic drugs, and specifically ciprofloxacin hydrochloride that Bayer sells as Cipro®. Barr filed an Abbreviated New Drug Application (ANDA) containing a Paragraph IV certification that the '444 patent was invalid and unenforceable. Before trial, Bayer and Barr settled the litigation, entering into agreements providing that none of the defendants would challenge the validity or enforceability of the '444 patent, and that Barr would convert its Paragraph IV certification to a Paragraph III and not market its generic Cipro® until the '444 patent expired. Importantly, the agreements contained a provision that Bayer would sell Cipro® to Barr for resale or make quarterly payments ("reverse payments") until December 31, 2003. In return, Barr agreed not to sell a generic version of Cipro® until at least six months before the '444 patent expired. It is undisputed that Bayer had paid Barr a total of $398 million under this agreement. Similar agreements were also made between Bayer and other generic drug makers, including The Rugby Group and Watson Pharmaceuticals, Inc.

The Federal Circuit heard a portion of this case under a Walker Process antitrust claim, based on the willful assertion of an unenforceable patent, pursuant to Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), finding that the "reverse payment" agreement was not per se illegal under antitrust law. A coalition of patient groups, trade unions and pharmacies brought suit in the Eastern District of New York sounding solely in antitrust. The Court, bound by the Second Circuit's precedential Tamoxifen decision (In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187, 208-12 (2d Cir. 2005)), that such reverse payments were not per se illegal, granted summary judgment to defendants. The original appellate panel, similarly bound by the Tamoxifen precedent, affirmed (see Patent Docs post), in a decision that urged the plaintiffs to petition for rehearing en banc. That petition was denied (see Patent Docs post), and the certiorari petition followed.

Several groups had filed amicus briefs recommending the certiorari petition be granted, including:

• The American Antitrust Institute (brief)

• States of California, Arizona, Arkansas, Delaware, Florida, Mawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Oklahoma, Ohio, Oregon, South Carolina, Tennessee, Texas, Utah, Vermont, Washington, Wet Virginia and Wyoming (brief)

• 86 Intellectual Property Law, Antitrust Law, Economics, Business and Public Health Professors, written by Mark Lemley (brief)

• Consumer Federation of America, Prescription Access Litigation LLP, The National legislative Association of Prescription Drug Prices and U.S. PIRG (brief)

• AARP (brief)

• Public Patent Foundation (brief)

• National Association of Chain Drug Stores, Inc. (brief)

The basis of many of these arguments is that so-called "reverse payments" should be per se illegal under the Sherman Act, a position also espoused by Federal Trade Commission. (PubPat's brief, in keeping with a general theme, contains as a unique basis for opposing reverse payments the "extremely poor" quality of U.S. patents.) Indeed, the Commission is almost monomaniacal on the subject, going so far as to manipulate venue in an attempt to create a circuit appellate court split to "encourage" the Court to hear their arguments (see "FTC Continues Attempt to Block Reverse Payments"). The FTC issued a Report (see "FTC Disapproves of 'Pay-for-Delay' Drug Deals"), which provided data that there have been 53 reverse payment-containing agreements that had cost consumers "approximately $3.5 billion per year" (by FTC estimates, which may be flawed; see Patent Docs report).

This stance is in contrast to the decisions of several courts of appeal, not only that these arrangements are not per se illegal, but that they frequently do not amount to an antitrust violation under the rule of reason (see "Reverse Payments in Generic Drug Settlements" - Part I, Part II, Part III). Those decisions found that not only were these agreements not anticompetitive but, in many instances, resulted in generic versions of patented drugs being available to consumers earlier than they would have been if the patentee had prevailed at trial.

The Court's decision maintains the status quo tension between the exclusivity arising under patent law and its counter prohibitions on restraint of free competition under antitrust law. Until the Court decides to hear a "reverse payment case," it can be expected that both the practice and the uncertainty about its legality will continue.

Posted at 11:29 PM in Hatch-Waxman, Supreme Court | Permalink | Comments (1) | TrackBack (0)

January 05, 2011

July 01, 2010

Bilski v. Kappos: What Effects on Biotechnology Patents?

By Kevin E. Noonan --

Although long-anticipated, the Supreme Court's opinion in Bilski v. Kappos did not provide much in terms of "pellucid" teachings regarding the metes and bounds of patent-eligible subject matter. Against this backdrop, the Court decided on Tuesday to grant certiorari, vacate the Federal Circuit's decision below, and remand to the appellate court two cases related to medical diagnostic claims: Prometheus Laboratories, Inc. v. Mayo Collaborative Services and Classen Immunotherapies, Inc. v. Biogen Idec. On earlier appeals, the Federal Circuit decided that the claims in Prometheus were patent-eligible under the "machine-or-transformation" (MOT) test, and that the claims in Classen were not. How the Federal Circuit decides these cases on remand, and whether its decision(s) change, will provide the first inklings of how the CAFC will implement whatever insights the Bilski decision may provide.

