Patent Docs

Tangelo IP, LLC v. Tupperware Brands Corp. (D. Del. 2019)

By Donald Zuhn --

Last week, in Tangelo IP, LLC v. Tupperware Brands Corp., District Judge Richard G. Andrews of the U.S. District Court for the District of Delaware denied a motion for exceptional case filed by Defendant Tupperware Brands Corp., finding that Tupperware Brands had failed to establish that the case was exceptional under 35 U.S.C. § 285.  Plaintiff Tangelo IP, LLC had filed suit against Tupperware Brands, alleging infringement of U.S. Patent No. 8,429,005.  Tupperware Brands responded by filing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the '005 patent was invalid under 35 U.S.C. § 101.  The District Court granted the motion, and Tupperware Brands then moved for a finding of exceptional case and requested attorneys' fees under § 285.

In determining that the case was not exceptional, the District Court noted that although it had found the '005 patent to be invalid under § 101, "that does not mean Plaintiff's contrary position was unreasonable."  In support, the Court cited SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015), for the proposition that "it is the substantive strength of the party's litigating position that is relevant to an exceptional case determination, not the correctness or eventual success of that position" (emphasis in opinion).

In response to Tupperware Brands' argument that Tangelo had "ignored substantial precedent dismissing analogous claims directed to concepts long-practiced in society," the Court noted that Tupperware Brands had "identifie[d] no precedent addressing claims analogous to those in the '005 patent, at least beyond the broad category of claims directed to 'concepts long-practiced in society.'"  Judge Andrews also noted that he had not identified any cases in which analogous claims had been found to be patent ineligible.

Judge Andrews concluded the opinion by distinguishing the instant case from his decision in Finnavations LLC v. Payoneer, Inc., 2019 WL 1236358 (D. Del. Mar. 18, 2019).  In Finnavations, Judge Andrews had granted motions for exceptional case and attorneys' fees based on claims that were "plainly directed at a patent ineligible concept," where there was "no question" that the patent at issue was invalid because the claims were analogous to those struck down in Alice.  Judge Andrews found the instant case to be "clearly a different situation," explaining that while he ultimately agreed with Tupperware Brands regarding the validity of the '005 patent, "there is room for argument."  Judge Andrews also pointed out that he was not aware of any precedent that leaves "no question" as to the validity of the '005 patent, "particularly in view of the somewhat opaque nature of § 101."  The Court therefore denied Tupperware Brands' motion for a finding of exceptional case.

Tangelo IP, LLC v. Tupperware Brands Corp. (D. Del. 2019)
Memorandum Order by District Judge Andrews

USPTO Issues Notice on Impact of Federal Circuit's Supernus Decision on PTA Procedures

By Donald Zuhn --

In January, the Federal Circuit determined in Supernus Pharmaceuticals, Inc. v. Iancu that the U.S. Patent and Trademark Office had erred in calculating the Patent Term Adjustment for Supernus' U.S. Patent No. 8,747,897.  In particular, the Court found that because there were "no identifiable efforts" that Supernus could have undertaken in the time period between the filing of an RCE during prosecution of the application that issued as the '897 patent and the mailing of an EPO notification of opposition for a European counterpart patent (which resulted in Supernus filing a supplemental Information Disclosure Statement during prosecution of the '897 patent), Supernus had not failed to engage in reasonable efforts to conclude prosecution during that time period.

In response to the Federal Circuit's decision in Supernus, the USPTO issued a Federal Register notice (84 Fed. Reg. 20343) earlier this month notifying stakeholders of the impact of the decision on its PTA determinations.  In the notice, entitled "Patent Term Adjustment Procedures in View of the Federal Circuit Decision in Supernus Pharm., Inc. v. Iancu," the Office indicates that it is "modifying its patent term adjustment procedures in view of the decision."  However, the notice states that "the USPTO will continue to make the patent term adjustment determinations indicated in patents under the existing regulations using information recorded in its PALM [Patent Application Locating and Monitoring] system," and that a patentee who believes there were no identifiable efforts it could have undertaken to conclude prosecution of an application (as Supernus argued with respect to the '897 patent) "may raise the issue in a timely request for reconsideration of the patent term adjustment, providing any relevant information that is not recorded in the USPTO's PALM system."

The Office did note -- in support of essentially maintaining the status quo on PTA determinations and challenges to those determinations -- that "[t]he event from which the Federal Circuit measured the beginning of the patent term adjustment reduction in Supernus (the EPO's notice to Supernus of the opposition on August 21, 2012) is an event external to the USPTO and is thus not an event that is recorded in the USPTO's PALM system."  Therefore, until the Office is better able to track actions in foreign counterpart applications and patents (using, for example, the Citation List of its Global Dossier Initiative; see "USPTO News Briefs," October 25, 2017), it is hard to see what additional modifications the Office could make to its PTA procedures.

The notice also points out that "the USPTO expects that the situation in Supernus should arise infrequently," explaining that:

An extended delay between the filing of a request for continued examination and the subsequent Office action (932 days in Supernus) should be a rare occurrence now, as the average time between the filing of a request for continued examination and the subsequent Office action is currently only 79 days.

In addition, the Office reminds stakeholders in a footnote that:

The patent term adjustment reduction at issue in Supernus can be avoided by the prompt submission of the information disclosure statement.  Specifically, 37 CFR 1.704(d) provides a "safe harbor" in that a paper containing only an information disclosure statement in compliance with 37 CFR 1.97 and 1.98 will not be considered [a] failure to engage in reasonable efforts to conclude prosecution (processing or examination) of the application under 37 CFR 1.704(c)(6), (c)(8), (c)(9), or (c)(10) if the information disclosure statement is accompanied by one of the statements set forth in 37 CFR 1.704(d)(1)(i) or (d)(1)(ii).

Noting that the Office has "adopted ad hoc procedures for seeking reconsideration of the patent term adjustment determination in the past when there have been changes to the interpretation of the provisions of 35 U.S.C. 154(b) as a result of court decisions," the notice indicates that such ad hoc procedures were necessary because former provisions of 35 U.S.C. § 154(b)(4) "provided a time period for seeking judicial review that was not related to the filing of a request for reconsideration of the USPTO's patent term adjustment determination or the date of the USPTO's decision on any request for reconsideration of the USPTO’s patent term adjustment determination."  The Office therefore determined that no such ad hoc procedures were required in response to the Supernus decision because 37 C.F.R. § 1.705 allows patentees to file a request for reconsideration up to seven months after a patent is issued and to wait until after the Office reaches a final PTA determination before seeking judicial review of that determination.

A Comparison of U.S. and Japanese Patent Subject Matter Eligibility

By James Korenchan, Michael Anderson, and Yukio Oishi --

Patent practitioners who focus their practice in the high-tech sector have most likely encountered Japanese patent law in one form or another.  More often than not, companies at the forefront of technological advancement make, use, and sell products in Japan, or have competitors who do the same.  This alone can make Japan an attractive place for obtaining patent protection in high-tech fields.  Additionally, Japan is often viewed as having a very pro-patent (and thus, pro-patentee) court system, especially over the last ten or more years.  In April of 2015, the Japan Patent Office (JPO) implemented a new opposition system to invalidate patents as part of the Japanese Patent Act of 2014.^[1]  This new system has greatly reduced the number of patents found invalid.  For instance, between 2008 and 2017 the number of Requests for Trial for Invalidation in Japan fell by 40%.^[2]  Moreover, between 2008 and 2017 the percentage of patents found to be invalid fell from 59% to 21%.^[3]

Despite a growing interest in pursuing Japanese patent protection, many U.S. practitioners have a limited understanding of Japanese patent law and limited interactions with Japanese firms.  While having an extensive knowledge of Japanese patent law is not always necessary for U.S. practitioners to provide sound legal counsel, an appreciation of the differences between U.S. and Japanese patent prosecution can improve the quality of representation that practitioners provide.  Of the various patent prosecution issues faced in the high-tech space, subject matter eligibility is a common hurdle.  Thus, the focus of this article is the differences in subject matter eligibility analysis in the U.S. and Japan as it pertains to high-tech patent applications, particularly for computer-implemented inventions involving software or business methods.

By now, U.S. practitioners are all-too-familiar with the two-part Alice Corp. test for determining the patent eligibility of claims under 35 U.S.C. § 101.  In part one of this test, one must first determine whether the claimed subject matter as a whole is directed to a judicial exception.  Further, under Alice Corp. and its progeny, the judicial exception that high-tech claims typically face is whether the claims recite an "abstract idea."  If the claim is found to be directed to something other than a judicial exception, then the claim is patent-eligible.  But if the claim is found to be directed to a judicial exception, then part two of the test is applied.  In part two of the test, one must determine whether any element or combination of elements in the claim is sufficient to ensure that the claim recites "significantly more" than the judicial exception.

To call the recent history of patent eligibility in the U.S. tumultuous might be an understatement.  The U.S. Patent and Trademark Office (USPTO) and the courts have wrestled for years over how to guide examination of claims under § 101.  Court cases -- particularly, those from the Federal Circuit -- have provided differently-nuanced interpretations as to what constitutes an abstract idea and what elevates a claim to the realm of "significantly more."  The USPTO typically then follows suit by periodically updating its subject matter eligibility guidance.  However, in practice, the manner in which examiners apply the case law of the courts and the guidance issued by the USPTO can be a mixed bag, often to the chagrin of practitioners.

Under the most recent subject matter eligibility guidance issued by the USPTO on January 7, 2019, the USPTO attempted to clarify part two of the Alice Corp. test.^[4] According to the guidance, "a claim is not 'directed to' a judicial exception if the judicial exception is integrated into a practical application of that exception."  Thus, the guidance provides clarification to the previous test on step two of the Alice Corp. test as to what constitutes "significantly more" than the judicial exception.

