By Michael Borella and Andrew Williams --
The press has been all too eager to decry the so-called "broken" U.S. patent system and the alleged "scourge" of non-practicing entities (NPEs). However, few if any articles attempt to provide an even-handed analysis of these issues. Recently, Jon Potter and Julie Samuels published a piece in Roll Call, urging Congress to pass comprehensive patent reform legislation to clamp down on NPEs, while James Bessen, in The Atlantic, lauded the Supreme Court's recent Alice Corp. v. CLS Bank Int'l decision for already having a deleterious impact on business method patents. Samuels was formerly of the Electronic Frontier Foundation (EFF), a group with an anti-patent agenda.
The need for patent reform has arguably diminished. Three decisions handed down by the Supreme Court last year, Alice, Octane Fitness, LLC v. Icon Health & Fitness, Inc., and Nautilus, Inc. v. Biosig Instruments, Inc., each addressed one of the alleged weakness in the patent system that so-called trolls are thought to exploit. These cases have been credited for the drop in patent litigation seen since the end of the Court's last term. Moreover, the Patent Trial and Appeals Board ("PTAB") has been accused of becoming a patent "death squad" because of the large number of inventions that it has recently found to be unpatentable.
These articles, therefore, appear to be desperate attempts to flame the anti-patent fervor that existed last year. As we have come to expect, both articles present only one side of the story, and do not consider the negative consequences that further anti-NPE legislation could bring about, and that the Alice decision has already produced. Further, the authors make unsupported assertions, draw questionable conclusions, and exhibit a profoundly flawed understanding of patent law.
For example, as with similar articles, the Potter and Samuels's article starts from the presupposition that "our patent system is out of balance," citing the Alice decision for support. The unsuspecting reader will assume that this is a forgone conclusion. Nevertheless, it is through their explanation of how this decision and proposed legislation are meant to "solve" the supposed crisis, the authors reveal a lack of understanding of the historical and philosophical basis of the patent system.
To that point, the authors equate "trolls" with NPEs (non-practicing entities). The term NPE, however, encompasses all entities that do not manufacture products, including most universities, research institutions, and individual inventors. Interestingly, Ms. Samuels's previous organization, the EFF, accused universities of fueling the patent troll problem. Patent asserting organizations have been acknowledged by most, including the White House, to serve an important role as mediator between such NPEs and operating companies often necessary to commercialize inventions. In fact, the United States' patent system purposefully encourages such actions by making patent property rights freely assignable and eschewing a "working" requirement. This philosophy goes back to the framers of the Constitution, and allows the patent system to be accessible to everyone, not just those with abundant resources.
Potter and Samuels go on to assert, without citing any support, that NPEs "grievously injure innovators, bankrupt small companies, and waste judicial resources." Yet, the current functioning patent system is essential to the business models of these same innovators and small companies. Without patents, the innovations of a small software company can be easily reverse engineered and copied by larger players with more market clout, or foreign companies with lower overheads. Trademarks, copyrights, and trade secrets do little to help in these situations.
In addition, the authors fail to consider the fact that these "innovators" and "small companies" (or any defendant in a patent litigation case for that matter), might actually infringe a valid patent. If so, should they be allowed to freeload off the labor of others without penalty just because the patent at issue encompasses a business method or software, or happens to be owned by an NPE?
Bessen states that a recent the Government Accountability Office ("GAO") report "attributed 89 percent of the increase in patent litigation [in the 2007-2011 time frame] to software patents." This report, however, conflated actual software patents and business method patents, collectively referring to both as "software patents." In fact, the GAO found that "operating companies brought most of the patent infringement lawsuits from 2007 to 2011." Additionally, the report indicated that the number of defendants in software and business method patent litigation increased 89 percent, but the number of lawsuits increased more modestly. According to the report, the increase in the number of patent lawsuits in 2011 "was most likely influenced by the anticipation of changes in the 2011 Leahy-Smith America Invents Act (AIA), which made several significant changes to the U.S. patent system, including limiting the number of defendants in a lawsuit, causing some plaintiffs that would have previously filed a single lawsuit with multiple defendants to break the lawsuit into multiple lawsuits."