The types of claims in these cases and the grounds for the Federal Circuit's disparate decisions may be informative. In Prometheus, the claims recited methods for determining whether treatment for immune-related gastrointestinal disorders needed adjustment, i.e., whether the amount of a drug administered to treat the disorder should be changed. The asserted claims of the patents-in-suit specifically relate to methods for identifying the administered drug, thiopurine, or metabolites thereof, in red blood cells of a patient. Claim 1 of the '623 patent was cited in the Federal Circuit opinion as being representative:

A method of optimizing therapeutic efficacy for treatment of an immune- mediated gastrointestinal disorder, comprising:
    (a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and
    (b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,
    wherein the level of 6-thioguanine less than about 230 pmol per 8x10⁸ red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and
    wherein the level of 6-thioguanine greater than about 400 pmol per 8x10⁸ red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

The Federal Circuit reversed a finding by the District Court on summary judgment that the claims were not patent-eligible under 35 U.S.C. § 101 (as expressly influenced by Justice Breyer's dissent in Laboratory Corp. v. Metabolite Labs., Inc. ("LabCorp")). The Federal Circuit (in an opinion by Judge Lourie, joined by (then) Chief Judge Michel and the Honorable Ron Clark, District Judge of the U.S. District Court for the Eastern District of Texas, sitting by designation) held that the administering and determining steps, dismissed by the District Court as constituting mere "necessary data-gathering steps," were instead transformative and thus satisfied the transformation prong of the Bilski MOT test. Judge Lourie's opinion stated that "[t]he transformation is of the human body following administration of a drug and the various chemical and physical changes of the drug's metabolites that enable their concentrations to be determined." The Court found that these steps were essentially "method of treatment" steps, "which are always transformative when a defined group of drugs is administered to a body to alleviate the effects of an undesired condition" (emphasis added). A human body to which drugs such as thiopurines are administered "necessarily undergoes a transformation," the Court said, since "the drugs do not pass through the body untouched without affecting it," something the Court characterized as "the entire purpose of administering the drugs." The opinion rejected Mayo's contention that the transformations are the result of "natural processes" because "quite literally every transformation of physical matter can be described as occurring according to natural processes and natural law." But this transformation encompassing the administering step of the asserted claims are not "natural processes" according to the Court: "[i]t is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter (emphasis in the original text). Finally, the Federal Circuit opined that the District Court erred in deciding that Prometheus' asserted claims "wholly preempted" the use of correlations between metabolites of thiopurine drugs and their toxicity and efficacy. Rather, according to the Court, the claims utilize, not preempt, the correlations of natural processes "in a series of specific steps" that are patent-eligible subject matter according to the statute, citing Diehr and its analogous use of the Arrhenius equation for curing rubber (a transformative step). "Regardless" of this issue, the Court held, satisfaction of the MOT test renders the claims patent-eligible and thus "they do not preempt a fundamental principle."

In Classen, on the other hand, the Federal Circuit summarily rejected the claims based on failure to satisfy the Bilski MOT test (in a 69-word opinion that was shorter than the claims at issue). The claims in Classen's U.S. Patent No. 5,723,283 were directed to methods for determining whether an immunization schedule affects the incidence or severity of a chronic immune-mediated disorder in a treatment group of mammals, relative to a control group of mammals. Although the Classen claims recited "immunizing" steps (that could be considered to be analogous to the "administering" steps in the Prometheus claims), they also recited a step of "comparing" the "incidence, prevalence, frequency or severity" of the immune-mediated disorder between the experimental and control groups, making it easier to characterize the immunization step as a mere "data-gathering" step.

The use of the "comparing" language was reminiscent of the claims in the LabCorp case, which was criticized by Justice Breyer in his dissent from the Court's decision not to decide the patent-eligibility of claims for determining whether a patient had a vitamin deficiency. In LabCorp, the claim at issue was directed to a method for detecting a deficiency of cobalamin (vitamin B12) or folate having the steps of assaying a body fluid for an elevated level of total homocysteine and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate. There are clear parallels between the structure of the LabCorp claim and the Classen claim. Each recites a preamble directed to identifying a biological phenomenon (a vitamin deficiency in LabCorp, a chronic immune-related disorder related to a acute immunization schedule in Classen), comprising an unambiguous diagnostic/tangible step (assaying a bodily fluid to detect elevated homocysteine levels in LabCorp, immunizing mammals with one or more doses of one or more immunogens, according to an immunization schedule in Classen), followed by an interpreting step (correlating elevated homocysteine with the vitamin deficiency in LabCorp, comparing the incidence, prevalence, frequency or severity of chronic immune-mediated disorders in mammals immunized according to the immunization schedule in Classen).

The Supreme Court's Bilski decision provides no clear instruction for resolving the different results in the Prometheus and Classen cases; indeed, the Court (for the first time since the Hilton Davis case) appears content to let the Federal Circuit develop its case law on the extent to which tests other than the MOT test are used to determine patent-eligibility. For biotechnology, it remains the case that including active, technology-dependent steps in method claims is prudent, and to draft claims that minimize the likelihood that the invention will be characterized as merely an "abstract idea." In this regard, dicta from the Bilski opinion provides a certain level of comfort that the Court (or at least some members of the Court) understand the proper protocol for performing claim analysis. For example, the opinion noted that the judiciary "does not have carte blanche to impose other limitations that are inconsistent with the text and the statute's purpose and design." And in a portion of the "majority" opinion joined by Justice Scalia, Justice Kennedy reminds us that a court "needs to consider the invention as a whole, rather than 'dissect[ing] the claims into old and new elements and then . . . ignor[ing] the presence of the old elements in the analysis,'" citing Diamond v. Diehr. However, this is arguably just the analytic mistake Justice Breyer made in his LabCorp dissent, where he argued that:

[H]ere, aside from the unpatented test, [the claims] embody only the correlation between homocysteine and vitamin deficiency that the researchers uncovered. In my view, that correlation is an unpatentable "natural phenomenon," and I can find nothing in claim 13 that adds anything more of significance.

