Supreme Court Decides Bilski v. Kappos; Fate Of Business Method Patents Left In Doubt
Posted June 30, 2010
Subject: Court decision - Bilski v. Kappos

Since the Bilski v. Kappos case was argued in November 2009, patent attorneys and information technology companies have waited for the U.S. Supreme Court to rule on whether or not so-called "business method" inventions, including computer-implemented processes, are eligible for patenting under the Patent Act. 35 U.S.C. § 1, et seq. Although the Court ruled unanimously on June 28, 2010 that the specific method at issue in Bilski was not eligible for patent protection, the Court opted for a narrowly reasoned decision. As a result, the ruling provides little guidance for the U.S. Patent and Trademark Office ("USPTO") and the courts to apply in determining patent eligibility in future cases.

Bilski involved a patent application for a method of hedging against the risk of commodity market price fluctuations, such as in the energy market. The USPTO rejected the claims as ineligible for patenting under 35 U.S.C. § 101, on the grounds that the application did not result in a "useful, concrete, and tangible result," the standard for patentability established in the Federal Circuit's 1998 decision in State Street Bank & Trust Co v. Signature Financial Group, Inc., 149 F.3d 1368, 1373 (Fed. Cir. 1998). In a subsequent en banc decision, the Federal Circuit ruled that the "Machine-or-Transformation Test" was the exclusive standard for determining patent eligibility under § 101. In re Bilski, 545 F.3d 943, 959–960 (Fed. Cir. 2008)(en banc). Under the machine-or-transformation test, a process or method claim is patent-eligible only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.

In its recent holding, the Supreme Court affirmed the Federal Circuit's ruling that Bilski's commodity hedging invention was ineligible for patenting, but rejected the machine-or-transformation test as the exclusive test for eligibility of process inventions under § 101. Writing for a plurality of five justices, Associate Justice Anthony M. Kennedy stated that at least some business method patents are eligible for protection under the Patent Act. Although the machine-or-transformation test is an important "clue" in determining eligibility, it is not the sole standard to be applied. The Court criticized the "useful, concrete, and tangible result" test established in State Street, but it left the door open for the Federal Circuit to apply other tests for patent eligibility, consistent with the language of § 101 and prior Supreme Court case law.

Deciding the issue before the Court narrowly, Justice Kennedy ruled that the Bilski commodity scheme was merely an abstract idea, and therefore not protectable under the "guideposts" of prior Supreme Court cases involving computer-related inventions since 1972. The court declined to "define further what constitutes a patentable 'process,' beyond pointing to the definition of that term provided in [the Patent Act] and looking to the guideposts[.]"

In a lengthy opinion (his last in a nearly 35-year career on the Supreme Court), Associate Justice John Paul Stevens wrote for four justices in concurring in the result, but strongly disagreeing with the plurality's approach. Stevens wrote that the plurality decision will create "mischief," and preferred instead a blanket rule that business methods are categorically excluded from patent eligibility.

Although the Bilski opinions make it clear that process inventions amounting to mere abstract ideas are not patentable, the opinions taken together may not establish a reliable framework for analyzing patent eligibility in future cases. Other than the State Street test, which was criticized by all nine justices, the Court seems content to allow the lower courts to apply pre-State Street tests, or to experiment with new tests. As a result, the Bilski decision reaffirms that at least some business methods are patentable – but leaves open the question of how to determine which ones.

By David C. Berry

District Court Strikes Down Gene Patents

Posted April 13, 2010
Subject: Court decision - Ass'n for Molecular Pathology v. USPTO

In a decision restricting patents claiming human genetic discoveries, a result that may have far-reaching effects the biotechnology industry, the U.S. District Court for the Southern District of New York recently ruled that patents owned by Myriad Genetics claiming the BRCA1 and BRCA2 genes, which are associated with an elevated incidence of breast and ovarian cancers, are invalid because they fail to claim eligible subject matter under 35 U.S.C. § 101.

The plaintiffs, represented by the American Civil Liberties Union Legal Foundation, challenged the U.S. Patent and Trademark Office's policy of granting patents on isolated or purified genes.

The district court ruled that isolated genes do not have "markedly different characteristics" from naturally occurring (and thus unpatentable) genes, because the human genetic information encoded in the isolated genes remains identical to the information in nonisolated genes. The decision is Ass'n for Molecular Pathology v. USPTO, No. 09 Civ 4515 (S.D.N.Y. Mar. 29, 2010).

By David C. Berry

David C. Berry
IP Program Director and Professor

Senate To Consider Compromise Patent Reform Act

Posted March 13, 2010
Subject: Analysis of Proposal Patent Reform Act of 2010, S. 515

Efforts in Congress to pass comprehensive patent reform took a major step forward on March 4, 2010, when a bipartisan group of senators introduced a substitute proposal, known as the Patent Reform Act of 2010, S. 515.

The substitute act is the culmination of negotiations to resolve an impasse between industry groups with markedly different reform objectives, most notably the computer and electronics industry, which favored provisions weakening patent rights, and the pharmaceutical industry, which favored retaining strong patent rights.

The bipartisan agreement introduced in the Senate features the following major provisions:

• Converts patent system from the current "first to invent" priority system to a "first-to-file" system;
• Applies obviousness test as of filing date, not date of invention;
• Eliminates Statutory Invention Registrations;
• Simplifies and expands of provisions defining prior art;
• Eliminates interference proceedings, and creates "derivation" proceedings, in which applicants in a later-filed application could establish that an earlier-filed application was "derived" from their work or earlier disclosure;
• Eliminates qui tam causes of action for false patent marking. Also adds a provision allowing product to be marked "virtually" by posting information on the internet.
• Requires inventor oaths (or, under some circumstances, a detailed "substitute statement") in patent applications;
• Provides that patent applications can be filed by, and issued in the name of, assignees or other real parties in interest;
• Creates "gatekeeper" role for district court judges on infringement damages by determining the methodology for assessing damages, and identifying relevant factors, in each case;
• Requires that upon request by any party, court must sequence trial on damages issues;
• Codifies the willfulness standard established in In re Seagate Technologies, LLC, and applies the Fed. R. Civ. P. 9(b) pleading requirements to willfulness claim. In addition, failure to obtain or produce opinion of counsel is irrelevant to willfulness or active inducement under 35 U.S.C. § 271(b).
• Clarifies that Inventor Defense, 35 U.S.C. § 273(b)(6), personal to inventor but may be transferred as part of good faith sale of enterprise or line of business;
• Makes extensive procedural changes to inter partes reexamination, creating two "windows" for post-grant review of issued patents. In the first 9 months after issuance, a person may initiate post-grant review by the Patent Office on any ground for invalidity. Beginning 9 months after issuance, any member of the public could initiate inter partes review of validity under Section 102 and 103 based on patents or printed publications;
• Clarifies that a district court to transfer venue of a patent action to a more convenient forum;
• Allows a patentee to initiate a three month "supplemental examination" of an issued application to consider or correct any information relating to the patent. The Patent Office could initiate reexamination based on the supplemental examination. Matters considered in a supplemental examination could not be the basis of a finding that the applicant committed inequitable conduct during prosecution;
• Retains the "best mode" disclosure requirement for purposes of examination, but provides that best mode is not a ground for determining invalidity in patent litigation;
• A number of other technical amendments.

The substitute bill omits a number of controversial provisions included in some prior versions of patent reform legislation, including a bill which was passed by the U.S. House of Representatives in the last Congress. Thus, even if passed by the Senate, significant differences exist between the Senate and House versions of patent reform legislation.

By David C. Berry