By Kevin E. Noonan --
The Supreme Court was petitioned today to grant certiorari in two cases important to biotechnology patenting: In re Bilski, involving the standard for determining that method claims are patentable subject matter; and Aventis Pharma S.A. v. Amphastar Pharmaceuticals, regarding the standard for finding inequitable conduct. And in each case, dissents by Judge Rader are an important part of petitioner's arguments.
There were two questions presented by petitioners in the Bilski petition:
Whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101, despite this 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."
Whether the Federal Circuit's "machine-or-transformation" test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect "method[s] of doing or conducting business." 35 U.S.C. § 273.
Bilski argues that the "machine or transformation" test is a misreading of the Court's precedent, which has been expansive in determining the outer boundaries of patentable subject matter (citing the famous "anything under the sun made by man" language from Diamond v. Chakrabarty). Recognizing that the Chakrabarty case concerned "compositions of matter" or "manufacture" claims, the petition also cites Diamond v. Diehr to find the Court's precedent for permissible method or process claims. Here, the Court's reading is decidedly different from the Federal Circuit, where the majority believed its tests, based on the Supreme Court's decision in Gottschalk v. Benson, 409 U.S. 63 (1972), was supported by Diamond v. Diehr. Petitioners stress that while the Court precluded natural phenomena and laws of nature from patentability, the Diehr case held that a process is patentable if, "'taken as a whole', [it] represents 'an application of a law of nature or mathematical formula'." Petitioners suggest that this distinction provides a "bright line" for the Court to draw in deciding what is a patentable method and what is not.
Petitioners also maintain that the Supreme Court itself has deigned not to adopt the Federal Circuit's "machine or transformation" test, ironically in Gottschalk v. Benson, but also in Parker v. Flook. And they are also quick to point out that the Federal Circuit's reliance on the "machine or transformation" test is contrary to the positions the CAFC itself took in State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999).
Petitioners also urge the Court to grant certiorari and reverse the Federal Circuit because the "machine or transformation" test is too restrictive, adopting Judge Rader's position that the test is an outdated relic of the age of mechanical patents in an era where the "bleeding edge" of innovation is "subatomic particles and terabytes." They cite recent examples of the application of the restrictions on process patent claims (arguing that these claims are not "second class" claims under the statute), including In re Comisky and Classen Immunotherapies, Inc. v. Biogen Idec, and also warn that these cases mark a trend. In the Federal Circuit, petitioners cited Comisky and Prometheus Labs., Inc. v. May Collaborative Srvs. as cases where the Federal Circuit had stayed consideration (or reconsideration) in favor of deciding the Bilski case to establish its precedent. The Bilski decision was also affecting how the U.S. Patent and Trademark Office was deciding questions of patent eligibility for process claims, the petitioners argue, citing Ex parte Roberts, 2008 WL 2754746 (B.P.A.I. July 15, 2008), as well as claims to other statutory categories, citing Ex parte Godwin, 2008 WL 4898213 (B.P.A.I. Nov. 13, 2008) (claims directed to a "portal server system" and a "portal server") and Ex parte Noguchi, 2008 WL 4968270 (B.P.A.I. Nov. 20, 2008) (claims directed to a "program for causing a computer connected to an external network to perform the functions of . . ."). These trends rendered certiorari urgent, to avoid continued application of the Federal Circuit's over-limiting test, according to petitioners.
In the Aventis case, this question was presented:
Whether a court may refuse to enforce an otherwise valid patent on the basis of an inequitable conduct determination premised on a sliding scale between intent and materiality, effectively permitting a finding of fraudulent intent to be predicated on gross negligence,
based on the following succinct statement of what is wrong with the Federal Circuit's inequitable conduct jurisprudence:
Under the judge-made doctrine of "inequitable conduct," a federal court may decline to enforce an otherwise valid patent that was procured through fraud or deceit. Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945). As befits the punitive nature of the doctrine, this Court has invoked it only in extreme circumstances involving "deliberate," "corrupt," "sordid" and "highly reprehensible" misconduct. Some panels of the Federal Circuit have similarly limited the inequitable conduct doctrine to deliberately planned and carefully executed schemes to defraud, but other Federal Circuit panels -- including the majority in this case -- have adopted a "sliding scale" under which "less intent" is required as the materiality of an omission or misrepresentation increases.