(emphasis added). On the other hand, the four "concurring" Justices clearly believe that the scope of patent eligibility is (and must be) limited by the Constitutional prescription that a patent "Promote the Progress of . . . the Useful Arts," and that Justice Breyer's antipathy to medical diagnostic patents retains some currency on the Court:

For even when patents encourage innovation and disclosure, "too much patent protection can impede rather than 'promote the Progress of . . . useful Arts.'" Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 548 U. S. 124, 126–127 (2006) (BREYER, J., dissenting from dismissal of certiorari). . . . Patents "can discourage research by impeding the free exchange of information," for example, by forcing people to "avoid the use of potentially patented ideas, by leading them to conduct costly and time-consuming searches of existing or pending patents, by requiring complex licensing arrangements, and by raising the costs of using the patented" methods. Id., at 127.

Thus, even as the Federal Circuit develops additional tests for patent-eligibility of method claims, it is incumbent on patent applicants and their lawyers to recognize these tensions in the High Court's attitudes about patenting and to ensure that their claims are clearly directed to patent-eligible subject matter. This is difficult to do prospectively, and there is little comfort that the Federal Circuit will soon provide more concrete standards for satisfying the rather nebulous test enunciated by the Supreme Court (at least until the Court decides the time has come to once again administer some corrective patent jurisprudence to the appellate court). However, unless the Supreme Court (by inclination or constitution of new Justices) changes its rather 19th Century attitude regarding patents (something that Justice Kennedy's distinctions between patents from the Industrial Age and those from the (current) Information Age suggests may be possible), applicants will continue to need to use the few distinctions the Court has provided to protect biotechnology inventions.

Posted at 11:59 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (5) | TrackBack (0)

June 29, 2010

Reaction to Bilski v. Kappos

By Donald Zuhn --

The Supreme Court waited until the eleventh hour to issue its long-awaited decision in Bilski v. Kappos, affirming the Federal Circuit's determination that an application directed to hedging risk in energy commodities was not patent eligible while determining that the Federal Circuit's machine-or-transformation test is not the sole test for assessing patent eligibility under 35 U.S.C. § 101 (see Patent Docs report on decision). Reaction to the Supreme Court's decision in Bilski has, not surprisingly, come much quicker.

In a brief statement posted on the U.S. Patent and Trademark Office website, the Office noted that:

The Supreme Court [on Monday] affirmed the USPTO's decision that Mr. Bilski's invention was not patentable subject matter as his claims were drawn to an abstract idea. Significantly, the Court ruled that the "machine or transformation" test is not the sole determinant of patent eligible subject matter for process claims, but is nevertheless an important "investigative tool" for evaluating their patent eligibility. The Court also indicated that a business method is, at least in some circumstances, eligible for patenting under Section 101.
The USPTO will be issuing guidance further interpreting the decision as soon as possible. The USPTO is distributing interim guidance for the examining corps today.

The Biotechnology Industry Organization (BIO), which along with the Advanced Medical Technology Association, Wisconsin Alumni Research Foundation (WARF), and the Regents of the University of California, submitted an amici brief in the case, issued a press release in which BIO President and CEO Jim Greenwood said the organization was "pleased that the Justices crafted a narrow opinion" in which the Court "overturn[ed] the lower court's rigid new test for determining whether a method or process is eligible for patenting." Noting that this was the position BIO had advocated for in its amici brief, Mr. Greenwood stated that "[t]he Court was clearly conscious of the potential negative and unforeseeable consequences of a broad and sweeping decision" and "recognized that the lower court's ruling could have created uncertainty in fields such as advanced diagnostic medicine techniques."

Pointing to the Supreme Court's decision in Diamond v. Chakrabarty -- which coincidentally celebrated its thirtieth anniversary on June 16th (see "BIO Celebrates Anniversary of Chakrabarty Decision") -- Mr. Greenwood observed that in that case the Court had "defined patent-eligible subject matter in a flexible and inclusive way that has fostered the tremendous growth of biotechnology for the benefit of millions of patients, farmers, and other consumers around the world." Mr. Greenwood offered that in Bilski, "the Court made it clear . . . that the patent system was designed to be broad and inclusive in order to promote innovation."

In a release issued by the American Intellectual Property Law Association (AIPLA), the national bar association, which also submitted an amicus brief in the case, said it was "gratified that the Supreme Court in its Bilski decision . . . continues to interpret the Patent Act as open to the broadest range of subject matter, preserving the incentives for yet unknown areas of innovation." AIPLA Executive Director Q. Todd Dickinson stated that the organization was "generally pleased that the Court's majority today confirmed that broad patent protection is critical to innovation and economic growth," and that "[t]hey recognized that the patentability of next generation technology should not be judged by a last century view of the law." Mr. Dickinson noted that this was the position that the AIPLA had advocated for in its own amicus brief. The AIPLA release also notes that "like many others filing amicus (i.e., "friend of the court") briefs, [the AIPLA] believes that excluded subject matter must be kept to a minimum because this is the only way to keep the patent system open to crucial but unforeseen innovations of the future," adding that "because the course of technology can take an unexpected path, the threshold test for patentable subject matter ought not become a barrier to the next life-altering innovation."

