From All Sides: The Erosion of Patent Rights

1. From All Sides: The Erosion of Patent Rights By Gene Quinn IPWatchdog.com

2. Our Agenda Today The history of the problem (thanks SCOTUS) Recent Cases (CAFC, PTAB and SCOTUS) Patent Trolls and Patent Politics Question & Answer Segment

3. The History of the Problem For a very long time there has been a believe that innovation simply happens. Some innovations (even if useful, new and nonobvious) don’t deserve a patent. Whenever a patent is granted something has been taken from the public domain. Traces all the way back to at least the flash of creative genius.

4. Flash of Creative Genius Cuno Engineering Corp. v. Automatic Devices Corp., 314 U.S. 84 (1941) We may concede that the functions performed by Mead's combination were new and useful. But that does not necessarily make the device patentable. Under the statute… the device must not only be "new and useful," it must also be an "invention" or "discovery.” Since Hotchkiss v. Greenwood, decided in 1851, it has been recognized that, if an improvement is to obtain the privileged position of a patent, more ingenuity must be involved than the work of a mechanic skilled in the art. Perfection of workmanship, however much it may increase the convenience, extend the use, or diminish expense, is not patentable. The principle of the Hotchkiss case applies to the adaptation or combination of old or well known devices for new uses. That is to say, the new device, however useful it may be, must reveal the flash of creative genius, not merely the skill of the calling. If it fails, it has not established its right to a private grant on the public domain.

5. Fast Forward… to 2006 eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) Familiar principles of equity should apply to patent disputes. Translation: the well-established rule that an injunction should issue absent the presence of a sound reason for denying it was erased in favor of the traditional four-factor test for granting injunctions.  Need to demonstrate: (1) suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) public interest would not be disserved by a permanent injunction. http://www.ipwatchdog.com/2011/05/15/happy-5th-anniversary-ebay-v-mercexchange/id=16894/

6. Fast Forward… to 2007 KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007) The unfortunate statement that if an invention is “common sense” then it is obvious has lead to real mischief in certain scenarios. Some (i.e., examiners and Judges) incorrectly interpret this statement to mean that if they think it is common sense then they can reject an application or find a claim invalid even if each and every aspect of the invention is not in the prior art. One of the primary objectives of the now defunct Teaching-Suggestion-Motivation (TSM) approach was to prevent the application of hindsight. In KSR the Supreme Court really quite directly ignored Congress, the 1952 Patent Act and the legislative history accompanying the 1952 Patent Act. Applied literally the Supreme Court decision in KSR takes us backwards to a test even more restrictive thanflash of creative genius. Up until KSR “obvious to try” rejections were categorically prohibited precisely because it is ridiculous to say that if an inventor were actually motivated to try, the resulting discovery or innovation would be unpatentable. http://www.ipwatchdog.com/2012/04/29/ksr-the-5th-anniversary-one-supremely-obvious-mess/id=24456/

7. Fast Forward… to 2010 Bilskiv. Kappos, 561 U.S. ____ (2010) http://www.supremecourt.gov/opinions/09pdf/08-964.pdf The Supreme Court held that the machine-or-transformation test is not the sole test for patent eligibility under §101, and that the Federal Circuit erred when it ruled that it was the singular test to determine whether an invention is patentable subject matter. Kennedy explained that Section 101 does not categorically preclude business method patents. The categorical exclusion argument was undermined by the fact that federal law – 35 USC §273(b)(1) – explicitly contemplates the existence of at least some business method patents: Under §273(b)(1), if a patent-holder claims infringement based on a method in a patent, the alleged infringer can assert a defense of prior use. All 9 Justices agreed that the Bilski application was properly rejected, with the majority agreeing that it was properly rejected because it was an abstract idea, and the concurring minority simply wanting to say that business methods are not patent eligible unless tied to an otherwise patentable invention (see Stevens footnote 40).

8. Stevens Footnote 40… Key to the Future? Bilskiv. Kappos, 561 U.S. ____ (2010) “… Judge Rich authored the State Street opinion that some have understood to make business methods patentable. But State Street dealt with whether a piece of software could be patented and addressed only claims directed at machines, not processes. His opinion may therefore be better understood merely as holding that an otherwise patentable process is not unpatentable simply because it is directed toward the conduct of doing business—an issue the Court has no occasion to address today.”

9. Claim at Issue in State Street… • Claim 1 of Patent No. 5,193,056, at issue in State Street, recites: • A data processing system… comprising: • (a) computer processor means for processing data; • (b) storage means for storing data on a storage medium; • (c) first means for initializing the storage medium; • (d) second means for processing data… ; • (e) third means for processing data…; • (f) fourth means for processing data… ; and • (g) fifth means for processing data...