The new guidance is based in part on the Federal Circuit decisions in BASCOM Glob. Internet Servs., Inc. v. AT&T Mobility LLC ^[5] and Arrhythmia Research Tech., Inc. v. Corazonix Corp.^[6]  In BASCOM, the Court concluded "that claims could be eligible if ordered combination of limitations 'transform the abstract idea . . . into a particular, practical application of that abstract idea.'"[7]  Additionally, in Arrhythmia, the claims were found patent eligible because "inventions that were implemented by the mathematically-directed performance of computers were viewed in the context of the practical application to which the computer-generated data were put."[8]

In practice, the new guidance is a powerful tool for patent practitioners.  For example, before the guidance, many software-based patent applications were faced with arguing there was "significantly more" than algorithms and computer hardware in the claims.  However, the new guidance obviates the previously opaque requirements.  Now, rather than advocate for "significantly more," practitioners can argue that their claim is a practical application of something that could be a judicial exception.  One manner to do this can be to argue that additional elements in the claims improve the functioning of a computer or provide an improvement to other technological areas.  Notably, the new guidance also does not involve a consideration as to whether such additional elements are merely conventional.  Thus, a claim with conventional elements can still be patent eligible as long as it integrates a judicial exception into a practical application.

While the new USPTO guidance attempts to bring some clarity and consistency to patent eligibility, the interplay between the courts and the patent office remains uncertain.  Thankfully for patentees seeking protection in Japan, the bar for patent eligibility appears to be lower and more clearly defined.  In contrast to the U.S., the hurdle for patent eligibility in Japan is lower.  For example, in Japan, an examiner must determine whether a claimed invention as a whole involves the "creation of a technical idea utilizing the laws of nature."^[9]  But similar to the U.S., examples of inventions typically deemed patent ineligible under this Japanese standard include those that are directed to economic laws, rules for playing a game, mental activities, mathematical formulas, or the mere presentation of information (e.g., image data taken with a digital camera).^[10]

When claims are deemed "software-related," the determination takes a slightly different form and involves a two-part inquiry.^[11]  First, the examiner evaluates the claimed invention from a non-software focused standpoint.  In other words, the patent eligibility of a software-related invention evaluated using this standpoint should not rest on the fact that the invention involves software.  Thus, the examiner first determines whether the invention stands on its own, and is patent eligible notwithstanding the software aspect.  But if the examiner is unable to make this first determination, the examiner then evaluates the invention with a heavier emphasis on the software aspects of the claim.

From a non-software focused standpoint, a software-related invention is likely to be found to be patent-eligible when it involves (i) "concretely performing control of an apparatus (e.g., an engine, a washing machine, a disk drive), or processing with respect to the control" or (ii) concretely performing information processing based on the technical properties of an object (e.g., physical, chemical, or electrical properties).^[12]  Interestingly, even claims that involve "software for causing a computer to execute a procedure of a method," or "a computer or system for executing such a procedure" are often found to be patent eligible in Japan without further inquiry.^[13]

From a software-focused standpoint, a software-related invention is likely to be found to be patent-eligible when "information processing by the software is concretely realized by using hardware resources."^[14] In other words, the cooperation of software and hardware resources can elevate a claim to a level of patent eligibility.  Examples of hardware resources include various "physical device[s] or physical element[s]" that are "used in processing, operation, or implementation of a function," such as a computer, CPU, memory, input device, output device, or a physical device connected to a computer.^[15]

The Japanese software-focused standard for patent eligibility is particularly notable for several reasons.  For one, it is in stark contrast with U.S. standards, in which merely implementing a process using software and hardware is almost always insufficient for patent eligibility.  Additionally, the lower hurdle before the JPO is undoubtedly a contributing factor to the higher level of allowed software-related claims and business method claims in Japan compared to that in the U.S.

For software-related claims, the Japanese standard as a whole, and particularly the software-focused standard, allows for a certain type of patent protection in Japan that is not currently available in the U.S.: program claims.  A "program claim" is distinct from a computer readable medium (CRM) claim and was introduced into Japan Patent Law in 2002 to address the issue that a CRM claim does not cover a situation where a software program is provided to a user, not by a CRM such as a CD-ROM, but rather by the user downloading the software program over a network.^[16]  In the JPO examination handbook, the JPO provides the following example forms that program claims can take, which U.S. practitioners will certainly note as being quite different from the scope of what is patent eligible in the U.S.^[17]

    Example 1: A program for causing a computer to execute a step A, a step B, a step C, …

    Example 2: A program for causing a computer to function as means A, means B, means C, …

    Example 3: A program for causing a computer to implement a function A, a function B, a function C, ...

Because program claims do not require an apparatus that stores the software code, program claims provide patent protection in an area that CRM claims do not, and are thus useful for at least that reason.

There are other types of claims that fall under the JPO's definition of a "program" and are often found to be patentable using the software-focused standard.  One example is a "trained model," such as "[a] trained model for causing a computer to function to output quantified values of reputations of accommodations based on text data on reputations of accommodations," where the model comprises multiple neural networks.^[18] Another example is a "data structure," such as "[a] data structure of dialogue scenarios utilized in a voice interactive system."  These types of claims can be more difficult to obtain in the U.S.^[19]

As for business method claims, between 2012 and 2017 in the U.S., the allowance rate for business method claims was 32.4% in 2013, dropped to 6.2% by 2016, and rose to 12.7% in 2017.^[20]  Over the same period of time in Japan, however, the allowance rate for such claims was consistently near 70%.^[21] The high allowance rate in Japan can be attributed to the low hurdle for software.  In particular, while business methods are not patent eligible on their own, software for implementing such methods are patent eligible as long as they meet the aforementioned requirements.  For example, claim 1 of Japanese Patent No. 5492261 is directed to "a system for determining executability of a loan transaction" and is recited as follows:

1.  A system for determining executability of a loan transaction comprising:
    means for receiving a loan application telegraphic message including an identifier of a loan application client, a loan execution date and a loan application amount from a terminal device;
    means for storing, for the loan application client, a loan limit amount, a total amount of loan balance and a future loan execution amount that has been scheduled to be loaned during a period of time up to the loan execution date; and
    means for determining that a loan transaction for the loan application telegraphic message is executable if a first total amount of the loan application amount, the total amount of loan balance and the future loan execution amount is less than or equal to the loan limit amount.

The key feature of this claim is not the presence of "a terminal device" (which is arguably the only concrete recitation of hardware in the claim) or another technical aspect, but rather a business process.  However, based on the JPO Examination Handbook, it would be clear to a person skilled in the art that, considering the claim as a whole, the underlying business process is "implemented by concrete means or procedures on which the software and hardware resources that a 'computer' usually comprises, such as a CPU, memory, storage means, input and output means, etc. cooperate."^[22]  Here, a "means for determining" implies a CPU, a "means for storing" implies memory, and a "means for receiving" implies an input or output means.  The business process is concretely realized by using hardware resources and is thus patentable.

A clear understanding of Japanese patent law in the areas of software and business methods can help practitioners avoid missteps and better represent companies who have or seek to have patent protection in Japan.  For example, even when U.S. patentees pursue software-related claims in Japan, they often attempt to do so with CRM-style claims and do not consider whether they should file program claims.  In fact, due to how unfavorably U.S. patent law is on business methods, and how risky U.S. patent law can be on software claims, U.S. patentees often forego pursuing patent protection in these areas altogether.  Thus, U.S. practitioners and patent applicants alike should be aware of all the particular advantages of Japanese patent law in these areas and reach out to a Japanese associate if any other advice is needed.  After all, it could be worthwhile for both parties.

^[1] Outline of the Partial Revision of the Patent Act, etc., Japan Patent Office (May 19, 2014), available at https://www.jpo.go.jp/e/system/laws/rule/hokaisei/document/tokkyohoutou_kaiei_2605 14/outline.pdf.

^[2] JPO Status Report 2019, Japan Patent Office, at 36 (March 2019), available at https://www.jpo.go.jp/e/resources/report/statusreport/2019/document/index/all.pdf.  

^[3] Overview of Trial for Invalidation and Opposition Systems in Japan, JPO Trial and Appeal Department at 6 (March 2017), http://www.ptabbar.org/wp-content/uploads/2018/03/Pre-Conference-Session-Comparing-the-PTAB-to-Other-Forums-Around-the-World-FINAL.pdf.  

^[4] 2019 Revised Patent Subject Matter Eligibility Guidance, Federal Register, 84 Fed. Reg 50 (Jan. 7, 2019).

^[5] 827 F.3d 1341, 1352 (Fed. Cir. 2016).

^[6] 958 F.2d 1053, 1056-57 (Fed. Cir. 1992).

[7] BASCOM Glob. Internet Servs., 827 F.3d at 1352.

[8] Arrhythmia Research Tech, 958 F.2d at 1057.

^[9] Examination Handbook for Patent and Utility Model in Japan, Japan Patent Office, Annex B, Chapter 1, Computer Software-Related Inventions, Section 2.1 and 2.1.1, available at https://www.jpo.go.jp/e/system/laws/rule/guideline/patent/handbook_shinsa/document/index/app_b1_e.pdf

^[10] Id.

^[11] Id. at Section 2.1.1.

^[12] Id. at Section 2.1.1.1.

^[13] Id.

^[14] Id. at Section 2.1.1.2.

^[15] Id.

^[16] News Release, JPO (April 2002)

https://www.jpo.go.jp/system/laws/rule/hokaisei/tokkyo/houkaisei_h140417/houkaisei_gaiyou.html.

^[17] Examination Handbook for Patent and Utility Model in Japan, Japan Patent Office, Annex B, Chapter 1, Computer Software-Related Inventions, Section 1.2.1.1.

^[18] Id. at Section 3, Case 2-14; see also Section 1.2.1.1.

^[19] Id. at Section 3, Case 2-13.