The Licensing Executives Society (LES) offered its comments on the "long-awaited" decision in a release issued on Monday. Noting that "[t]he decision has important implications for industries from health care to high tech," the professional society whose members are engaged in the transfer, use, development, and marketing of intellectual property, said that "[m]any throughout the industry, including a strong representation of our membership, have expressed the view that a rigid application of that test might stifle both innovation and business on a global scale, particularly in the Information Age." LES Public Policy Chair Brian O'Shaughnessy stated that "[o]verall, we believe the Supreme Court's decision represents an important step towards maintaining a balanced, effective patent system that promotes innovation and opportunity for both inventors and consumers."

Posted at 11:59 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (2) | TrackBack (0)

June 28, 2010

Bilski v. Kappos (2010)

By Kevin E. Noonan --

The Supreme Court decided Bilski v. Kappos today and, as anticipated, agreed with the Federal Circuit that Bilski's claims to methods for "hedging" risk in commodities trading are not patent-eligible subject matter. After that, the opinion elevates the analysis to nothing short of advanced tea-leaf reading (including ample evidence regarding the prejudices and opinions of the various members of the Court on the topic of patent-eligibility).

The "majority" (comprising Justice Kennedy, who wrote the opinion, joined by the Chief Justice and Justices Alito, Thomas, and Scalia, the latter parting company on one aspect of the decision) takes the more conservative approach, deciding narrowly as to the claims before the Court. Somewhat predictably, and consistent with the Court's treatment of other "bright line" rules crafted by the Federal Circuit (KSR, eBay, Quanta), the Court teaches that while the "machine or transformation" test is a useful test, it is not the only test for patent-eligibility of process claims. The Court notes that while this test may have been sufficient for determining patent-eligibility in the "Industrial Age," it may be less useful in the (present) "Information Age" (although Justice Scalia not joining this part of the opinion robs it of any precedential value). As a consequence, the Court believes it best to be cautious in crafting preclusive tests that could prevent patenting new, unforeseen technologies. The Court does provide a measure of clarity in one aspect: it states that "nothing in today's opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past," specifically the "useful, concrete and tangible result" test enunciated by the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc. and repudiated by the en banc court in Bilski (while particularly recommending to "[s]tudents of patent law" that they would be "well advised to study the [Federal Circuit's five] scholarly opinions" in Bilski).

In its analysis, the Court's opinion follows the well-established framework of starting with the expansive language of § 101, as limited by earlier precedent to exclude "laws of nature, physical phenomena, and abstract ideas," citing Diamond v. Chakrabarty. These categories are "'part of the storehouse of knowledge of all men . . . free to all men and reserved exclusively to none,'" the Court reiterates using the language from Funk Bros. Seed Co. v. Kalo Inoculant Co. And the opinion notes that patent-eligibility is merely a threshold inquiry, patentability depending on satisfaction of the other statutory requirements. In the case of processes, what Congress meant is defined by § 100(b), which the opinion says should be interpreted using the "ordinary, contemporary, common meaning" of the words of the statute. Accordingly, the opinion rejects the "atextual" categorical exclusion of business method patents from patent eligibility, as well as exclusive use of the Federal Circuit's "machine or transformation" test. In doing so, the opinion rejects alternative canons of statutory interpretation advanced by the government in favor of the "ordinary, contemporary, common meaning" standard. And the Court expressly characterized as "incorrect" the Federal Circuit's reasoning that prior precedent established the "machine or transformation" test as the exclusive test. Indeed, the Court used its "more recent" decisions in Gottschalk v. Benson, Parker v. Flook, and Diamond v. Diehr as establishing that the Federal Circuit's test was not the exclusive test (ironically citing statements in those cases cited in dissent by Judge Newman below). Expressly:

This Court's precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible "process."

In making distinctions between the "Industrial Age" and the "Information Age," the Court seemed to credit several amici who made this argument, and to be convinced that the more prudent approach was to avoid setting forth exclusionary rules based on current or foreseeable technology. The Court was careful, however, to avoid any implication that its opinion endorsed the "patentability of any particular invention" or that any of the putative Information Age technologies "should or should not receive patent protection."

On the other hand, the opinion did firmly reject the idea that business method patents should be outside the scope of patent-eligibility per se, saying that "at least some" business method patents could be patent-eligible (although Bilski's was not). The Court based this conclusion in part on consistency in statutory interpretation, in view of Congressional recognition of business method patents in the "prior user defense" provisions of 35 U.S.C. § 273. Instead, the opinion turned to prior precedent on the patent-ineligibility of abstract ideas to provide "useful tools" for its analysis (Justice Scalia did not join this part of the opinion, either). Here, the Court suggested that the Federal Circuit could use such tools to distinguish business method claims on grounds "in accord with controlling precedent." But the Court provided no further guidance on how the Federal Circuit might achieve that goal.

The Court dispatched the Bilski claims in the final portion of its opinion, using the Benson/Flook/Diehr cases to determine that Bilski's claims were directed to "an unpatentable abstract idea" and that "[a]llowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea."

The "minority" (comprising Justice Stevens, who wrote a concurring opinion joined by Justices Breyer, Ginsberg, and Sotomayor) believe that business methods are not patent-eligible subject matter and would have overruled the Federal Circuit's State Street Bank decision expressly. In an extensive opinion, Justice Stevens reviews the history of the Patent Act, both in this country and under the Statute of Monopolies in England, to find no basis for including business methods as patent-eligible subject matter. Indeed, the opinion cites commentators and judicial decisions alike as believing (prior to State Street) that business methods were not patent-eligible. The opinion asserts that such a decision by the Court would "restore patent law to its historical and constitutional moorings" which have been loosed by consideration of business methods as being patent-eligible. These four Justices take a much more restrictive view of patent-eligibility than the "majority," stating that "it would be a grave mistake to assume that anything with a 'useful, concrete and tangible result' . . . may be patented." Justice Stevens warns that insofar as the Court's opinion may be read to conclude that "any series of steps that is not itself an abstract idea or law of nature may constitute a 'process' within the meaning of §101" it can "only cause mischief." For this group of Justices, the determination is definitional: business methods are not patent-ineligible per se, they are patent-ineligible because they describe a method of doing business that is not a process under § 101.

