By Michael Borella --
The textbook policy rationale for the existence of a patent system is a quid-pro-quo -- a tradeoff in which an inventor is granted a time-limited property right over his or her invention in return for disclosing it to the public. Such disclosure is expected to, over time, spur further innovation, and bolster research and development. But empirical measurements of the impact of the patent system on innovation and the economy have been difficult to come by. Patents are just one factor influencing ongoing scientific and engineering advances, and their impact is perhaps impossible to determine in an aggregate sense.
Heidi L. Williams of the National Bureau of Economic Research reviewed the available evidence of how patents on existing technologies might affect follow-on innovation and research investment. Her conclusion is that more evidence is needed: "[G]iven the limitations of the existing literature we still have essentially no credible empirical evidence on the seemingly simple question of whether stronger patent rights -- either longer patent terms or broader patent rights -- encourage research investments into developing new technologies."
Nonetheless, in a recent article, Vera Ranieri of the Electronic Frontier Foundation (EFF) has used this essentially neutral position to argue in favor of recent changes to U.S. patent law that arbitrarily and subjectively limit patentable subject matter. In doing so, Ms. Ranieri falls back on a number tired tropes and misconceptions about the workings of U.S. patent law, and fails to consider the damage done by these changes to the certainty function of the patent system.
The Alice Decision
In 2014, the Supreme Court handed down a highly controversial decision in Alice Corp. v. CLS Bank Int'l. In a nutshell, the Court ruled that patent claims should be analyzed to determine whether they are too "abstract," and if they are, these claims should be further analyzed to determine whether they incorporate "significantly more" than an abstraction. In doing so, the Court went well beyond the plain language that Congress set forth in 35 U.S.C. § 101, the section of the patent statute that defines subject-matter eligibility. Furthermore, the Court purposely declined to define what it meant by "abstract" and "significantly more," essentially leaving it up to the Federal Circuit, the district courts, and the USPTO to provide meaning for these ambiguous terms.
While not explicitly stating it, in Alice the Court effectively targeted software and business method inventions (and certain types of life science inventions, such as diagnostic methods) for an additional level of scrutiny. In fact, the EFF's own amicus brief in Alice encouraged the Court to use the case to "reign in overbroad software patents." Whether or not this argument ultimately swayed the Justices to rule as they did, the effect of Alice is clear -- over 15,000 patent claims have been invalidated under § 101 since this decision came down, the vast majority of these in the software and business method space. Additionally, some software and most business method claims are now harder to obtain from the USPTO, with rejection rates of over 90% in some business method art units.
In many cases, courts have invalidated patents under § 101 without undertaking claim construction. Let that sink in for a while -- courts are throwing out patents as allegedly being abstract without determining the actual scope of the claimed invention.
The Alice Decision Has Not Been, and Cannot Be, Applied Consistently or Objectively
The problem with Alice is not just that it limits the scope of patentable subject matter, but that it does so in an arbitrary and subjective fashion. Courts and the USPTO have struggled mightily with making sense of the decision. Judge Wu of the United States District Court for the Central District of California criticized Alice for setting forth an "I know it when I see it" test.[1] 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."[2] 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."
While the Federal Circuit has attempted to provide a consistent line of post-Alice case law, this has resulted in some very thin bacon slicing. For instance, in 2014 a panel in Ultramercial v. Hulu found a complex and narrow web-based transaction to be unpatentably abstract, while another panel in DDR v. Hotels.com found a web server that combines the look and feel of two different web sites meeting the requirements of § 101. Last year, in Synopsys v. Mentor Graphics, an invention automating circuit design procedures was found to be abstract because these procedures had been performed manually by humans. But in McRO v. Bandai Namco Games America, an invention automating lip-synchronization in animated characters was found not abstract even though the automated procedure could be performed by humans.
While one could argue that there are at least tenuous distinctions between the claimed inventions that were found eligible and ineligible in these four cases, the recent Recognicorp v. Nintendo case clearly illustrates the Federal Circuit's inability to apply Alice consistently. In the decision, the panel characterized a 154-word claim as nothing more than "encoding and decoding image data," despite the panels in Enfish v. Microsoft and McRo explicitly forbidding such claim over-simplification.
At the USPTO, despite the administrators' admirable efforts to provide clear examination guidelines with respect to Alice, it is notoriously well known amongst practitioners that different art units and different examiners will apply the Alice test in radically different ways. Further, it is common for an applicant to receive an Alice rejection that is purely conclusory in nature -- the examiner essentially saying "Your claims are abstract, no patent for you!" without any rationale or reasoning to support the rejection. While the latter type of rejection can be rebutted, it imposes additional and unnecessary costs on the applicant to go through extra cycles of Office actions or appeals.
Ultimately, the problem does not lie with the Federal Circuit or the USPTO. The Alice test is inherently subjective, requiring one to look at a claim and imagine analogous "well-known, routine, and conventional" activities. In doing so, examiners and judges often ignore key claim elements, resulting in a 10,000-foot view of the claim being analyzed, rather than the actual claimed invention.