^[20] Business Methods Allowance Rate, USPTO, https://www.uspto.gov/patents-getting-started/patent-basics/types-patent-applications/utility-patent/business-methods-27 (last visited May 23, 2019).

^[21] See Nobuyuki Taniguchi, Recent Developments on Software-related Patents in Japan, Nakamura & Partners (Aug. 18, 2017), http://www.nakapat.gr.jp/en/legal_updates_eng/recent-developments-on-software-related-patents-in-japan/; Yukio Oishi, Protecting Fintech Business by Obtaining Patent Protection in Japan, Japan Patent and Trademark Update, TMI Associates (November 2017), available at https://www.tmi.gr.jp/wp-content/uploads/2017/11/jptu_issue_8.pdf.

^[22] See, e.g., Examination Handbook for Patent and Utility Model in Japan, Japan Patent Office, Annex B, Chapter 1, Computer Software-Related Inventions, Section 2.1.1.2, Example 4.

Merck Sharp & Dohme Corp. v. Albrecht (2019)

By Kevin E. Noonan --

Last week, in Merck Sharp & Dohme Corp. v. Albrecht, the Supreme Court continued its explication of the balance between state law tort liability that can be imposed on drug makers and the extent to which this liability can be pre-empted by the drug maker's compliance with Federal laws and regulations, particularly those related to FDA approval.

The case was brought by 500 users of Fosamax®, a drug administered to post-menopausal women to ameliorate the symptoms of osteoporosis.  At the time the FDA approved Fosamax®, Merck scientists had concerns (disclosed to FDA) -- but no clear evidence -- that long term use of the drug could cause femoral fractures later termed "atypical femoral fractures" (AFFs), characterized in the Court's opinion as "a rare type of complete, low-energy fracture that affects the thigh bone."  Because of the speculative nature of the association between AFFs and Fosamax® use at that time, the FDA did not require a warning regarding the risk of AFFs on the Fosamax® label.  As time went on, and adverse effects involving AFFs were reported by Fosamax® users, the risk association became more established, so much so that Merck submitted a proposed warning to the FDA in 2008; the FDA did not approve the warning.  Both the majority opinion and Justice Alito's concurring opinion suggest that the FDA's rejection was based at least in part on Merck's description of the side effect as a "stress fracture," which FDA did not believe properly notified the public of both the severity and atypicality of this type of fracture.  Nevertheless, in 2011, the FDA ordered Merck to include a warning that specifically called out AFFs as a risk of long term Fosamax® use.

Plaintiffs' complaint below was based on state law tort liability for failure to warn patients about the risk of AFF prior to 2011.  In its defense, Merck argued that the state law claims were pre-empted by the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. § 301 et seq., which governs, inter alia, drug labeling standards and requirements.  Additionally, Merck asserted that when it had attempted to have the FDA add a "risk of AFF" warning in 2008, the agency refused.

In a consolidated action before the District Court for the District of New Jersey, the Court agreed with Merck's argument and dismissed the complaint.  The Third Circuit vacated that decision in In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (CA3 2017), based on its evaluation of the Supreme Court's decision in Wyeth v. Levine, 555 U.S. 555 (2009).  In the Third Circuit's opinion, Wyeth required that there be "clear evidence that the FDA would not have approved the change . . . to the label."  In explaining its reasoning, the Third Circuit opined that the Supreme Court had intended to set forth a standard of proof in its Wyeth decision, and that that standard was not intended to specify "the type of facts that a manufacturer must show, or to the circumstances in which preemption will be appropriate" but instead "how difficult it will be for the manufacturer to convince the factfinder that the FDA would have rejected a proposed label change" (emphases in opinion).  To satisfy that burden, "the factfinder must conclude that it is highly probable that the FDA would not have approved a change to the drug's label" and (importantly for the Supreme Court's ultimate decision) "whether the FDA would have rejected a proposed label change is a question of fact that must be answered by a jury."  In addition, however, the Third Circuit suggested that the "clear evidence" standard was itself unclear and had been unevenly applied by lower courts, and suggested that "it would be helpful for [the Supreme] Court to 'clarif[y] or buil[d] out the doctrine.'"

Merck's certiorari petition focused the question of whether the factfinder should be the judge or jury, and the Supreme Court granted certiorari based on the "differences and uncertainties among the courts of appeals and state supreme courts in respect to the application of Wyeth."

The Court's opinion was written by Justice Breyer, joined by Justices Thomas, Ginsburg, Sotomayor, Kagan and Gorsuch.  Justice Thomas wrote a concurring opinion; Justice Alito, joined by the Chief Justice and Justice Kavanaugh, wrote an opinion concurring in the judgment.

Justice Breyer gets right to the point at the beginning of his opinion, expressly citing Wyeth and announcing the holding of the Court that the pre-emption question was for the judge to decide, not the jury.  (The explication of the Court's reasoning might prompt a wry smile from patent practitioners in view of the Court's antipathy to patent law in many of its recent decisions, because it cites extensively from patent law precedent for this conclusion.)  Justice Breyer also announces the Court's meaning of "clear evidence" to be "evidence that shows the court that the drug manufacturer fully informed the FDA of the justifications for the warning required by state law and that the FDA, in  turn, informed the drug manufacturer that the FDA would not approve a change to the drug's label to include that warning."

Justice Breyer suggests that pre-emption would be limited to those circumstances where "it is 'impossible for a private party to comply with both state and federal requirements,'" citing Mutual Pharmaceutical Co. v. Bartlett, 570 U.S. 472, 480 (2013).  After a brief recap of the Federal statutory scheme, the facts of the case below, and the Court's Wyeth precedent, Justice Breyer sets forth the Court's basis in precedent and Federal law for its understanding of the balance between Federal regulatory and state tort law.  Congress has never provided a federal cause of action or remedy for consumers harmed by "unsafe or ineffective" drugs, despite 70 years of experience since enactment of the FDCA and several amendments to the law; instead, in the Court's view, Congress enacted the FDCA "to bolster consumer protection against harmful products."  In doing so, he apparently sought to distinguish between substances harmful per se, as being adulterated or otherwise unsafe or ineffective in human use, and harm attendant (as here) in the use of otherwise safe and effective drugs.  From this, the Court understands that Congress, being aware of state law actions in tort for harm caused by drugs, did not intend to proscribe state sovereignty over such claims.  The "central premise," according to the Court's opinion, is that manufacturers bear the legal liability for such harms and for the content of their labels warning the public of those possible harms.  This responsibility translates to a duty to adequately warn "when the risks of a particular drug become apparent."  As the Court stated in Wyeth, "absent clear evidence that the FDA would not have approved a change to [the drug] label, we will not conclude that it was impossible for Wyeth to comply with both federal and state requirements" (emphasis in opinion).

Justice Breyer's synthesis of precedent and law is that "[t]he underlying question for this type of impossibility pre-emption defense is whether federal law (including appropriate FDA actions) prohibited the drug manufacturer from adding any and all warnings to the drug label that would satisfy state law," and, in order to prevail, the drug maker must satisfy a court that the answer to this underlying question is yes.  But in order for this to be the case, a drug manufacturer must show "that it fully informed the FDA of the justifications for the warning required by state law and that the FDA, in turn, informed the drug manufacturer that the FDA would not approve changing the drug's label to include that warning."  In perhaps the pithiest citation in the opinion, Justice Breyer reminds us that "the possibility of impossibility is not enough," citing PLIVA, Inc. v. Mensing, 564 U. S. 604, 625, n.8 (2011).  In this regard, the opinion also notes that there are two ways to warn under Federal Food and Drug law.  First, FDA regulations contain a "changes being effected" (CBE) provision, where a drug label can be changed unilaterally by the manufacturer in view of new information without prior FDA approval (but such changes can be rescinded by the FDA if the agency disagrees) under 21 CFR § 314.70(c)(6)(iii)(A).  Second, the drug maker can file a Prior Approval Supplement (PAS) application under § 314.70(b) to obtain FDA approval of changes to the label before the drug manufacturer changes its label.

Turning to one of the Third Circuit's concerns (and apparently misapprehensions), the opinion states that:

We do not further define Wyeth's use of the words "clear evidence" in terms of evidentiary standards, such as "preponderance of the evidence" or "clear and convincing evidence" and so forth, because, as we shall discuss, infra, at 15-17, courts should treat the critical question not as a matter of fact for a jury but as a matter of law for the judge to decide.  And where that is so, the judge must simply ask himself or herself whether the relevant federal and state laws "irreconcilably conflic[t]."  Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982).

Finally, in Justice Breyer's explication of the legal standards, the opinion reminds us that "the only agency actions that can determine the answer to the pre-emption question, of course, are agency actions taken pursuant to the FDA's congressionally delegated authority" under the Supremacy Clause, U.S. Const., Art. VI, cl. 2, and within the confines of the authority conferred upon the agency by Congress, citing New York v. FERC, 535 U.S. 1, 18 (2002).

The opinion bases its determination that the pre-emption question is one of law for a court to decide by citing patent law precedent related to claim construction, for the principle that "judges, rather than lay juries, are better equipped to evaluate the nature and scope of an agency's determination.  Judges are experienced in '[t]he construction of written instruments,' such as those normally produced by a federal agency to memorialize its considered judgments," citing Markman v. Westview Instruments, Inc., 517 U.S. 370, 388 (1996), and particularly with regard to "understand and to interpret agency decisions in light of the governing statutory and regulatory context," under 5 U.S.C. § 706.  As it had in Markman, the Court voiced its confidence that this would "produce greater uniformity among courts; and greater uniformity is normally a virtue when a question requires a determination concerning the scope and effect of federal agency action."  And even then, considering that "brute facts" can sometimes themselves be determinative, Justice Breyer found guiding principles in this regard in patent law:  "we have also held that 'courts may have to resolve subsidiary factual disputes' that are part and parcel of the broader legal question," citing Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 574 U.S. ___ (2015) (slip op., at 6-7).  As the Court decided in Markman, the "better positioned" decisionmaker here is the judge.