Of course, even if there was an increase in software patent litigation, it would have likely been a reflection of the increased importance of software in our everyday lives. The 2007-2011 time frame tracks the rise of the smartphone and always-on computing, dramatic growth in social media, and a multimedia streaming revolution led by Netflix and YouTube, among other factors. Like it or not, software is now an integral part of our personal and professional lives, as we carry our laptops, tablets, phones, e-readers, and digital fitness trackers with us whether we are going to work or on vacation. An increase in the number of software patents granted, as well as an increase in software patent litigation, is a natural consequence of the ubiquity of software.
Certainly, no one is denying that there are bad actors that abuse the litigation system both with regard to intellectual property rights and otherwise. However, elevating this minority of cases to be representative of the norm is not a reason to dispense with the entire system. In fact, Bessen's methodologies for assessing the cost of so-called patent trolls have been called into question. See, e.g., Schwartz & Kesan, Analyzing the Role of Non-Practicing Entities in the Patent System, Cornell Law Review, Vol. 99:2, pp. 425-56 (2014). As a result, the implications that can be drawn from the data with regard to the impact of NPEs on the system are dubious at best.
With respect to the Alice decision, both sets of authors ignore the damage that this case has already caused to the patent system. Under Alice, when determining whether a patent claim meets the statutory requirements for patent-eligibility, one must determine whether the claim is directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea. If so, then one determines whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.
This two-prong test has been widely criticized for its vagueness and subjectivity. The Supreme Court refused to define what it meant by the term "abstract idea," leading to consternation among patentees, patent attorneys, and even federal judges. For instance, 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. 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."
The Supreme Court also blurred the lines between the assessment of patent-eligibility and other patentability requirements. The patent law requires that, among other things, claims must be novel and non-obvious, as well as encompassing patent-eligible subject matter. In 1981, the Supreme Court clarified that each of these inquiries were separate and distinct, and that it was "inappropriate to dissect the claims into old and new elements and then to ignore the presence of the old elements in the analysis." Alice, as well as its 2012 predecessor case Mayo Collaborative Servs. v. Prometheus Labs., Inc., turned this notion around. Now, when conducting a patentable subject matter review, claims can be analyzed element by element and compared to prior art.
As many commentators have articulated since the Mayo opinion was handed down, determining whether the breadth of a claim is appropriate is better served by conducting the well-understood and more objective and established analyses of novelty and obviousness. Despite the lack of any suggestion from Congress that patent-eligibility is to be used for these purposes, the Supreme Court, now followed by the Federal Circuit, has made patentable subject matter a perverse weapon for the unsupported rejection and invalidation of claims.
The well-understood obviousness analysis asks whether the differences between the claimed invention and the prior art would have been obvious to one of ordinary skill in the art. The Alice test, for a claim that incorporates a preexisting algorithm or a longstanding practice, inquires if the claim adds "significantly more" to that algorithm or practice. The substantive difference between the two is that the obviousness test is grounded using prior art as a reference point for what is known, while the Alice test is not. This eliminates much of the objectivity from the Alice analysis, putting thousands of patents in a state of legal uncertainty. The "validity" of such patents may depend on which judge or panel conducts the test.
Bessen goes as far as to suggest that while the Alice decision is limiting the number of granted business method patents, it hasn't gone far enough to similarly limit software patents. But why should we view patents in such sweeping terms, with the connotation that business method and software patents are inherently bad? Patents are either valid or invalid, regardless of the technology claimed therein.
Furthermore, the implication that software should not warrant patent protection unfairly singles out one of the greatest drivers of the U.S. economy over the last forty years. A major aspect of innovation is to make products and services faster, cheaper, and better. The patent system is intended to incentivize individuals and organizations to publicly disclose such inventions, and as a result receive a limited exclusive-use property right thereover. Despite contentions of the deleterious impact of a "broken" patent system on the software industry, the computer and information industry as a whole continues to grow, as evidenced by recent record-breaking stock values, billion-dollar acquisitions, and successful initial public offerings. A broad exclusion of computer-implemented inventions is illogical and disregards the fundamental tradeoff on which the system is based.
Graphic of troll (above) by JNL was modified (cropped) from a graphic available at the Wikipedia Commons, pursuant to the Free Art License. Any use of the modified graphic is subject to the same license.