Due to this subjectivity, reasonable minds can differ regarding whether a claim is abstract and whether it contains something more. There is no way for thousands of examiners and hundreds of federal judges to reach the same conclusion on a consistent basis.
The Lack of Evidence Found in the Williams Paper Cuts Both Ways
For sake of argument, let's assume that Ms. Williams's analysis is correct, and that there is little or no evidence identified yet that establishes innovation is spurred on by a strong patent system.[3] Ms. Ranieri interprets this result as an invitation to slam the door on software patents, arguing that there is no need to change the law to fix problems introduced by Alice.
But the same argument could be used to establish that there was no need for the Supreme Court to change the law in Alice either. If the impact of patent system strength on innovation was unclear, the Court should not have instituted such a dramatic change. Besides, Congress is better equipped than the Court to derive policy from such studies. If anything, the dramatic growth of technology company profitability and market capitalization from the mid-1990s to the Alice decision in 2014 suggests that a strong patent system is not inconsistent with innovation and technological investment in the software market.
Ms. Ranieri also states that the Williams paper establishes that there is no evidence that the Alice decision has "done any harm to the innovation economy or innovation generally." But the paper does not address Alice at all, and most of its cited research was conducted prior to the 2014 date of Alice. Given the lengthy, multi-year time scales of patent lawsuits, patent prosecution, and research and development, the three years between then and now is way too short a time period to draw such broad conclusions.
Ms. Ranieri Mischaracterizes the Efforts to Overturn Alice
Throughout her article, Ms. Ranieri makes misleading statements about efforts to overturn Alice. Particularly, she focuses on proposals by the Intellectual Property Owners Association and the American Intellectual Property Law Association to rewrite § 101. A comparison of their efforts indicates that they would replace the Alice test with an analysis of whether the claimed invention as a whole (i) exists in nature independently of human activity, or (ii) solely in the human mind. Such a test would certainly result in fewer patents being invalidated under § 101, but would also go a long way toward clarifying the law.
Unlike Ms. Ranieri's contentions, this would not "return us to a world where 'do it on a computer' ideas are eligible for a patent." That world never existed. If a claimed invention's sole difference from prior art is to perform a known series of steps on a computer, the invention is probably obvious and can be invalidated on those grounds. In fact, the claims in Alice and many other so-called "overly broad" patents could be invalidated under the patent statute's existing novelty, non-obviousness, and written description provisions. Ms. Ranieri's further statement that the proposed changes to § 101 would mean that "anything is patentable" aside from the aforementioned exceptions ignores the fact that eligible subject matter is just one requirement of many for a patent to be granted.
Furthermore, Ms. Ranieri asserts that "the recent reform proposals seem like little more than a bid by lawyers to create work for themselves." If anything, the opposite will likely be the case. The uncertainty surrounding Alice has been a boon for § 101 focused practice, opening more patent prosecution and litigation opportunities. While some applicants are filing fewer patents as a result of Alice, many are filing more -- attempting to protect multiple narrow inventions rather than one or two broader ones. There are more appeals in the USPTO, as well as more covered business method review proceedings as well.
When there is a gray area in the law, lawyers are needed more than ever to help their clients navigate the ambiguities. If the Intellectual Property Owners Association and the American Intellectual Property Law Association succeed in their efforts, the patent law will be less ambiguous and there will be far fewer billable hours spent determining whether or not a claim is abstract. Even though such a change might have a negative impact on their bottom lines, many patent attorneys would welcome the change because the patent system is broken as long as Alice stands.
Conclusion
Opposition to the Alice test is not based on it making patents easier to invalidate, but that it does so in an unworkable and intellectually dishonest fashion. This has resulted in applicants with limited financial resources being unable to pursue patent protection for legitimate technical inventions. If such a trend is widespread and continuing, small U.S. companies will be reluctant to innovate in certain market segments because of the risk of their U.S.-based or foreign competitors getting a free ride to copying or cloning a product or service.
This is the area that merits academic study -- has Alice actually harmed innovation? As noted above, it may be a while before we can make that determination. But if it is the case, that would be just one more reason of many for discarding the test.
[1] Eclipse IP v. McKinley Equipment (C.D. Cal. 2014).
[2] Cal. Inst. of Tech. v. Hughes Commc’ns Inc. (C.D. Cal. 2014).
[3] As far as we know, the paper has not yet been subject to thorough peer review, and therefore its conclusions should be viewed as preliminary at best.
Financial Times to "the Patent Troll Narrative" -- Much Ado About Nothing
By Kevin E. Noonan --
The article starts with a testimonial from Sherry Knowles, former Chief Patent Counsel at GlaxoSmithKline and a breast cancer survivor, who acknowledges that the drug that "saved her life" -- Adriamycin -- would not have been able to be developed had it been discovered under the unfriendly conditions patentees face today. She recites an inconvenient truth sometimes ignored by policymakers unduly swayed by the desired outcome of cheaper drug prices: "[i]f companies can't defend their intellectual property, they won't invest. It's that simple."