Justice Thomas writes in his concurring opinion that he believes "physical impossibility" for compliance with state and Federal law should not be the standard for determining that these laws "directly conflict," thus implicating pre-emption.  Rather, he thinks the founders were more concerned with "logical contradiction[s]" in the law, because in some instances it may be physically possible to comply with a Federal law that permits an action that state law prohibits, merely by refraining from the action (reasoning from Wyeth).  Justice Thomas further asserts that mere compliance with FDA regulations and the FDCA does not give Merck (or any drug maker) "an unconditional right to market [a] federally approved drug at all times with the precise label initially approved by the FDA," again citing Wyeth.  Justice Thomas believes that Merck's assertion of "hypothetical future rejections" of their amended label did not constitute a pre-emptive "law" under the Supremacy Clause, and he concludes that "[b]ecause Merck points to no statute, regulation, or other agency action with the force of law that would have prohibited it from complying with its alleged state-law duties, its pre-emption defense should fail as a matter of law."

Justice Alito's opinion concurring in the judgment emphasizes the "back and forth" between Merck and the agency regarding evidence that Fosamax® treatment was associated with risk of AFFs, and asserts that the majority's pre-emption analysis was "a skewed summary" of the law.  In particular, he believes that enactment of 21 U.S.C. § 355(o)(4)(A), which imposes a duty on the FDA to initiate a label change if presented with new information that supports the change, is something ignored by the Court that should be considered by the Third Circuit on remand.  And on the facts, Justice Alito's opinion states that:

[F]or years the FDA was: aware of this issue, communicating with drug manufacturers, studying all relevant information, and instructing healthcare professionals and patients alike to continue to use Fosamax as directed.  For this reason, the FDA itself, speaking through the Solicitor General, takes the position that the FDA's decision not to require a label change prior to October 2010 reflected the FDA's "determin[ation]" that a new warning "should [not] be included in the labeling of the drug," §355(o)(4)(A).

And this is consistent with Merck's position both below and before the Court.

Merck Sharp & Dohme Corp. v. Albrecht (2019)
Opinion by Justice Breyer, joined by Justices Thomas, Ginsburg, Sotomayor, Kagan, and Gorsuch; concurring opinion by Justice Thomas; opinion concurring in the judgment by Justice Alito, joined by Chief Justice Roberts and Justice Kavanaugh

Conference & CLE Calendar

May 30, 2019 - "Reasonable Measures to Protect Trade Secrets: Lessons for Litigators and In-House Counsel" (Intellectual Property Owners Association) - 2:00 to 3:00 pm (ET)

June 3-6, 2019 - BIO International Convention (Biotechnology Innovation Organization) - Philadelphia, PA

June 12-14, 2019 - Patent Fundamentals Bootcamp 2019: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) - Chicago, IL

July 17-19, 2019 - Patent Fundamentals Bootcamp 2019: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) - San Francisco, CA

IPO Webinar on Protection of Trade Secrets

The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled "Reasonable Measures to Protect Trade Secrets: Lessons for Litigators and In-House Counsel" on May 30, 2019 from 2:00 to 3:00 pm (ET).  Kenneth Corsello of IBM, David Morrison of Goldberg Kohn, and Shannon Murphy of Winston & Strawn LLP will analyze specific cases where plaintiff companies could not point to specific protective steps they had taken to protect their trade secrets, and in which defendants prevailed via a motion to dismiss, summary judgment, or at trial.  The panel will outline ways a company, in order to overcome threshold challenges to the assertion of trade secret theft claims, can articulate, with specificity, the measures it undertook to protect its trade secrets, such as:

• Differentiating protective measures for the alleged proprietary trade secrets from those imposed on other corporate information
• Showing optimal terms in a confidentiality agreement
• Having procedures to limit access for departing employees

The panel will discuss how these measures are weighed and/or required by courts.

The registration fee for the webinar is $135 (government and academic rates are available upon request).  Those interested in registering for the webinar can do so here.

Senate Proposal for Section 101 Reform: Effect on Biotech/Pharma Inventions

By Kevin E. Noonan --

The parlous state of patent law as applied to biotechnology (and to a slightly lesser extent, pharmaceuticals) generally over the past several years has been thoroughly explicated here and elsewhere, and the recalcitrance engendered by stare decisis principles at numerous district courts and the Federal Circuit (and the Supreme Court's unwillingness to grant certiorari and address the issues its patent eligibility jurisprudence has created) has made it evident that only a legislative remedy may be capable of correcting the state of the law on this issue.  There have been several proposals, by the Intellectual Property Owners (IPO), the American Intellectual Property Law Association (AIPLA), the Intellectual Property Law Section of the American Bar Association (ABA-IPL), and other bar groups, for changes in 35 U.S.C. § 101 that would address the problem.  Over the past months, Senators Tillis (R-NC), Chairman of the Intellectual Property Subcommittee of the Senate Judiciary Committee, and Senator Coons (D-DE), the Ranking Member of the Subcommittee, have had a series of Roundtables with various stakeholders and have announced general considerations ("a framework") for proposed legislation on revising Section 101.  Yesterday, these Senators, along with Rep. Johnson (D-GA 4th), Chairman of the House Judiciary Committee, Rep. Collins (R-GA 9th), Ranking Member of the House Judiciary Committee, and Rep. Stivers (R-OH 15th), released a "bipartisan, bicameral" draft of specific legislation based on these efforts.  Specifically, Sections 100, 101, and 112 would be changed under their proposal, as follows:

Section 100:

(k) The term "useful" means any invention or discovery that provides specific and practical utility in any field of technology through human intervention.

Section 101:

(a) Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

(b) Eligibility under this section shall be determined only while considering the claimed invention as a whole, without discounting or disregarding any claim limitation.

Section 112

(f) Functional Claim Elements—

An element in a claim expressed as a specified function without the recital of structure, material, or acts in support thereof shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.

In addition, the proposal is accompanied by "other legislative provisions" to the effect that:

• The provisions of section 101 shall be construed in favor of eligibility.

• No implicit or other judicially created exceptions to subject matter eligibility, including "abstract ideas," "laws of nature," or "natural phenomena," shall be used to determine patent eligibility under section 101, and all cases establishing or interpreting those exceptions to eligibility are hereby abrogated.

• The eligibility of a claimed invention under section 101 shall be determined without regard to: the manner in which the claimed invention was made; whether individual limitations of a claim are well known, conventional or routine; the state of the art at the time of the invention; or any other considerations relating to sections 102, 103, or 112 of this title.

These Senators will be holding hearings on June 4, 5 and 11 on the proposal, which is why the language of the proposed bill is not final (particularly regarding the "other" provisions).

The question is whether such legislative corrections will provide a solution for claims to the two types of subject matter that have been most affected by the Supreme Court's recent cases: diagnostic methods and natural products.  And an important subsidiary question is whether the Court will take its congressional medicine in stride or will find ways either to reject correction outright or parse the amended statutory language to reach the same murky results.

With those considerations in mind, the current proposed amendments to section 101 remove the temptation to mix novelty and patent eligibility concepts in that section by removing the word "new" from this part of the statute, which is unlikely by itself to effect a significant change in how the Court performs its eligibility analysis.  The other change is more promising, because it codifies the Court's own holding in Diamond v. Diehr and provides a promise of a remedy for the parsing of claims encouraged by the "routine, well-understood, and conventional" language found in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (and used with patent-invalidating effect in cases such as Ariosa v. Sequenom, by the district court and the Federal Circuit).  It remains to be seen whether stronger language prohibiting application of Justice Breyer's language in Mayo is included in the final draft, but it is clear this course is contemplated by the bill's sponsors as part of the "other legislative provisions" portion of the draft.

The proposed addition of section 100(k) can be understood to be an attempt to put a "technology" and "human intervention" requirement into the patent eligibility section through the definition of "useful," rather than burdening section 101 with these concepts.

These proposed changes do not directly address the problems certain biotechnology inventions have faced, specifically diagnostic methods and products of nature (the former claims have been challenged more frequently and fared more poorly than natural product claims; the main impediment to eligibility of the latter is the Court-imposed proscription against patenting natural products that have "merely" been isolated from nature).  Prospects for addressing these issues can be found in the "other" provisions, but these are also the provisions most likely to provoke the most vociferous backlash, from the Court as well as those stakeholders who believe that the recent constrictions on subject matter eligibility are in their best interests.  As intimated by the draft, the bill may contain a provision expressly abrogating the judicial exceptions ("abstract ideas," "laws of nature," or "natural phenomena"), that abrogation applying both prospectively and retrospectively (does Sequenom get its patents back?).  But this raises the issue of whether the Court can invalidate any such change as being outside the scope of the powers conferred upon Congress under Article I, Section 8, clause 8 of the Constitution.  It is good to recall that the judicial exceptions (occasional effects not to the contrary) are not judicial whims:  the Court firmly believes that they are necessary to prevent Congress from exceeding its Constitutional authority to grant patents only on inventions that "promote progress."  This is consistent with the Court's role in our system of government, and at best the consequence of any such abrogation will be that it is ignored in practice, and at worst it could motivate the Court to recite even more stringent and strictly applied limitations on Congress's power to grant patents.  The Court's forays into patent policy making have been unfortunate to say the least; anything that encourages these tendencies is unlikely to end well for U.S. innovation.

A more complete assessment of the prospects of proposed legislation to resolve the current morass of district court, Federal Circuit, and Supreme Court case law on subject matter eligibility under the Patent Act will depend, and will be performed, once a bill is introduced.  But that of course is just the opening salvo; it is certain that stakeholders who disagree than there is anything amiss under current circumstances will oppose and, at best, extract some concessions of their own before meaningful legislation will advance (and of course there is no telling what the Trump administration's position will be on the issue).