Top Stories of 2014: #10 to #7
By Donald Zuhn --
10. While FDA Accepts First Biosimilar Application, Some Biosimilar Applicants Try to Bypass BPCIA
In July, Sandoz announced that the U.S. Food and Drug Administration had accepted its application to market a version of the protein filgrastim. The reference product is Amgen's NEUPOGEN®. Sandoz markets a biosimilar filgrastim outside the U.S. under the brand name ZARZIO®. Interestingly, in October, Amgen announced the results of a Phase III clinical trial of its own biosimilar drug (designated ABP 501) for moderate-to-sever plaque psoriasis conducted in comparison with adalimumab (sold by AbbVie as Humira®). Amgen and Sandoz were both involved in a BPCIA dispute that was resolved by the Federal Circuit in December. In what some perceived as an attempt to sidestep the requirements of the BPCIA, Sandoz filed a declaratory judgment action against Amgen and Roche related to its etanercept biosimilar drug product, which it developed to compete with Amgen's Enbrel® TNF inhibitor. In Sandoz v. Amgen, the Federal Circuit affirmed the District Court's dismissal of Sandoz's suit because "Sandoz did not allege an injury of sufficient immediacy and reality to create subject matter jurisdiction." In other biosimilar developments, the FDA issued a "Guidance for Industry" in August entitled "Reference Product Exclusivity for Biological Products file under Section 351(a) of the PHS Act." The Guidance provides some grounds for determining the term of market exclusivity under the BPCIA (12 years; Sec. 351(k)(7), codified at 42 U.S.C. 55 262(k)).
For information regarding this and other related topics, please see:
• "Celltrion Healthcare Co. v. Kennedy Trust for Rhematology Research (S.D.N.Y. 2014); Hospira Inc. v. Janssen Biotech Inc. (S.D.N.Y. 2014)," December 11, 2014
• "Sandoz Inc. v. Amgen Inc. (Fed. Cir. 2014)," December 9, 2014
• "Amgen Poised to Enter Biosimilars Market," October 8, 2014
• "FDA Releases Another Prospective Guidance," August 13, 2014
• "Finally, A Biosimilar Application Has Been Accepted By The FDA ," July 28, 2014
• "FDA Releases Draft Guidance on Biosimilars," May 14, 2014
• "Indiana Governor Signs Biosimilar Substitution Bill," April 10, 2014
9. Congress and Tech Sector Wage Battle Against Patent Trolls
Despite having passed patent reform legislation -- the Leahy-Smith America Invents Act -- in September 2011, many in the patent community expected Congress to pass another piece of patent reform legislation in 2014 -- this time addressing patent litigation and the problem of so-called patent trolls. However, after taking up and tabling legislation in March and April, Senator Patrick Leahy (D-VT), Chairman of the Senate Committee on the Judiciary, announced that he was taking the Patent Transparency and Improvements Act of 2013 (S. 1720) off the Committee's agenda because of a lack of "sufficient support behind any comprehensive deal." Meanwhile, the tech sector continued to lobby for patent litigation reform. Congress may take up patent reform again this year.