While noting that Big Pharma is unlikely to garner much sympathy, the article properly notes that voices that have been raised against current trends in the USPTO, Congress, and the courts (particularly the Supreme Court) include start-up biotech companies, semiconductor and electronics firms, universities, and other innovators, precisely the sources of both innovation and job growth.
The article discusses the reasons for the complaints -- changes in patent laws including the America Invents Act and Supreme Court decisions like Mayo Collaborative Services v. Prometheus Laboratories and Alice Corp. v. CLS Bank and some of the negative consequences of these trends. For example, the article shows that the U.S. (which spends 2.79% of gross domestic product on research and development, a total of $518,077,890,000 in 2015 according to the World Bank) has gone from 1st to 10th in patent protection according to Chamber of Commerce, and is now tied with Hungary (which spends 1.38% of its GDP on R&D, a total of $1,715,933,400). As a consequence, the article says that some companies are encouraged to engage in "efficient infringement" defined in the article as companies that "simply copy or take the IP they want, then settle with aggrieved parties out of court for less than the full value of the IP."
The reason for the change: "the patent troll narrative," which the author says had reached a "fever pitch" by the time President Obama was inaugurated. This narrative was a large part of the impetus to change U.S. patent law that culminated in the America Invents Act. But even after passage of the AIA and institution of inter partes and covered business method reviews (which were intended to solve the problem of improvidently granted patents more cheaply and efficiently than through litigation), the article states that some high tech companies wanted even more patent-unfriendly "reform." According to David Kappos, former Director of the U.S. Patent and Trademark Office as quoted in the article, "[u]ltimately the read agenda sunk in. This second round of drastic cutbacks to the patent system was a commercial ploy designed not to stop abuse but to cut supply chain costs by devaluing others' innovation."
In 2013, according to the article, the White House issued a report that 2/3rds of patent litigation was provoked by patent trolls. This number was disputed by the nonpartisan Governmental Accounting Office (GAO), which estimated the number at about 20%.
The article quotes Randall Rader and Paul Michel, both former Chief Judge of the Court of Appeals for the Federal Circuit, as being against how the USPTO has administered the inter partes review process. On the other hand Mark Chandler, General Counsel at Cisco, is quoted as saying that the problem is patents that should not have been granted, which "put[] a deadweight burden on the economy by blocking innovation by others and unnecessarily driving up prices to consumers." But Gary Lauder, a venture capitalist from Silicon Valley, says that the patent system America needs is one where established companies pay innovator companies for their innovations rather than being able to expropriate them. "We need to protect the larger start-up ecosystem, which is where the majority of jobs are created," he says.
Also cited in the article is a recent study from the National Bureau of Economic Research which found that having a patent increases the likelihood of acquiring venture capital by 53%, of start-up job growth by 36% and start-up sales by 51%. And a paper by Stanford economist Stephen Haber is cited for finding that the patent troll narrative is inconsistent with the actual behavior of patentees and accused infringers.
The article closes with a view to what may happen next, which includes a bill by Senator Christopher Coons (D-DE) intended to shore up the U.S. patent system in the face of global competition particularly from China. The article notes that there may be some acquiescence to changing the patent system to accommodate the needs of biotech and pharma with the different needs of the high technology sector, perhaps with different rules for each.
The most cogent commentary in the article regards statistics generated by Lex Machina regarding the effect of trolls on the patent system: "There has been an abundance of data that both advocates and critics of the current patent system spin in all sorts of ways to make their case," according to the article. The USPTO estimate that 2/3rds of patent cases involved trolls did not take into account changes in how patent cases could be brought so that this number was somewhat artificially exaggerated. And the contemporaneous GAO study expressly refuted this number with an estimate of 20%.
Using "the best way to compare" patent lawsuit numbers pre- and post-AIA (using individual defendants as the metric), Lex Machina found that the number of patent lawsuits in fact didn't change with the change in the law, and that the brief spike in 2011 (which was the basis of much of the troll narrative) was accounted for by the law change occasioned by passage of the AIA. These data are illustrated by Lex Machina's graph, reproduced below:
In short, the article concludes, "[t]rolls have been overblown as a patent issue." But the consequences of this inaccurate narrative persist.
The paper's conservative bona fides are established on its website:
First published in 1888 as a four-page newspaper, the Financial Times' initial readership was the financial community of the City of London. The Financial Times soon established itself as the sober but reliable "stockbroker's Bible", with its only rival being the slightly older and more daring Financial News. In 1893, the FT turned salmon pink -- a masterstroke that made it immediately distinguishable from its competitor. From their initial rivalry, the two papers merged in 1945 to form a single six-page newspaper. The Financial Times brought with it a higher circulation, while the Financial News provided enormous editorial talent.
Insofar as many of our elected leaders profess to be conservatives, perhaps it would behoove them to listen to an authentic conservative voice on these matters.
Posted at 11:36 PM in Media Commentary | Permalink | Comments (5)