There is one outside-the-box yet summary solution to the issue (advanced so often by a contributor to this blog under the nom-de-blog "Skeptical" that we investigated it).  Article III sets forth the jurisdiction of the Supreme Court very plainly:

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and Consuls;—to all Cases of admiralty and maritime Jurisdiction;—to Controversies to which the United States shall be a Party;—to Controversies between two or more States;--between a State and Citizens of another State;--between Citizens of different States;--between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction.  In all the other Cases before mentioned, the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make.  Article III, Section 2 [emphasis added].

Taken at face value, this provision empowers Congress to withdraw the appellate jurisdiction of the Court over patents.  While there is academic disagreement with this interpretation (see Calabresi and Lawson, "The Unitary Executive, Jurisdiction Stripping, and the Hamdan Opinions: A Textualist Response to Justice Scalia), there is also support, for example in Ex Parte McCardle, 74 U.S. 506 (1869), The Francis Wright, 105 U.S. 381, 386 (1881), and National Insurance Co. v. Tidewater Co., 337 U.S. 582, 655 (1949).  Heretofore, it was unlikely that anything this radical could have any real chance of being enacted.  But in the current political climate, it would be foolhardy to summarily reject any outcome contemplated by the Constitution under the right circumstances.  The question is, have those circumstances yet arrived?

Congress Proposes Draft Bill to Change 35 U.S.C. § 101

By Michael Borella --

On May 22, a bipartisan and bicameral group of senators and representatives released a draft bill that proposes significant changes to 35 U.S.C. § 101 and the law of patent eligibility.  This draft bill follows a framework that the group released in April.

Patent eligibility has been a source of much controversy and complaint since the Supreme Court's rulings in Mayo v. Prometheus and Alice v. CLS Bank Int'l, both of which effectively made it more difficult to patent certain types of inventions -- particularly, diagnostic methods, software, and business methods.  The consternation over the Court's opinions rests not only in how it limited the ability to protect critical innovations that drive the U.S. economy, but also how vague the Justices left the line between inventions that are eligible for patent and those that are not.

While there was some hope that the Federal Circuit might be able to clarify the substantive law, this has not happened.  As an exercise to the reader, try to rectify the holdings in McRO, Inc. v. Bandai Namco Games America Inc., Recognicorp, LLC v. Nintendo Co. Ltd., Electric Power Group, LLC v. Alstom S.A., Synopsys Inc. v. Mentor Graphics Corp., and Amdocs (Israel) Limited v. Openet Telecom, Inc.  Have fun.

And while the U.S. Patent and Trademark Office's new § 101 Examination Guidance is an earnest effort by Director Iancu and his staff to clarify and harmonize how that body is to apply the eligibility inquiry, it effectively replaced the Court's test with its own similar test that is to be used in more limited situations.  While this appears to have eliminated many of the more tenuous § 101 rejections from prosecution, applicants are still contending with nitty ambiguities of the judicial exceptions (what exactly is the scope of "methods of organizing human activity" anyway?) and what it takes to integrate one of these exceptions into a practical application thereof.

And before anyone concludes that those railing against the current state of § 101 are just a bunch of patent attorneys making self-serving arguments for stronger patent laws, a number of federal judges have strongly criticized Alice and its progeny.  Judge Wu of the U.S. District Court for the Central District of California panned Alice for setting forth an "I know it when I see it" test.  Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues."  More recently, Judge Plager of the Federal Circuit wrote that the post-Alice § 101 inquiry "renders it near impossible to know with any certainty whether the invention is or is not patent eligible."  Former Chief Judge of the Federal Circuit Paul Michel stated that Alice "create[d] a standard that is too vague, too subjective, too unpredictable and impossible to administer in a coherent consistent way in the patent office or in the district courts or even in the federal circuit."  And these are just a few examples of judicial confusion.  There are more.

In any event, the need for clarification of § 101 and a workable patent eligibility test is critical.  Small businesses and individual inventors have been hit particularly hard by Alice, as these entities and individuals often lack the resources for the long, drawn-out process of overcoming USPTO § 101 rejections or defending an issued patent against a § 101 challenge.  In contrast, larger organizations have deeper pockets to take up the fight and can hedge their chances of allowances and litigation victories across a portfolio of dozens or hundreds of patents.  So, to some extent, the patent eligibility battle has become one of large versus small.

The framework set forth in April defined a closed list of exceptions to the four statutory categories of § 101 that were roughly modeled after those of Alice and Mayo.  Also like Alice, the framework attempted to "[e]nsure that simply reciting generic technical language or generic functional language does not salvage an otherwise ineligible claim."  But following these principles would effectively codify a variation of the Alice test.  This variation would be similar to that of the USPTO's new guidance, and thus would suffer from a number of the same ambiguities and be similarly difficult to apply consistently.

The draft bill, however, goes in a different direction.  The proposed modification to § 101 reads as follows:

Section 101:

(a)    Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

(b)    Eligibility under this section shall be determined only while considering the claimed invention as a whole, without discounting or disregarding any claim limitation.

The draft bill also proposes a definition of the term "useful":

Section 100:

(k)    The term "useful" means any invention or discovery that provides specific and practical utility in any field of technology through human intervention.

The draft bill further clarifies how these new provisions are to be interpreted:

The provisions of section 101 shall be construed in favor of eligibility.

No implicit or other judicially created exceptions to subject matter eligibility, including "abstract ideas," "laws of nature," or "natural phenomena," shall be used to determine patent eligibility under section 101, and all cases establishing or interpreting those exceptions to eligibility are hereby abrogated.

The eligibility of a claimed invention under section 101 shall be determined without regard to: the manner in which the claimed invention was made; whether individual limitations of a claim are well known, conventional or routine; the state of the art at the time of the invention; or any other considerations relating to sections 102, 103, or 112 of this title.

These last two points represent the most significant changes -- completely eliminating the notion of a judicial exception to patent eligibility as well as clarifying that the § 101 inquiry is (as it was until Mayo) separate from those of §§ 102, 103, and 112.  In other words, patentable subject matter under the draft bill would likely be as broad or even broader than the "anything under the sun that is made by man" language of Diamond v. Chakrabarty.

If passed as is, the draft bill would have an immediate and significant impact on software and business method inventions.  Patent eligibility would likely no longer be a barrier to obtaining protection for mathematical equations and pure software processes executing on general purpose computer hardware, as well as financial transactions and other types of business methods.  Further, there is no "mental process" exception that prevents patenting a series of steps that can be carried out in the human mind.  That is not to say, of course, that all such inventions would be patentable, as they would still have to be novel, non-obvious, definite, and described such that a person skilled in the art could make and use them.

As a consequence, one must wonder whether the proposed language is too broad -- do we really want to grant patents on purely mental processes, and if so how does one detect infringement?  Perhaps the definition of "useful" is meant to pump the brakes in that regard.  This term requires that a claimed invention have three distinct properties to be patent eligible: (1) it provides specific and practical utility; (2) in a field of technology; and (3) through human intervention.  One may be able to resurrect the Alice-derived arguments that mental processes, business methods, and certain types of software do not address a "technological" field, and that broad claims thereto are not "specific and practical" enough.  Such arguments would be subject to the same lack of clarity exhibited by the Alice test in general.

Regardless, the language of the draft bill is an interesting step in a direction that potentially overcomes a significant portion of the problems with today's application of § 101.  On June 4, 5, and 11, the Senate Judiciary Subcommittee on Intellectual Property will hold hearings to "solicit additional stakeholder feedback and to hear from a diverse set of witnesses on the problems different industries are facing with our nation's patent eligibility laws."

No doubt, powerful stakeholders with strong lobbying efforts will attempt to make this proposed legislation seem apocalyptic, contending that it breathes new life into non-practicing entities and so-called frivolous lawsuits that were curtailed by Alice.  Hopefully, Congress takes a balanced approach and recognizes that Alice hurt practicing entities as well as those that are non-practicing, and that the latter category includes many legitimate interests (such as university researchers and small inventors with limited resources).  There are ways that Congress can address bad actors in the patent space without harming U.S. innovation.  If anything, the last seven years has established that § 101 is the wrong tool for that job.

Scentsational Technologies LLC v. PepsiCo, Inc. (Fed. Cir. 2019)

By Joshua Rich --

Parties often push experts to testify outside their area of expertise and leave it up to the expert to push back when uncomfortable.  If the expert fails to do so, a party's aggressiveness may come back to haunt it before the Court.  That is why the Scentsational case, although nonprecedential, serves as a cautionary tale for intellectual property litigators.

Scentsational's interactions with Pepsi began in 2001, when it first shared trade secrets relating to the development and commercialization of scented packaging for beverages.  Over the next nine years, the two companies executed four confidentiality agreements and a funded development agreement.  Scentsational's founder also made technical presentations about the technology to Pepsi scientists and engineers, including in January 2008 and March 2010, and provided product samples to Pepsi.  Soon after the March 2010 presentation, however, the project lost steam and Pepsi decided to terminate the relationship with Scentsational.

Upon Pepsi's shelving of the project, Scentsational immediately went to talk to Coca-Cola about how its technology could benefit Coke's products.  In August 2010, Scentsational and Coke executed an agreement to begin the project and completed the initial phase (Phase I).  However, before they started Phase II -- or executed the Phase II agreement -- Coke discovered a number of Pepsi patent applications that had been filed between 2008 and 2011 and, unbeknownst to Scentsational, allegedly incorporated the same Scentsational trade secrets that were now being exploited on Coke's behalf.  Coke therefore terminated the relationship.