Justice Stevens criticizes the Court's opinion for construing the statute based on the "ordinary, contemporary, common" meaning of the words, which is "a deeply flawed approach to a statute that relies on complex terms of art developed against a particular historical background." In this regard, the concurrence cites a number of "comical" types of methods that could be patent-eligible under the Court's approach, including "[a] process for training a dog, a series of dance steps, a method for shooting a basketball, maybe even words, stories or songs if framed as the steps of typing letters or uttering sounds." Justice Stevens believes it improper to make the "industrial":"information" distinctions, which introduces an unprecedented disparate application of the law to different technologies. He also believes that the Court's opinion does not provide "a satisfying account of what constitutes an unpatentable abstract idea," which analysis ("or lack thereof") he says "may have led to the correct outcome in this case but . . . means that the Court's musings on this issue stand for very little."

The concurrence further makes a constitutional argument related to the requirement that patents "promote the Progress of the Useful Arts." Justice Stevens opines that business methods by their nature are "sequential and complementary," intended to stimulate imitation as a "spur to innovation," citing Bessen & Maskin ("Sequential Innovation, Patents and Imitation," 2009, 40 RAND J. Econ. 611, 613). The concurrence posits the case of frequent-flyer miles offered by airlines, imitation of which could have been prevented if the first airline to offer them had obtained a patent (presumably on a method for engendering customer loyalty by providing this perk). Citing Dreyfuss ("Are Business Method Patents Bad for Business?," 2000, 16 Santa Clara Computer & High Tech. L.J. 263, 274-277), business methods are closer to the "top" of a hypothetical pyramid of ideas where exclusivity incurs greater social cost and hinders innovation. This, the concurrence states, makes these methods more akin to phenomena of nature, mental processes and abstract ideas that should not be patent-eligible. And the danger lurks that "many business decisions, no matter how small, could be potential patent violations" (emphasis in original) should business method claims get the Court's imprimatur as patent-eligible subject matter.

In perhaps the most interesting part of the Court's decision, Justice Breyer writes separately, joined in part by Justice Scalia, to set forth the "substantial agreement among many Members of the Court on many of the fundamental issues of patent law raised by this case" (emphasis in original). These include:

• First, "although the test of §101 is broad, it is not without limit," citing Chakrabarty, Benson, and Diehr.

• Second, the "machine-or-transformation" test "has repeatedly helped the Court to determine what is 'a patentable process.'"

• Third, while the "machine-or-transformation" test "has always been a 'useful and important clue,' it has never been the 'sole test' for determining patentability." It is rather "an important example of how a court can determine patentability under 101"; the Federal Circuit's mistake was in treating it as the "exclusive test" (emphases in original).

• Fourth, "although the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything which produces a "useful, concrete and tangible result' . . . is patentable." Indeed, Justice Breyer states that insofar as the Federal Circuit repudiated that standard from State Street, "nothing in today's decision should be taken as disapproving of that determination."

With these insights in mind, it is clear that the Court as currently constructed will continue to apply a patent-limiting approach to these types of questions. It is equally evident that the Court is not inclined to make sweeping pronouncements or establish bright-line tests on patenting matters, preferring to take a case-by-case approach to developments in this area and to restrict the Federal Circuit when it strays from this path.

Bilski v. Kappos (2010)
Opinion of the Court by Justice Kennedy, joined in full by Chief Justice Roberts and Justices Thomas and Alito and in part by Justice Scalia;
Opinion concurring in the judgment by Justice Stevens, joined by Justices Ginsberg, Breyer, and Sotomayor;
Opinion concurring in the judgment by Justice Breyer, joined in part by Justice Scalia.

Posted at 10:33 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (9) | TrackBack (0)

June 17, 2010

BIO Celebrates Anniversary of Chakrabarty Decision

By Donald Zuhn --

In a press release issued on Wednesday, the Biotechnology Industry Organization (BIO) recalled the Supreme Court's landmark decision in Diamond v. Chakrabarty, which was issued thirty years ago on June 16, 1980. In Chakrabarty, the Court determined (by a 5-4 vote) that a genetically engineered Pseudomonas bacterium capable of breaking down multiple components of crude oil "plainly qualifies" as patentable subject matter under 35 U.S.C. § 101 (at right, Dr. Ananda Chakrabarty). Citing the Senate and House Committee Reports that accompanied the 1952 Patent Act, the Court explained that "Congress intended statutory subject matter to 'include anything under the sun that is made by man," and determined that "[Chakrabarty's] discovery is not nature's handiwork, but his own," and therefore constituted patentable subject matter under § 101.

In BIO's release, BIO President and CEO Jim Greenwood that the Chakrabarty decision "was instrumental in spurring the creation of a dynamic and flourishing biotech industry," adding that the decision "provided assurance to biotech companies and their investors that emerging technologies are protected by the patent system even if they could not have been foreseen when the system was created 200 years earlier." Mr. Greenwood noted that in the thirty years that have passed since the Court decided Chakrabarty, "the biotechnology industry in the United States has improved and saved lives around the world through breakthrough medical therapies, increased crop yields, and renewable fuels," and has been "a key component of the nation’s innovation economy, supporting more than 7.5 million jobs throughout the country and providing the United States with a global competitive advantage."