10. Recent Cases Mayo v. Prometheus CLS Bank v. Alice Corporation SAP America v. Versata Development Group Association of Molecular Pathology v. Myriad Genetics Ultramercialv. Hulu

11. Mayo v. Prometheus 566 U.S. ____ (2012) http://www.supremecourt.gov/opinions/11pdf/10-1150.pdf SCOTUS proclaimed that they “decline the Government’s invitation to substitute §§102, 103, and 112 inquiries for the better established inquiry under §101.” First, it is not an invitation to use 102 and 103 for novelty and non-obviousness; it is absolutely required by Title 35. Second, 101 is not the “better established inquiry” because in the 200 years leading up to Mayo v. Prometheus it had NEVER been used by any court to find a patent claim invalid because it lacked novelty, which is exactly what the Supreme Court did when it acknowledged that the claims did not cover a law of nature but rather only added conventional steps.

12. CLS Bank v. Alice Corp. Federal Circuit, en banc, decided May 10, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF • The Federal Circuit issued an extraordinarily brief per curiamdecision, which stated: • “Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.” • Thus, all of the asserted claims are patent ineligible.

13. CLS Bank v. Alice Corp. Federal Circuit, en banc, decided May 10, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF The 5 judge concurring opinion written by Judge Lourie found that there is “nothing in the asserted method claims represent significantly more than the underlying abstract idea for purposes of § 101.” Chief Judge Rader and Judge Moore agreed that the method and media claims are patent ineligible, although for different reasons. The systems claims in the asserted patents are patent ineligible because that is what the district court held and there was a 5 to 5 split. Judges Linn, O’Malley and Newman would have found all of the asserted claims patent eligible.

14. Claim at Issue in CLS Bank… • Claim 1 of U.S. Patent No. 7,725,375, at issue in CLS Bank, recites: • A data processing system…comprising: • a first party device, • a data storage unit having stored therein… • and a computer, coupled to said data storage unit, that is configured to • receive a transaction from said first party device… Looks a LOT like the claim at issue in State Street, which even the dissent in Bilskiunambiguously suggested was patent eligible as a machine.

15. CLS Bank v. Alice Corp. Federal Circuit, en banc, decided May 10, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF • Judge Lourie, who was joined by Judges Dyk, Prost, Reyna and Wallach, actually wrote: • “At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility.” • Utterly astonishing. Innovations relating to faster and more efficient processing have always been patentable. In fact, many methods that do nothing more than speed up the end result have been patented for hundreds of years, and many inventors are in the Inventors Hall of Fame for such inventions.

16. CLS Bank v. Alice Corp. Federal Circuit, en banc, decided May 10, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF • Chief Judge Rader and Judge Moore wrote: “Looking at these hardware and software elements, it is impossible to conclude that this claim is merely an abstract idea. • Chief Judge Rader also correctly points out that if all of the asserted patents in this case are invalid that will mean that hundreds of thousands of patents are now lost. He wrote: • “[I]f all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.”

17. CLS Bank v. Alice Corp. Federal Circuit, en banc, decided May 10, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF What about GPS Navigation? But there is no way that a human could perform real-time GPS navigation of a missile, for example.Even infinite time over infinite lifetimes wouldn’t allow for real-time GPS navigation of a missile. Is IBM’s Watson patent eligible? Watson is an artificially intelligent computer system that is capable of answering questions presented in natural language. It is, in essence, the modern day equivalent to the all knowing Star Trek computer. It is flat out ridiculous to even be asking whether the Star Trek omnipotent computer could be patent eligible, but that is where we find ourselves because what makes the computer unique is the software that makes it possible for Watson to perform 80 trillion operations per second!

18. Claim 20 in Watson Patent No.8,275,803 • A system for generating answers to questions based on a corpus of data comprising: • a memory storage device; • a processor in communication with said memory storage device and configured to perform a method comprising… • analyzing all of said documents and each document’s metadata, in a candidate answer generation module, to generate a set of candidate answers… • wherein a further score comprises a deeper analysis score obtained by said processor implementing executable instructions for determining the meaning of the supporting passages and input queries by analyzing lexical or semantic relations.

19. SAP v. Versata PTAB decision on June 11, 2013; first CBM review decision http://ipwatchdog.com/blog/SAP-CBM-PTAB-final-decision.pdf Ignored all the recited tangible computer elements embodied in the claims. Once the specifically articulated structure is ignored PTAB concludes the claims protect only an abstract idea. “[T]heunderlying process that is implemented on such hardware could also be performed via pen and paper.” “The… invention may be implemented in any type of computer system or programming or processing environment… Thus… the recitation of generic general purpose computer hardware (processor, memory, storage) in the challenged claims represents routine, well-understood conventional hardware that fails to narrow the claims relative to the abstract idea.