Faced with the loss of millions of dollars had the Coke products gone to market, Scentsational sued Pepsi in the U.S. District Court for the Southern District of New York for trade secret misappropriation, correction of inventorship on the patent applications that allegedly incorporated Scentsational's trade secrets, breach of the confidentiality agreements, and related business torts.  After discovery, Pepsi moved for summary judgment on all of the claims.  Although the Court noted that the evidence was thin, it allowed the trade secret misappropriation, correction of inventorship, and breach of contract claims to proceed.  However, the Court found that the argument for lost profits was too speculative -- especially when Scentsational's own technical expert opined that there was a 35% chance of the project producing a commercialized product -- and therefore entered summary judgment on that portion of the misappropriation claim.

Then the case was transferred to a new judge.

Pepsi moved in limine to exclude testimony from all three of Scentsational's experts under Daubert v. Merrrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).  On the eve of trial, the new judge granted the motions with regard to Scentsational's technical expert and damages expert.  The technical expert was, admittedly, a packaging expert knowledgeable about both materials and related FDA regulations.  However, she was seeking to testify on the existence of Scentsational's trade secrets, regulatory requirements related to those trade secrets, Scentsational's relationship with Pepsi, and Scentsational's business opportunities with Coke.  At Pepsi's urging, the Court found she was not an expert in commercialization, and was therefore unqualified to testify on those issues.  With regard to the existence and misappropriation of trade secrets, she was seeking to provide a factual narrative and reach legal conclusions, both of which would be improper.  And because the damages expert's opinions rested on her conclusions, his testimony would be unfounded and was therefore stricken as well.

In light of the striking of Scentsational's two key experts from the case, the new judge allowed Pepsi to move again for summary judgment.  The Court then granted the summary judgment motion.  She began by repeating the earlier judge's conclusion that Scentsational's damages calculation was too speculative to justify seeking lost profits, based substantially on the likelihood of the Coke project going forward to commercialization being less than 35%.  And because Scentsational hadn't presented evidence of other damages theories, the lack of causation of lost profits doomed the claims for trade secret misappropriation and breach of contract.  Finally, because Scentsational was relying solely on the putative inventor's testimony on the issue of inventorship (without independent corroboration), the Court found that it could not establish by clear and convincing evidence that he was actually an inventor of the subject matter of the contested patent applications.

Scentsational then appealed to the U.S. Court of Appeals for the Federal Circuit (which had jurisdiction over the appeal because of the correction of inventorship claim).  It argued primarily that the District Court's Daubert decisions were incorrect.  The Federal Circuit first found that the District Court's clearly reasoned Daubert decision on the lack of causation of damages and lost profits was well within the discretion afforded to a district court.  Given that decision, the Federal Circuit then considered whether there was any other damages theory that could support a reversal of the summary judgment in Pepsi's favor.  But the panel found that Scentsational had either waived or failed to support damages for Phase II alone or nominal damages both below and on appeal.  Finally -- providing more reasoning than the District Court -- the Federal Circuit found that Scentsational had failed to provide corroborating evidence of inventorship.  Indeed, it sought to leverage its trade secret misappropriation evidence as proof of inventorship (an argument that it failed to raise below), which failed on both the substantive grounds that supported affirmance of the summary judgment decision on the trade secret claim and on the basis that Scentsational waived the argument.

While the merits of the Scentsational case provide little guidance to other parties, other than the need to aggressively police nondisclosure agreements, the grounds for resolution provide a clear warning.  The Federal Circuit will have little sympathy for a party that has stretched an expert's testimony beyond the bounds of her expertise, and will uphold a district court's decision disqualifying an expert who falls prey to that trap.

Scentsational Technologies LLC v. PepsiCo, Inc. (Fed. Cir. 2019)
Nonprecedential disposition
Panel: Chief Judge Prost and Circuit Judges Lourie and Bryson
Per curiam

Nuvo Pharmaceuticals (Ireland) Designated Activity Co. v. Dr. Reddy's Laboratories Inc. (Fed. Cir. 2019)

By Kevin E. Noonan --

There are provisions and interpretations of U.S. patent law that can be in tension depending on the circumstances under which they are argued, whether before an Examiner or during litigation.  One of these is the dichotomy between arguing that the prior art would provide insufficient expectation of success to render an invention obvious, while at the same time relying on what was known by a person of skill in the art to minimize the extent of the written description provided in a specification that satisfies the written description requirement of 35 U.S.C. § 112(a).  This tension proved fatal to the claims at issue in Nuvo Pharmaceuticals v. Dr. Reddy's Laboratories, decided by the Federal Circuit last week.

The case arose as ANDA litigation against Dr. Reddy's Labs (and Mylan and Lupin entities) over non-steroidal anti-inflammatory drugs (NSAIDs) formulated to diminish recognized gastrointestinal irritation side effects these drugs can cause, the formulations being claimed in Orange Book-listed U.S. Patent Nos. 6,926,907 and 8,557,285 and sold by Nuvo as Vimovo®.  The prior art disclosed efforts to avoid these side effects by co-administration of NSAIDs with proton pump inhibitors (PPIs), because stomach acid was believed to contribute to them.  These efforts were disadvantageous, inter alia, because stomach acid degraded the PPIs before they could be absorbed in the small intestine and have their acid-diminishing effect in the stomach.  The art showed attempts to remedy these shortcomings by enterically coating PPIs to resist stomach acid.  These efforts did not entirely fix the problem because the NSAID was degraded if released into the stomach before the PPI could reduce stomach acid (i.e., raising the pH by inhibiting the proton pump responsible for producing the acidic environment therein).

The inventor of the '907 patent invented a new formulation that "coordinated the release of an acid inhibitor and an NSAID in a single tablet, the formulation comprising a core of an NSAID, enterically coated so that the coating dissolves only at an elevated pH, and then providing an amount of a PPI sufficient to provide pH elevated to the enteric cost dissolving level."  Claim 1 of the '907 patent and claim 1 of the '285 patent are each set forth as representative in the Federal Circuit's opinion, respectively:

1.  A pharmaceutical composition in unit dosage form suitable for oral administration to a patient, comprising:
    (a) an acid inhibitor present in an amount effective to raise the gastric pH of said patient to at least 3.5 upon the administration of one or more of said unit dosage forms;
    (b) a non-steroidal anti-inflammatory drug (NSAID) in an amount effective to reduce or eliminate pain or inflammation in said patient upon administration of one or more of said unit dosage forms;
    and wherein said unit dosage form provides for coordinated release such that:
        i) said NSAID is surrounded by a coating that, upon ingestion of said unit dosage form by said patient, prevents the release of essentially any NSAID from said dosage form unless the pH of the surrounding medium is 3.5 or higher;
        ii) at least a portion of said acid inhibitor is not surrounded by an enteric coating and, upon ingestion of said unit dosage form by said patient, is released regardless of whether the pH of the surrounding medium is below 3.5 or above 3.5.

1.  A pharmaceutical composition in unit dosage form comprising therapeutically effective amounts of:
    (a) esomeprazole, wherein at least a portion of said esomeprazole is not surrounded by an enteric coating; and
    (b) naproxen surrounded by a coating that inhibits its release from said unit dosage form unless said dosage form is in a medium with a pH of 3.5 or higher;
    wherein said unit dosage form provides for release of said esomeprazole such that upon introduction of said unit dosage form into a medium, at least a portion of said esomeprazole is released regardless of the pH of the medium.

While the specification (according to the panel opinion) disclosed many features of the claimed invention, "[i]t is undisputed that there is no experimental data demonstrating the therapeutic effectiveness of any amount of uncoated PPI and coated NSAID in a single dosage form," nor is there any disclosure of formulations wherein uncoated PPI could be used to raise gastrointestinal pH.

The District Court found that Defendants had not shown the asserted claims to be obvious under 35 U.S.C. § 103 nor not enabled or inadequately described under 35 U.S.C. § 112, and that one of Dr. Reddy's generic products did not infringe the '907 patent (granting summary judgment to Dr. Reddy's on its noninfringement motion).  Specifically, the Court found that it would not have been obvious to use a PPI according to the asserted claims to prevent gastrointestinal injury from an NSAID, inter alia because the art would have discouraged attempting such formulations due to the known acid sensitivity of PPIs.  Moreover, the District Court held that the claims were enabled because the specification disclosed how to make and use the invention.  The Court relied on expert testimony in deciding that the skilled worker would have recognized the usefulness of the claimed formulations.

With regard to Dr. Reddy's written description challenges, the District Court found that the use of the transition term "comprising" in the '285 patent claims did not cause the claims to encompass (undisclosed) embodiments having uncoated, immediately released naproxen (an exemplified NSAID).  The Court also rejected a second challenge, that the claims encompass sustained-release as well as delayed-release NSAID formulations not supported by the specification, because the claims recited "inhibiting" rather than "preventing" NSAID release prior to achieving the claimed raised pH levels.  Finally, the District Court rejected Defendants' argument that "ordinarily skilled artisans would not have expected [the claimed formulation] to work and the specification provides no experimental data or analytical reasoning showing the inventor possessed an effective uncoated PPI."  The Court held that "experimental data and an explanation of why an invention works are not required, the specification adequately describes using uncoated PPI, and its effectiveness is necessarily inherent in the described formulation."

This appeal followed, limited to the District Court's findings on the first and third written description arguments; Nuvo cross-appealed on the District Court's grant of summary judgment of non-infringement by Dr. Reddy's second formulation.