Coincidentally, while the biotech industry celebrated the 30th anniversary of the Chakrabarty decision, Myriad Genetics and the Directors of the University of Utah Research Foundation spent part of the day filing their notice of appeal in the Association for Molecular Pathology v. U.S. Patent and Trademark Office gene patenting case (see "Myriad Appeals AMP v. USPTO Decision").

Posted at 11:59 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (4) | TrackBack (0)

January 03, 2010

November 18, 2009

Chisum on Patent Law Themes and Inequitable Conduct

By Donald Zuhn --

Earlier this month, Donald Chisum (at right), who for the past 31 years has authored the patent treatise Chisum on Patents, was in Chicago to give a luncheon presentation on recent patent law developments to a group of local practitioners. Mr. Chisum, who was professor of law at the University of Washington from 1969 to 1996 and professor of law at Santa Clara University from 1997 to 2006, is also the author of the Patent Law Digest. Both Chisum on Patents and the Patent Law Digest are published by LexisNexis, which sponsored the luncheon.

Mr. Chisum began the presentation by noting that he had given his very first talk on patent law (outside of Seattle) at Chicago's John Marshall Law School nearly 27 years earlier. During his latest talk, Mr. Chisum touched on a number of topics, focusing primarily on what he saw as four general themes that explain "what is going on in patent law" and discussing four recent inequitable conduct cases. With oral argument before the Supreme Court scheduled to take place only four days after his talk, Mr. Chisum told the gathering that In re Bilski would "probably be the patent case of the century" -- with the caveat that "we're only nine years into the century."

Turning to his general themes, Mr. Chisum explained that the first was the "continuing tango" between the Federal Circuit and the Supreme Court. He informed practitioners that this dance "made it more important than ever to think about Supreme Court precedent on a given issue." Mr. Chisum noted that when he first started writing his treatise, he tried to identify and discuss every Supreme Court case that addressed a major patent law issue. He recalled, however, that following the creation of the Federal Circuit in 1982, no one really seemed to care about all of those old Supreme Court cases anymore, and instead only cared about what the Federal Circuit had to say about an issue. Stating that "now we know today that Supreme Court cases are still good precedent," Mr. Chisum opined that "the Supreme Court seems bound and determined to make sure that the Federal Circuit respects the precedent of the Supreme Court." As a result, practitioners "need to look at Supreme Court precedent on a question even if it's ancient." He added that because of the "tango" between the two courts, the Federal Circuit sometimes "overreacts" to the Supreme Court. Citing the Federal Circuit's response to Medimmune, Inc. v. Genentech, Inc. as an example, Mr. Chisum said that the Federal Circuit seemed to be saying "well, everything has changed, let's start all over again."

Mr. Chisum's second theme concerned the Federal Circuit's desire to clarify certain problem areas in patent law that have provoked reform proposals, such as changing the standards for permanent injunctions, measuring damages, or proving inequitable conduct. Moving onto the third theme -- the Federal Circuit's handling of fundamental patent law issues that "have been around for almost forever" -- Mr. Chisum briefly discussed the basic standard of obviousness in light of KSR International Co. v. Teleflex Inc., and claim interpretation following Phillips v. AWH Corp.

Mr. Chisum's final theme concerned what he called the "possible emergence of a patent restrictive bloc on the Federal Circuit." He noted that some judges on the Federal Circuit tend to look more favorably on the importance of patent rights while others view patent rights from the perspective that they should be considered a narrow exception to the general policy of free competition. While "we have tended to think of the Federal Circuit in its first 25 years as being generally supportive of the patent system," Mr. Chisum suggested that the Court as whole could no longer be characterized as such. He noted that while Judge Newman believes that "patents are an important part of national policy"; Judge Dyk appears to have become more patent skeptical; and Judge Lourie, who tends to uphold patents "but only if they're narrowly drawn and very clearly and specifically disclosed," is "less easy to characterize." Mr. Chisum pointed to Judges Rader and Moore as examples of what he called "patent law intellectuals," who "like to stir up doctrine." Finally, he said that some judges are sui generis; for example, "it's hard to characterize Chief Judge Michel other than he writes very long opinions and seems obsessed with saving the Federal Circuit's reputation in the Supreme Court."

Mr. Chisum spent the last part of his presentation discussing four recent inequitable conduct cases: Scanner Technologies Corp. v. ICOS Vision Systems (Fed. Cir. 2008), Star Scientific, Inc. v. R.J. Reynolds Tobacco Co. (Fed. Cir. 2008), Larson Mfg. Co. v. Aluminart Products Ltd. (Fed. Cir. 2009), and Exergen Corp. v. Wal-Mart Stores, Inc. (Fed. Cir. 2009). He noted that collectively the cases "don't change the established elements of the inequitable conduct defense," but added that they do demonstrate the Federal Circuit's interest in addressing the "plague" of inequitable conduct charges by tightening the standards of proof and creating a higher threshold for pleading inequitable conduct. With regard to Larson Mfg., Mr. Chisum observed that Judge Linn, in a concurring opinion, had "protested that we have way too many charges of inequitable conduct and that the problem is attributable in part to the ease with which intent to deceive is inferred." Mr. Chisum explained that Judge Linn had "serious problems" with all three prongs of the test for inferring deceptive intent, namely (1) whether highly material information was withheld, (2) whether the applicant knew about the information and knew or should have known of its materiality, and (3) whether the applicant could provide a credible explanation for withholding the information. Judge Linn's serious problems included defining "highly material" information; ensnaring negligent conduct through the "should have known" portion of the test; and transferring the burden of proof from infringer to the patentee with respect to providing a "credible" explanation for withholding information.