For information regarding this and other related topics, please see:
• "More Misinformation Regarding the Patent System and Non-Practicing Entities," December 18, 2014
• "Patent Litigation Reform -- Will the Outcome of the Mid-Term Elections Matter, and Is Reform Still Necessary?" October 30, 2014
• "Teva v. Sandoz -- Is Deferential Review a Boon for Patent Trolls?" October 14, 2014
• "House Tries One More Time: Targeting Rogue and Opaque Letters Act of 2014 ("TROL Act")," July 17, 2014
• "Patent Reform Legislation Off The Table -- For Now," May 21, 2014
• "Senate Judiciary Committee Tables Patent Reform, Again," April 3, 2014
• "Stopping Bad Legislation -- The Innovation Alliance Speaks Out," April 2, 2014
• "Stopping Bad Patents -- Senator Schumer Takes on the "Patent Trolls"," April 1, 2014
• "New York Times Op-Ed Argues Law Takes Misguided Approach to Software Patents," March 30, 2014
• "Senate Judiciary Committee Takes Up, Then Tables, Patent Reform," March 27, 2014
• "A Rebuttal to The Economist's "Stalking Trolls"," March 13, 2014
• "Senate Legislation Update -- The Commerce Committee Gets in the Act," March 5, 2014
8. Courts and PTAB Deal with Fallout of Alice Corp. v. CLS Bank
In June, the Supreme Court issued its opinion Alice Corp. v. CLS Bank International, affirming the Federal Circuit's per curiam opinion in CLS Bank International v. Alice Corp. (stay tuned for more on that decision as we move closer to the top three stories of 2014). However, the impact of the Supreme Court's Alice Corp. opinion on Federal Circuit and Patent Trial and Appeal Board decisions made it to #8 on the list. Patent Docs covered nine such decisions during the second half of 2014, and in only one case (DDR Holdings, LLC) did the Federal Circuit conclude that computer-implemented claims survive a § 101 challenge. Readers can look for more discussion of this top story, as well as the Supreme Court's Alice Corp. decision, during our live webinar on the "Top Patent Law Stories of 2014" on January 20, 2015.
For information regarding this and other related topics, please see:
• "DDR Holdings, LLC v. Hotels.com, L.P. (Fed. Cir. 2014)," December 8, 2014
• "Ultramercial Inc. v. Hulu LLC (Fed. Cir. 2014)," November 16, 2014
• "Ultramercial Inc. v. Hulu LLC -- Party Briefs," November 6, 2014
• "Cambridge Assoc., LLC v. Capital Dynamics (PTAB 2014); PNC Bank v. Secure Axcess, LLC (PTAB 2014)," October 16, 2014
• "U.S. Bancorp v. Solutran, Inc. (PTAB 2014)," September 10, 2014
• "Planet Bingo, LLC v. VKGS LLC (Fed. Cir. 2014)," August 27, 2014
• "I/P Engine, Inc. v. AOL Inc. (Fed. Cir. 2014)," August 18, 2014
• "Stewart Title Guaranty Co. v. Segin Software, LLC (PTAB 2014)," July 23, 2014
• "Digitech Image Technologies, LLC v. Electronics For Imaging, Inc. (Fed. Cir. 2014)," July 14, 2014
• "Cyberfone Systems, LLC v. CNN Interactive Group, Inc. (Fed. Cir. 2014)," March 3, 2014
• "SmartGene, Inc. v. Advanced Biological Laboratories, SA (Fed. Cir. 2014)," January 29, 2014
7. Supreme Court Addresses Fee Shifting Determinations in Exceptional Cases
In April, the Supreme Court issued opinions in Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. The issue in both cases centered on the attorney fee-shifting provision of 35 U.S.C. § 285. In Octane Fitness, a mostly unanimous court held that "an 'exceptional' case is 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," the Court leaving the determination of whether a case is "exceptional" to the discretion of the District Court judge. In Highmark, the Supreme Court determined that "an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court's §285 determination," even though "questions of law may in some cases be relevant to the §285 inquiry." The Supreme Court's decisions make it easier for a trial court to shift fees to the non-prevailing party if it believes that the litigation was brought or conducted in an abusive manner, and also make it more difficult for an appellate court to overturn such a determination.
For information regarding this and other related topics, please see:
• ""Standing Out" -- A Closer Look at the "Exceptional Case" Standard Articulated in Octane Fitness," April 29, 2014
• "Patent Trolls Beware -- Supreme Court Issues Decisions in Octane Fitness and Highmark," April 29, 2014
• "Oral Arguments in the Supreme Court Octane Fitness, LLC v. ICON Health & Fitness, Inc. Case," February 27, 2014
• "Supreme Court to Hear Oral Arguments in Attorney Fee Shifting Cases," February 25, 2014
• "Supreme Court Preview -- Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.," February 19, 2014
• "Supreme Court Preview -- Octane Fitness, LLC v. ICON Health & Fitness, Inc.," February 13, 2014
Posted at 11:59 PM in Biosimilars, Federal Circuit, Food and Drug Administration, Media Commentary, Patent Legislation, Patent Trial and Appeal Board, Patentable Subject Matter, Supreme Court | Permalink | Comments (0)