The Federal Circuit reversed the District Court's decision and dismissed Nuvo's cross-appeal, in an opinion by Judge Clevenger, joined by Chief Judge Prost and Judge Wallach.  The opinion states that the panel's analysis "begins and ends" with Defendants' third written description argument related to a failure to show "efficacy" of the claimed formulation.  According to the Federal Circuit, the issue was raised by Nuvo's argument (related to Defendants' obviousness assertions) that "ordinarily skilled artisans would not have expected uncoated PPIs to be effective."  Inconsistently, "nothing in the specification would teach a person of ordinary skill in the art otherwise" and this failure to disclose what was not found in the art (and indeed, Nuvo affirmatively contended was not known in the art with regard to the obviousness issue) amounts to a failure to describe how the inventors were in possession of the claimed invention.  The District Court's error, according to the Federal Circuit, was that its written description analysis on this point "does not support it conclusions."  Because of the "clear error" standard of review imposed on the Federal Circuit on questions of fact (as the adequacy of disclosure sufficient to satisfy the written description requirement is), the opinion asserts that the panel "scour[ed] the record created below for evidence supporting the district court's written description finding."

To no avail.  In part, the panel came to this conclusion because they appreciated that Nuvo raised "at least five arguments" ("for the first time on appeal, and as its lead argument") directed to reading any effectiveness language or requirement from the asserted claims.  These arguments were, in the panel's view, contradicted by the plain language (and plain meaning thereof) of the claims (claim 1 of the '907 patent recites ". . . in an amount effective to raise the gastric pH of said patient to at least 3.5," and claim 1 of the '285 patent recites ". . . comprising therapeutically effective amounts of "the PPI"; emphasis in the opinion).  But the opinion sets forth and rejects each one.

First, Nuvo argued that the dosage form as a whole does not need to be effective in raising gastric pH; the Federal Circuit agreed but did not find any Defendants' argument to the contrary.

Second, Nuvo argued that the claims do not require the NSAID and PPI to be in a single dosage form, but "only amounts of each component effective on their own."  Defendants argued that the claim "requires coordinated release achieved by an effective amount of uncoated PPI that raises the gastric pH to at least 3.5 and an effective amount of naproxen that is released to treat pain when the pH reaches the desired level"; the panel held that Nuvo had not presented this argument below and thus it was forfeited.

Third, Nuvo contended that the claim didn't require the uncoated PPI to be effective to raise gastric pH, just that the formulation contained an effective amount of uncoated PPI.  In addition to holding Nuvo had also forfeited this argument by not raising it below, the panel termed it "nonsensical to read the claims to require effective amounts of uncoated PPI without specifying the result effectively achieved."

Fourth, Nuvo asserted that the claims encompassed "multiple dosage forms" and thus the specification did not need to expressly describe any particular effective dosage form.  Rather than summarily dismissing this argument, the opinion expressly disagreed with it:  the '285 patent "does not allow for more than one dosage form" and "[e]ven if it were true that the '907 patent allows more than one dosage form to effectively raise the gastric pH to at least 3.5 using uncoated PPI, the specification would still need to provide support for the notion that uncoated PPI is effective," according to the Court.

Finally, the panel rejected Nuvo's argument that the Examiner interpreted the claims in a manner consistent with their argument, that "the '907 patent claims [] merely require[d] certain amounts of PPI and NSAID effective on their own rather than requiring an overall efficacy for the combined drug."  The panel found Nuvo's argument relied in this regard on arguments the Court had already rejected and besides, in their view "the Examiner appears to have interpreted the claims to require an amount of PPI, whether coated or uncoated, effective to raise the gastric pH to the desired level" and that was the written description required (and lacking) in Nuvo's specification.

Having decided what the written description was required to be, the panel then reported its failure in finding support in the specification.  Nuvo's attempt to rely on expert testimony was unavailing, in part because this testimony was sufficiently particular that the Court was able to review and reject it.  Specifically, the opinion states that "[t]he statements [the expert] points to recite the claim limitation by simply calling generally for effective amounts of uncoated PPI, but our precedent clearly establishes that is not enough . . . .  We have expressly rejected the 'argument that the written description requirement . . . is necessarily met as a matter of law because the claim language appears in ipsis verbis in the specification'" according to the opinion, citing Enzo Biochem, Inc. v. Gen–Probe Inc., 323 F.3d 956, 968 (Fed. Cir. 2002).  Experimental evidence is not required, In re '318 Patent Infringement Litig., 583 F.3d 1317, 1324 (Fed. Cir. 2009), nor is there any requirement for a "theory or explanation of how or why a claimed composition will be effective," Allergan, Inc. v. Sandoz Inc., 796 F.3d 1293, 1308 (Fed. Cir. 2015), nor does an invention need to be reduced to practice, Univ. of Rochester v. G.D. Searle & Co., 358 F.3d 916, 926 (Fed. Cir. 2004).  But here, "there is nothing in the specification of the patents-in-suit showing that the inventor actually invented the invention claimed,'" citing Centocor Ortho Biotech, Inc. v. Abbott Labs., 636 F.3d 1341, 1348 (Fed. Cir. 2011) (emphasis in opinion).  The Court concluded that the specification is "fatally flawed" with regard to providing an adequate written description of the requisite efficacy recited in the claims, and reversed the District Court's finding that Defendants had not established that the '907 and '285 patents were invalid for failure to satisfy the requirements of 35 U.S.C. § 112.

Nuvo Pharmaceuticals (Ireland) Designated Activity Co. v. Dr. Reddy's Laboratories Inc. (Fed. Cir. 2019)
Panel: Chief Judge Prost and Circuit Judges Clevenger and Wallach
Opinion by Circuit Judge Clevenger

Hyper Search LLC v. Facebook Inc. (D. Del. 2018)

By Michael Borella --

In October 2017, Hyper Search brought a patent infringement action against Facebook in the District of Delaware, asserting U.S. Patent Nos. 6,085,219, 6,271,840, and 6,792,412.  Facebook sought to dismiss the complaint under Rule 12(b)(6), alleging that all asserted claims were invalid under 35 U.S.C. § 101.  While all three patents suffered a similar fate, the '412 patent and the Court's reasoning regarding this patent is of particular interest because the claims thereof specifically address machine learning.

Machine learning is a subset of artificial intelligence in which a data set -- usually a large one -- is used to train a computational model.  This model is then applied to new instances of data to provide a result in line with the training.  In this fashion, software can be used to classify and/or predict outcomes often with greater accuracy than can be expected from human performance or programs developed in a more traditional manner.  Notably, the exact algorithm and rules used by the model are not explicitly provided by the programmer -- instead, the process of training the model develops these rules from the training data.  Machine learning has been applied with success to various technological fields, such as speech recognition, image classification, supply chain management, drug efficacy, genetic similarity, and information technology services, just to name a few.

The patent eligibility of artificial intelligence, machine learning in particular, is an open issue.  There have been no substantive Supreme Court or Federal Circuit § 101 cases to date, and just a handful in the district courts.  But this handful has not been representative of how machine learning claims are now drafted (or should be drafted), and the machine learning content therein was often tangentially related to the actual claim language.  Thus, any proceeding that can provide insight on the nuances of how machine learning inventions are being viewed by the courts is potentially helpful.

Why is patent-eligibility an issue for machine learning inventions?  This is because the validity of software patents as a whole has been subject to an additional layer of scrutiny for the last five years.

In Alice Corp. v. CLS Bank Int'l, the Supreme Court set forth a two-part test to determine whether claims are directed to patent-eligible subject matter under § 101.  One must first decide whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further decide whether any element or combination of elements in the claim is sufficient to ensure that the claim amounts to significantly more than the judicial exclusion.  But elements that are well-understood, routine, and conventional will not lift the claim over the § 101 hurdle.

Considering machine learning from one viewpoint, it is no more than abstract mathematics enabled by generic computing devices and applied to data; therefore, it is inherently ineligible under § 101.  From the other end of the spectrum, machine learning can be thought of as solving complex problems by creating new algorithms that in practice can only be used by computers; thus, it is inherently technical.  Most uses of machine learning lie between these two extremes.  Applying a vanilla model to any data -- even new data -- is probably not eligible and may even be obvious as well.  On the other hand, most practical uses of machine learning require at least some innovative model design, training techniques, data preparation, mapping of the prepared data to the model, and post-processing of model output.  Any of one or more of these latter mechanisms may be enough to lift a claim over the § 101 hurdle.

In any event, claim language and the problem being solved matters in the § 101 inquiry, as Hyper Search found out the hard way.  Claim 1 of the '412 patent recites:

A system for controlling information output based on user feedback about the information comprising:
    a plurality of information sources providing information;
    at least one neural network module that selects one or more of a plurality of objects to receive information from the plurality of information sources based at least in part on a plurality of inputs and a plurality of weight values;
    at least one server, associated with the neural network module, that provides one or more of the objects to one or more recipients;
    the recipients enabling for one or more users to generate feedback about the information; and
    wherein the neural network module generates a rating value for a plurality of the objects at the end of an epoch, redetermines the weight values using the rating values, and selects which objects to receive information during a subsequent epoch using the redetermined weight values and the inputs for that subsequent epoch.

In a nutshell, the invention uses a neural network (which is a type of machine learning model) to determine how to provide information from particular sources to particular output objects.  The neural network periodically re-evaluates the weights based on ratings from the objects.

Facebook contended that this claim "is directed to the abstract idea of providing information based on feedback from recipients."  Hyper Search countered that its invention is "an improvement in computer capability because the system controls information output based on user feedback about the information itself" and "that this is a specific process that is new, performed by a computer, iterative, and adaptive."

The Court appeared to adopt Facebook's interpretation of the claim, finding that "[c]laims directed to providing information based on feedback have previously been held patent-ineligible by this court" due to their being abstract.  The Court further asserted that the "claims of the '412 patent implement a generic computer system to obtain functional results of providing information based on feedback from recipients" and that "Hyper Search does not show how the system of claim 1 is an improvement in computer capability."  The Court further criticized the breadth and vagueness of the asserted claims, stating that this "sets the [them] apart from the claim language deemed sufficient to establish patent eligibility in the Federal Circuit's recent decisions, such as [Enfish v. Microsoft]."