Posted at 11:59 PM in Federal Circuit, Inequitable Conduct, Patentable Subject Matter, Supreme Court | Permalink | Comments (1) | TrackBack (0)

November 09, 2009

Supreme Court Bilski Argument

By Kevin E. Noonan --

The highest form of tea leaf-reading is guessing how the Supreme Court will rule based on oral argument. Yet occasionally the Court's questioning suggests general trends and tendencies, and today's argument in Bilski v. Kappos may be one of those times.

The claims at issue are directed to a method for hedging risk in a commodities trade, and are broadly directed to such methods (i.e., there is no requirement that the method be performed using a computer or other particular machine). The claims were rejected by the Patent Office and appealed to a Federal Circuit panel, but before the panel decision was issued, the CAFC sua sponte ordered rehearing en banc. In its en banc decision, the Federal Circuit promulgated a new, exclusive test for patent eligibility of method claims, requiring that a method either be tied to a machine or transform a particular article into a different state or thing (the "machine or transformation" test). The Supreme Court granted certiorari to consider whether this test was contrary to the Court's "precedent declining to limit the broad statutory grant of patent eligibility for 'any' new and useful process beyond excluding patents for 'laws of nature, physical phenomena, and abstract ideas'."

In today's argument, it became clear that the Justices thought little of the argument that Bilski's claim should be patent-eligible. Bilski's advocate, J. Michael Jakes, staunchly kept to his position that what should be considered a patent-eligible process be broadly construed, refusing to concede that any method posed as a hypothetical by the Court should be per se ineligible. These far-fetched hypothetical methods included methods for teaching antitrust law without putting students to sleep (Justice Breyer), speed-dating (Justice Sotomayor), horse-whispering (Justice Scalia), as well as more concrete examples ("an estate plan, tax avoidance, how to resist a corporate takeover [or] how to choose a jury," by Justice Ginsberg). The Court was clearly concerned about conferring the broadest scope to method claims, such as "anything that helps any businessman succeed is patentable because we reduce it to a number of steps," according to Justice Breyer. To each of these instances, Mr. Jakes argued that such a claim was "potentially patentable," subject to the other requirements of the statute. To Justice Sotomayor's question about how to limit patent eligibility to "something reasonable" if it is not limited to technology or the sciences, Mr. Jakes argued that the useful arts excludes "[s]peaking, literature, poems" and that "a corporation [or] a human being" were not included in the statutory categories of the useful arts. However, Mr. Jakes did not specifically assert that Bilski's claim should be patent-eligible, merely that the Federal Circuit's test was without support in the plain language of the statute or any of the Court's earlier precedent.

The Chief Justice asked how the claim was not disqualified as being a mere abstract idea, in the process conflating what may not be patentable ("classic commodity hedging that has been going on for centuries") with what should be patent-eligible. Justice Kennedy, citing the development of actuarial tables and methods for calculating risk by the nascent insurance industry in the 17th Century, asked whether Congress would have intended that "only one person [would have] the capacity to issue insurance." Mr. Jakes did not directly answer this question, but maintained that such methods could be patent-eligible, falling within the ambit of the statutory definitions of patent-eligible inventions.

Justice Ginsburg was concerned about the practices in other countries, which do not include methods like the Bilski method within the scope of patent-eligible subject matter. Mr. Jakes responded by reminding the Court that other countries have defined "technology" differently than the U.S. has, and it was these definitions that provide the basis for excluding types of inventions patent-eligible under 35 U.S.C. § 101. Mr. Jakes also challenged the assertion by Justice Sotomayor that "a patent limits the free flow of information," asserting (correctly) that patents promote disclosure of inventions, so that "information gets to the public generally," while conceding Justice Scalia's point that the public cannot use an invention until the patent expires.

Justice Stevens asked two interesting jurisprudential questions. The first was for Mr. Jakes to identify the "strongest case" from the Court's jurisprudence that supported his position, and without apparent irony (in view of the Federal Circuit majority's reliance upon it) he answer Diamond v. Diehr. (Justice Stevens did not appear to think the Diehr case provided much support for Mr. Jakes's position.) Second, the Justice asked whether Judge Rich had ever written on the scope of patent-eligibility for process claims, to which Mr. Jakes answered that he had written the Alappat decision as well as the State Street decision.

Turning to the Diehr decision, the Court seemed to grapple with the similarities and distinctions between methods for curing rubber ("an industrial process of the conventional type," as characterized by Mr. Jakes) and methods for manipulating information or electronic signals (although Justice Sotomayor drew a distinction between manipulation of electronic signals and manipulation of information as being "different in kind"). Justice Breyer made the distinction explicit, saying that there are "four things in patent law that everyone accepts." These include "two that are a plus" (increased innovation and disclosure) and "two that are a minus" (higher prices and "having to get permission [that] can really slow things down and destroy advance"). (Despite the negative tone, he characterized this situation as "a balance.") In the 19th Century, he said, methods were directed towards machines, whereas Mr. Jakes's position is that today patent-eligible methods should include those performed on information. To that proposition and how the appropriate balance should be drawn the Justice candidly admitted "I don't know. And I don't know whether across the board or in this area or that area patent protection would do no harm or more harm than good."