20. AMP v. Myriad Genetics U.S. Supreme Court, June 13, 2013 http://www.supremecourt.gov/opinions/12pdf/12-398_1b7d.pdf • “cDNAis not a product of nature and is patent eligible under §101, except insofar as very short series of DNA may have no intervening introns to remove when creating cDNA. In that situation, a short strand of cDNA may be indistinguishable from natural DNA.” • “Nor are Myriad’s claims saved by the fact that isolating DNA from the human genome severs chemical bonds and thereby creates a nonnaturally occurring molecule.” • But Chakrabartysaid: “[R]espondent’s micro-organism plainly qualifies as patentable subject matter. His claim is not to a hitherto unknown natural phenomenon, but to a nonnaturally occurring manufacture or composition of matter – a product of human ingenuity…”

21. Ultramercialv. Hulu Federal Circuit, June 21, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1544.Opinion.6-19-2013.1.PDF • “First, it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patent- able subject matter.” • “Second, as is shown more fully below, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues.” • “Third, and in part because of the factual issues involved, claim construction normally will be required.” • “Finally, fourth, the question of eligible subject matter must be determined on a claim-by-claim basis.”

22. Ultramercialv. Hulu Federal Circuit, June 21, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1544.Opinion.6-19-2013.1.PDF • “As § 101 itself expresses, subject matter eligibility is merely a threshold check; patentability of a claim ultimately depends on ‘the conditions and requirements of this title,’ such as novelty, non-obviousness, and adequate disclosure.” (citing Bilski) • “[T]hiscourt must not read § 101 so restrictively as to exclude unanticipated inventions because the most beneficial inventions are often unforeseeable. Broad inclusivity is the Congressional goal of § 101, not a flaw.” (citing Chakrabarty, J.E.M. Ag Supply) • “Any attack on an issued patent based on a challenge to the eligibility of the subject matter must be proven by clear and convincing evidence.” (citing Microsoft v. i4i)

23. Ultramercialv. Hulu Federal Circuit, June 21, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1544.Opinion.6-19-2013.1.PDF • “The Court has long-recognized that any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract is revealed. A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.Instead, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea.” (no cite)

24. Ultramercialv. Hulu Federal Circuit, June 21, 2013 http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1544.Opinion.6-19-2013.1.PDF • “[A] claim is meaning-fully limited if it requires a particular machine implementing a process or a particular transformation of matter.” (citing Bilski, Prometheus and Diehr) • “A claim also will be limited meaningfully when, in addition to the abstract idea, the claim recites added limitations which are essential to the invention.” (no cite) • “At bottom, with a claim tied to a computer in a specific way, such that the computer plays a meaningful role in the performance of the claimed invention, it is as a matter of fact not likely to pre-empt virtually all uses of an underlying abstract idea, leaving the invention patent eligible.”

25. Patent Trolls

26. White House Initiative – June 4, 2013 LEGISLATIVE RECOMMENDATIONS The Obama Administration recommended that Congress 7 legislative measures that they claim will have immediate effect on major problems innovators face. Require disclosure of the “Real Party-in-Interest.” More discretion in awarding fees to prevailing parties in patent cases. Expand the PTO’s transitional program. Protect off-the-shelf use by consumers and businesses. Change the ITC standard for obtaining an injunction. Use demand letter transparency to help curb abusive suits. Ensure the ITC has adequate flexibility in hiring.

27. White House Initiative – June 4, 2013 EXECUTIVE ACTIONS The Obama Administration announced 5 steps it is taking: Making “Real Party-in-Interest” the New Default. Train examiners on the proper scrutiny to give functional claiming techniques. New education and outreach materials on the USPTO website, including an accessible, plain-English web site offering answers to common questions. Expansion of the PTO Edison Scholars Program. Interagency review of existing procedures that Customs and the ITC use to evaluate the scope of exclusion orders.

28. Some Legislative Proposals • Patent Quality Improvement Act of 2013 (S. 886) – SchumerExpands the term “covered business method patent” all software. • Patent Abuse Reduction Act of 2013 (S. 1013) – CornynFee shifting cost of litigation to losing party. Exception if losing party’s position and conduct were objectively reasonable and substantially justified. • Saving High-Tech Inventors from Egregious Legal Disputes Act of 2013 (H.R. 845) – DefazioDirects courts to award the recovery of full costs to any prevailing party asserting invalidity or noninfringement. • End Anonymous Patents Act (H.R. 2024) – DeutchRequires any sales or transfers of patents to be disclosed to the PTO • Patent Litigation and Innovation Act of 2013 – Jeffries/Farenthold • Mostly grandstanding by Junior Members of the House. For example, would authorize sanctions under Rule 11 of FRCP.

29. Question & Answer Segment

30. The End Gene Quinn Patent Attorney Founder of IPWatchdog.com Email: gquinn@IPWatchdog.com Phone: 703-740-9835