Finding claim 1 abstract, the Court moved on to the second part of the Alice test.  The Court noted that the claim "recites generic computer functionality such as a 'neural network module' and a 'server.'"  Hyper Search's specification worked against it, as "[t]he specification states that neural networks were well-known in the art, and the inventors stated that the alleged invention is not limited to neural networks but rather to 'any artificial intelligence agent.'"

Hyper Search attempted to rely on BASCOM Glob. Internet Servs., Inc. v. AT&T Mobility LLC to establish that its claimed arrangement of elements provides a technical improvement.  But the Court was not convinced since "Hyper Search does not identify any such example in the specifications in the patents-in-suit, and does not show how any of the prior elements are particularly arranged in the claimed inventions such that they improve the performance of the computer itself."  Further, "Hyper Search does not identify any concrete improvements to specific computer functionality or solutions rooted in problems that only existed on computers, but instead generally asserts that each of the asserted claims is directed to solving a computer-related problem."

Consequently, the Court concluded that the asserted claims were invalid under § 101 and that the case should be dismissed.

Not unlike previous cases where the patent-eligibility of machine learning inventions was considered, the patentee here was hobbled by overly broad and non-specific claims that did not focus on exactly how the model operated or was trained.  Additionally, there was no particular detail in the claim of how this model's input or output was processed.  As a result, the facts of this case are so skewed against finding the claims eligible that it is a not a great data point.  Thus, it would be a mistake to conclude that the outcome here does anything more than reiterate that generic claims with sweeping language are likely to have difficulties under § 101.

Ways to avoid or at least mitigate patent-eligibility challenges for machine learning inventions have been discussed previously and still apply.  Until a claim written in accordance with these techniques is subject of a § 101 challenge, the eligibility landscape of machine learning inventions will remain largely unmapped.

Finnavations LLC v. Payoneer, Inc. (D. Del. 2019)

Court Grants Exceptional Case/Attorney Fees When Software Patent Has Invalid Claims under § 101

By Joseph Herndon --

In the U.S. District Court for the District of Delaware, motions for an exceptional case and attorneys' fees were granted on the basis that the patent owner brought suit with a software patent having claims so "ugly" that they had no chance to survive a challenge under 35 U.S.C. § 101.  The case is Finnavations LLC v. Payoneer, Inc. and Finnavations LLC v. Stitch Labs, Inc.  Here, Defendant Payoneer Inc. filed a Motion for Exceptional Case and Defendant Stitch Labs, Inc. filed a Motion for Attorneys' Fees after prevailing in the action by invalidating the asserted patent under § 101.  The District Court granted each of these motions and offered some strong opinions on the invalidity of the patent.  However, it's difficult to see, based on current standards, how the patent claim is as "ugly" as the Court stated.

Background

Plaintiff sued Defendants on March 23, 2018, alleging infringement of U.S. Patent No. 9,569,755 ('755 Patent).  Defendants filed Motions to Dismiss for Failure to State a Claim based on patent ineligibility of the '755 Patent under 35 U.S.C. § 101.  The Court granted the motions, and specifically found that the '755 Patent was directed to the patent ineligible abstract idea of bookkeeping and did not contain an inventive concept.

The '755 Patent

The '755 Patent is directed to a "Financial Managment System," and is described as a system designed to facilitate the record keeping associated with online transactions to increase the amount of transaction data relating to an online purchase of goods or services that is retained by a personal financial management system.

Claim 1 recites:

1.  A method for transferring payment information to a personal financial management program comprising:
    invoking a financial assistant operating on a network device upon a determination of a transmission of transaction data to a commercial web server configured to conduct online financial transactions;
    intercepting, by the financial assistant on the network device, the transaction data in a first data structure comprising a plurality of components of transaction data, the first data structure compatible with conducting an online transaction with the commercial web server;
    copying, by the financial assistant on the network device, each component of the transaction data into a second data structure compatible with the personal financial management program, wherein the second data structure differs from the first data structure;
    entering, by the financial assistant on the network device, additional transaction data not included in the transmitted transaction data into the second data structure including at least one of a category and remarks; and
    transmitting, by the network device, the copied transaction data and the additional transaction data to the personal financial management program.

Analysis

The Patent Act provides that "in exceptional cases [the court] may award reasonable attorney fees to the prevailing party."  35 U.S.C. § 285.  Under the statute, there are two basic requirements:  (1) that the case is "exceptional," and (2) that the party seeking fees is a "prevailing party."

The Supreme Court defines an "exceptional" case as "simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."  Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).

Here, the Defendants are prevailing parties.  Thus, the only issue is whether the cases are exceptional.

The Court had a strong opinion that there was "no question" that the '755 Patent is patent ineligible under the Federal Circuit's current precedent.  Even though the Court noted that since Alice, the law of patent eligibility has perhaps become unpredictable and unclear, the Court stated that patents that look like those at issue in Alice are ineligible.  The Court issued further strong statements, declaring that "I have rarely been more confident in the patent ineligibility of a set of claims or more confident in the unreasonableness of a Plaintiff's decision to sue on a patent."  It seems that the Court easily found this case to be "one that stands out from others" with regard to the substantive weakness of Plaintiff's litigation position.

Even though the Examiner allowed the '755 Patent despite four separate § 101 rejections, the Court still found that the USPTO's decision to grant the patent does not relieve the patent holder from making an independent evaluation of the strength of the patent prior to suing.  The Court stated that the "issuance of a patent cannot and should not be a license to sue with abandon."  The Court further noted that patent examiners are non-lawyers, and an Examiner's opinion on the legal question of patent eligibility does not relieve a patent attorney from his or her obligation to make an independent assessment based on an evaluation of the relevant law.

The Court issued yet another strong opinion:

I have resolved scores of Section 101 motions and seen a wide array of validity arguments.  Usually the quality of an argument falls somewhere between good and mediocre.  Infrequently, I have encountered arguments which I would classify as bad.  Plaintiff's defense of the validity of the '755 Patent was not just mediocre or bad; it was ugly.

Plaintiff argued that the law is unclear and that it made reasonable arguments in response to Defendants' motions.  But the Court disagreed and found that the claims of the '755 Patent are plainly directed at a patent ineligible concept and amount to no more than the underlying idea, and further that "[a]ny reasonable patent attorney with an understanding of Section 101 law could have predicted the outcome."

Thus, the Court found that Plaintiff should not have filed suit, asserting "the clearly patent ineligible claims of the '755 Patent."  The Court found that this decision was unreasonable under the law and Plaintiff's behavior should be deterred.  Thus, the Court granted Defendant Payoneer's Motion for Exceptional Case and Defendant Stitch Labs' Motion for Attorneys' Fees.

Commentary

At times, I believe I am a reasonable patent attorney with an understanding of § 101 law, and perhaps I could have predicted that the claims of the '755 Patent would face § 101 challenges, BUT, the claims at issue in this case are far from "ugly," and in view of the prosecution history, it would have been reasonable to consider the claims valid on their face.

The District Court made much of the claims looking like those at issue in Alice, which, if true, then of course they should be found invalid under § 101.  But the representative claim in Alice, shown below, appears far different, in my opinion, from the claims of the '755 Patent:

(Alice claim)   A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
    (a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
    (b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
    (c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party's shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and
    (d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

In particular, the claims of the '755 Patent are grounded in computer technology, and include exchange of data between network components.  This is not to say that the claim at issue in this case should survive a § 101 challenge, as the '755 Patent appears to be void of description to support a factual analysis that the invention solves a technical problem with a technical solution.  However, the patent owner would appear to be on sufficiently solid ground asserting this patent, as the claims were heavily tested during prosecution, and the USPTO issued the patent after a long examination process.  Since the claims at issue in this case differ from Alice in this way, the granting of motions for an exceptional case by the District Court are hard to accept.

Finnavations LLC v. Payoneer, Inc. (D. Del. 2019)
Memorandum by District Judge Andrews

Conference & CLE Calendar

May 21, 2019 - "Protecting Your Canna-IP: What You Should Know, Now" (McDonnell Boehnen Hulbert & Berghoff LLP) - 10:00 am to 11:15 am (CT)

May 21, 2019 - "Structuring Patent Licensing Agreements: Avoiding Litigation, Allocating Risk and Maximizing Patent Value" (Strafford) - 1:00 to 2:30 pm (EDT)

May 23, 2019 - "PTAB Discretion: Exploring the New Metes and Boundaries" (Intellectual Property Owners Association) -  2:00 to 3:00 pm (ET)

June 3-6, 2019 - BIO International Convention (Biotechnology Innovation Organization) - Philadelphia, PA

June 12-14, 2019 - Patent Fundamentals Bootcamp 2019: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) - Chicago, IL

July 17-19, 2019 - Patent Fundamentals Bootcamp 2019: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) - San Francisco, CA

IPO Webinar on PTAB Discretion

The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled "PTAB Discretion: Exploring the New Metes and Boundaries" on May 23, 2019 from 2:00 to 3:00 pm (ET).  Orion Armon of Cooley LLP, Kirby Lee of Ecolab, and Vice Chief Judge Scott Weidenfeller of the U.S. Patent and Trademark Office Patent Trial and Appeal Board will explore the scope and impact of recent important PTAB precedential opinions, as well as the decisions that have been designated "informative."  Topics to be addressed by the panel will include:

• Now binding cases regarding follow-on petitions, where the same patent is challenged multiple times by the same petitioner or by a series of petitioners
• PTAB discretion regarding first-filed petitions
• Same party issue joinder and real-party-in-interest issues as articulated in Proppant Express Investments, LLC v. Oren Techs., LLC
• PTAB discretion to deny institution
• Details on Revised Standard Operating Procedure 2 ("SOP2") changes to procedures

The registration fee for the webinar is $135 (government and academic rates are available upon request).  Those interested in registering for the webinar can do so here.