The Court also considered the Morse and Bell patents, with Justice Scalia arguing that the Bell claims would pass the "transformation" prong of the Federal Circuit's test, since sound was transformed into electrical signals and vice versa in the practice of the claimed method for transmitting sound over a distance.

The Court closely questioned the government's position as articulated by Deputy Solicitor General Malcolm Stewart. Speaking for the first time, Justice Alito asked whether the Court should render a decision on the "very broad issue" raised by Bilski, to which Mr. Stewart answered that the government would prefer to prevail more narrowly. In doing so, Mr. Stewart asserted that the Federal Circuit's "machine or transformation" test was not "rigid or inflexible" based in large part in the questions left unanswered in the opinion (such as the extent to which a process is "tied to a particular machine"). Justice Sotomayor asked the fundamental question of whether the Court should simply declare that business methods are unpatentable and avoid the issues of destroying the computer or biomedical industries as had been argued by various amici. This wouldn't solve the problem, according to Mr. Stewart, because the basis for business method patents (the State Street case) involved a machine rather than a process (Justice Sotomayor impliedly agreeing by saying "[n]o ruling in this case is going to change State Street"). Justice Breyer characterized the Federal Circuit's decision as a "pull back" on the scope of patent-eligible methods, but with little guidance from the Federal Circuit on the scope of how far they CAFC has "pulled back," in view of the failure to define the extent of transformation or ties to a particular machine that would satisfy the standard.

The Chief Justice took Mr. Stewart to task for "the last footnote" of the government's brief, which he understood to assert that the use of a computer in Bilski's method might make the process patentable -- he characterized this as the equivalent of saying that using a typewriter to type out a method would make a process patentable. Mr. Stewart attempted to distinguish this interpretation using a hypothetical involving an interactive website for practicing the method but with little success; the Chief Justice said that the government's hypothetical "involves the most tangential and insignificant use of a machine." Importantly, Mr. Stewart then indicated that the government did not want the Court to opine broadly in its decision:

I guess the point I'm trying to make is simply that we don't want the Court, for instance, in the area of software innovations or medical diagnostic techniques to be trying to use this case as the vehicle for identifying the circumstances in which innovations of that sort would and would not be patent eligible, because the case really doesn't present any -- any question regarding those technologies.

Justice Sotomayor agreed with this sentiment, saying in response that "by saying that we exclusively rely on the machine-or-transformation test, that we're precluding applications of the patent law in those fields, the things we can't imagine. Once you announce an exclusive test, you're shoe-horning technologies that might be different." She also asked the Deputy's help in fashioning a test "that doesn't go to the extreme the Federal Circuit did" with regard to having to reverse earlier precedent that did not preclude methods that would fail the "machine or transformation" test. Justice Ginsburg asked whether Judge Mayer's calculus in his concurrence -- "if it's technology, then it's within the realm of patent, and if it's not technology, it isn't" -- wasn't the simplest test to be used, and Mr. Stewart answered that "our test . . . has a shorthand version of that," suggesting at least an acquiescence to a "technology arts" standard. He went on to say however that this was not the simple solution it appeared to be, based on the definition of "technology" and what should be "properly regarded as technological advances," as well as whether the "technology" component was "sufficiently substantial" to render a process claim patent-eligible. Several of the Justices also voiced the view that merely programming a computer to perform a new process did not convert the computer into a "new" machine, again seeming to conflate patent eligibility with patentability.

Returning to the government's view of the appropriate scope of the Court's decision in this case, the Deputy argued:

We thought that this case would provide an unsuitable vehicle for resolving the hard questions because the case doesn't involve computer software or medical diagnostic techniques, and therefore, we thought the Court would arrive at the position that I think, at least some members are feeling that you have arrived at, that you will decide this case, and most of the hard questions remain unresolved. And, frankly, we think that's true.

To Justice Steven's remark following this statement that "[w]e know that things that we haven't yet contemplated may be around the corner, and when they happen, we will deal with them," Mr. Stewart responded that the government "would be entirely content with a ruling like that."

In his brief rebuttal, Mr. Jakes appeared to agree with this sentiment:

The Federal Circuit did announce this test as the sole test for all processes. It said it applied no matter what the process was, so we do have to face these difficult questions. I think the question can be avoided, because we don't need a rigid test of this type based on machine-or-transformation. The question we are looking at and should be looking at is: Are we trying to patent an abstract idea?

It appears evident that the Court does not believe that Bilski's claims are patentable, but that this case is not the case to make any broad pronouncements on subject matter eligibility for computer software or diagnostic methods claims. While it is reassuring to believe that the Court is thus disinclined to "shoehorn" the patent-eligibility of these types of method claims into its decision on Bilski's claims (and the Federal Circuit's "machine or transformation" test), it also suggests that the Court (or at least Justices Breyer and Stevens, whose views are on record in the Metabolite dissent) may recognize that a more appropriate occasion to consider diagnostic method claims is available with the certiorari petition in Prometheus Laboratories, Inc. v. Mayo Collaborative Services case. Until the Court decides whether it will hear that case, the status of diagnostic method claims will remain in doubt no matter how the Court rules in Bilski.

A transcript of today's oral argument is available here.

Posted at 11:50 PM in Patentable Subject Matter, Supreme Court | Permalink | Comments (6) | TrackBack (0)

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