In framing the factual and legal background of the case, the petition relies heavily on Judge Rader's dissent, regarding "the improper '[m]erging [of] intent and materiality' under the majority's sliding-scale standard, and highlighting several previous cases in which the Federal Circuit had 'emphasized materiality almost to the exclusion of intent'." Perhaps befitting the presence of Supreme Court advocate Theodore Olsen on the brief, petitioner's prayer for relief is based not only on the law of inequitable conduct but also on the application of equitable principles under federal common law. In addition, the petition cites dissension at the appellate level not only among the judges of the Federal Circuit, but in the several regional circuit courts of appeal and the district courts, citing cases that predate the creation of the Federal Circuit but that implicate differences in the circuits relevant to more general questions of equity. In support of these notions, the petition cites Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007); and eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), for the principle that patent law (and the Federal Circuit) are bound by more than just its own specific doctrines (like inequitable conduct) but needs to fit properly within the federal judicial scheme for deciding on the bases for equitable relief. And here, the petitioners argue, the Federal Circuit's "sliding scale" of proof, where the amount of intent required to be shown by a party alleging inequitable conduct varies inversely with the materiality of the reference, is outside the bounds of appropriate federal judicial standards.
In making this argument, petitioners remind the Court that it has held a patent unenforceable in just three cases: Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944); and Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945). In all those cases, petitioners argue that the Court found overwhelming evidence of affirmative, culpable behavior, involving "'deliberate,' 'corrupt,' 'sordid,' and 'highly reprehensible' fraudulent conduct intentionally committed by the patent holder during prosecution or enforcement of the patent." Such conduct included "false affidavit and false deposition testimony 'to keep secret the details of [a] prior use' which would have been 'sufficient to cast doubt upon the validity of the patent'" (Keystone Driller); "fabrication of an 'ostensibly disinterested' publication describing the claimed invention as a 'remarkable advance in the art,' which was submitted to the PTO and relied on by the patentee in the Court of Appeals" (Hazel-Atlas Glass); and "false testimony by Larson (the patentee) in an interference proceeding, and the discovery of Larson's perjury by Automotive, which used that information to blackmail Larson into assigning his patent rights to Automotive and agreeing never to contest the resulting patent" (Precision Instrument).
Notwithstanding this precedent, the Federal Circuit erred almost from its inception, by adopting a "sliding scale" or "balancing" test in American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1363 (Fed. Cir. 1984). In that case, petitioners argue:
A knowing deception is thus presumed from the mere fact that highly material information was omitted, under the justification that "he who failed to supply highly material information should have known about the information's materiality."
According to petitioners, this standard is erroneous and inconsistent with Supreme Court precedent, wherein "[t]he non-disclosure of material information is a necessary but not sufficient element of fraud or inequitable conduct. The complainant must also prove that the material information was intentionally withheld" (emphasis in original). The petitioners characterize the Federal Circuit's standard as one of "strict liability" under circumstances where the materiality of the undisclosed information is high. Such a standard is inconsistent with "almost two centuries" of Supreme Court precedent on the requirements of showing fraud, all of which require some element of knowing intention, according to petitioners, citing Lord v. Goddard, 54 U.S. 198, 211 (1851); Wiscart v. Dauchy, 3 U.S. 321, 330 (1796); Moss v. Riddle & Co., 9 U.S. 351, 357 (1809); Magee v. Manhattan Life Ins. Co., 92 U.S. 93, 98-99 (1875); Reilly v. Pinkus, 338 U.S. 269, 275 (1949); and Madigan v. Telemarketing Assocs., 538 U.S. 600, 621 (2003).
Petitioners also assert that the Federal Circuit's "extraordinary" remedy -- unenforceability -- is contrary to equitable principles, since it is a "one-size-fits-all" remedy imposed without regard to whether there are other legal remedies available nor with regard to the effect of the remedy on the public interest. "''The essence of equity jurisdiction has been the power of the Chancellor to do equity and to mould each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it,'" citing Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944).
Finally, petitioners argue that the consequences of the chaotic application of inequitable conduct by the Federal Circuit affects innovation by excessive litigation costs, imposing excessive citations of references of dubious relevance to the Patent Office, and creating business uncertainty. This situation is particularly appropriate for Supreme Court review:
The inequitable conduct doctrine in patent cases is judge-made in every sense, and can (and should) be shaped by the Judiciary to conform to the broader policies of the Progress Clause and the Patent Act, as well as the general run of federal law. This issue will not benefit from further percolation in the circuits. The split in the lower courts and within the Federal Circuit itself is deep and mature, and the Federal Circuit has exhibited a steadfast unwillingness to revisit the issue en banc. Four decades of confusion are enough. The question presented is ripe -- indeed overdue -- for this Court's review.
The Court can be expected to decide whether to grant these petitions by the end of this term.
Newsweek Joins the Anti-patent Bandwagon
By Kevin E. Noonan --
Ah, the popular press! Purported protectors of our fundamental freedoms, their behavior (at least in the mainstream press) has recently been less than noble. Eschewing the role of crusader (or even muckraker), the press seems to look for the common popular denominator of received wisdom, and then to trumpet it. After all, it wasn't until the war in Iraq went badly and Katrina went ashore that the press did anything more than cheerlead every move of the last, recently departed occupant of the White House.
When it comes to patents, the press has been with the Zeitgeist, echoing the clamor that there is a "broken" patent system and that it imposes a burden on us all. The New York Times has made a cottage industry of such articles (see "New York Times to Innovation: Drop Dead"; "Science Fiction in The New York Times"; "War is Peace, Freedom is Slavery, Ignorance is Strength"), most based on fundamental a misunderstanding of the underlying facts and a penchant to blindly accept as impartial, partisan advocates with their own axe to grind (see "Anti-Patent ("Sullivan?") Malice by The New York Times"). And The New Yorker has not been above similar antics regarding the state of the U.S. patent system, again missing important facts available from consultation with any patent attorney (see "The 'Unfairness' of World Intellectual Property Protection According to The New Yorker"; "Once Again, The New Yorker Gets It Wrong on Patents").
Professor Heller also makes the (unsupported) conceptual leap that all this patenting of genetic information has resulted in the dearth of pharmaceutical innovation by major pharmaceutical companies. This statement ignores the achievements of biotechnology companies like Amgen and Genentech and the rest of the industry, who are providing an ever-increasing stream of new drugs such as Humulin® (recombinant human insulin); Epogen® (recombinant human erythropoietin); Herceptin® (anti-Her2/neu monoclonal antibody); beta-interferon (for treating multiple sclerosis); Cerezyme® (for treating Gaucher's disease); Enbrel® (soluble TNF receptor); and Gleevac® (imatinib; anticancer drug). Indeed, the Biotechnology Industry Organization says that there are more than 200 biotechnology drugs on the market as of 2007, with more than 400 drugs and vaccines in various phases of clinical testing for FDA approval (see "Guide to Biotechnology: 2007"). It also ignores (and is ignorant of) the difference between identifying targets for therapeutic intervention and finding safe and effective drugs that take advantage of this knowledge. This isn't a matter of patent law, it is science and science will occur at its own pace. Professor Heller's argument also disregards University of Chicago Professor Richard Epstein's (at right) insight, in "Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation," that "[m]edical science is not immune from the iron
economic law of diminishing marginal returns" and the time for having "low-hanging" fruit of easily-achieved increased well-being (for example, by developing drugs against bacterial diseases) is behind us. The viability of "Big Pharma" partnering and reaping the fruits of biotechnology are evident in Pfizer's acquisition of Wyeth, which (according to the Atlanta Journal Constitution) was spurred to make the acquisition by Wyeth's robust biologics drug pipeline (see "In Wyeth, Pfizer Sees a Drug Pipeline").
Professor Heller also conflates the real problems encountered in the information technology industry with biomedical science. In biomedicine and pharmaceutical science, intellectual property tends to be discrete. For example, AstraZeneca can market and patent the acid reflux drug omeprazole (Prilosec® and Nexium®) and TAP Pharmaceuticals can market and patent the acid reflux drug lansoprazole (Prevacid®) without any interference from patent law. These molecules are discrete, and the development and patenting of one is independent of the other. The only area in biotechnology where the "patent thicket" problem has been evident is in microarray technology (used for drug and target screening and certain diagnostic applications), and that industry tends to side with IT groups (like the oxymoronic Coalition for Patent Fairness) in supporting or fomenting political attempts to reduce patent protection.
Professor Heller also draws the wrong conclusions when he assesses the different reactions to biotechnology patenting in the U.S. and the competing economies of Europe and Japan. While it is evident that America's early embrace of patent protection for biotechnology was an important reason why biotechnology breakthroughs occurred here rather than abroad (see "The Continuing Value of Biotech Patenting"; "Disadvantages For Biotechnology Patents in Japan"), Professor Heller concludes that the U.S. Patent and Trademark Office has issued "hundreds of thousands of weak, vague patents" and "if you are a U.S. innovator, there is no way even to figure out who owns rights relevant to your proposed new drug." To anyone with experience in biotechnology and pharmaceutical patent law or drug development, those statements are worse than hyperbole -- they are just simply untrue (at least as far as pharmaceutical and biotechnology patents are concerned).
Finally, he accuses U.S. scientists of being forced to be "patent pirates" as if this was a serious impediment to biotechnology innovation. While using patented materials or processes for commercial development (in or outside the groves of academe) is not tolerated, Professor Heller does not provide any examples of purely academic research being impeded by patents (if for no other reason than the ideas, the scientific breakthroughs, and the information of discovery are not patentable).
Professor Heller tells a compelling story, and it probably provides impetus for future sales of his book. He has been consistent in his "perils of patenting" theme throughout his career (clearly eschewing Emerson's caution about intellectual consistency). But his thesis is wrong and the history of the biotechnology era in the U.S. clearly demonstrates it is wrong. What won't help American innovation is Newsweek's giving Professor Heller yet another platform for this failed thesis.
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