USPTO Issues New Subject Matter Eligibility Examination Interim Guidelines – Abstract Idea Guidance

Sterne Kessler Goldstein Fox

On December 15, 2014, the USPTO issued Interim Guidance for examination of subject matter eligibility under 35 U.S.C. § 101. These new guidelines largely follow the previous interim guidelines issued on June 25, 2014, in view of CLS v. Alice (2014), with some additional details. The new guidelines have also combined that earlier guidance for claims reciting abstract ideas with the March 4, 2014, guidance for claims reciting natural phenomena/laws of nature.

Under the new guidelines, the examiner will first determine whether the claim is directed to one of the four accepted statutory categories. If it does, examiners are instructed to apply the 2-part patent-eligibility analysis, as articulated by the Supreme Court in Alice. Examiners are instructed to apply the 2-part analysis to the broadest reasonable interpretation of the claims when analyzed as a whole. Importantly, the Guidance also confirms that “[e]very claim must be examined individually, based on the particular elements recited therein, and should not be judged to automatically stand or fall with similar claims in an application.”

Analysis for Software/Business Method Claims – Abstract Idea Guidance

To evaluate software and business method claims, the “abstract idea” analysis laid out in the Guidance will be the most relevant. To determine whether a claim recites an abstract idea, the 2-part Alice test is as follows: 1) determine whether the claims are directed to an abstract idea, and if they are, then 2) determine whether the claims recite additional elements that amount to significantly more than the abstract idea.

Part 1

In accordance with Alice, the Interim Guidance notes that fundamental economic practices, certain methods of organizing human activities, an idea ‘of itself,’ and mathematical relationships/ formulas are recognized as abstract ideas. Citing previous cases, the Interim Guidance provides examiners with specific examples of abstract ideas:

  • mitigating settlement risk (Alice);

  • hedging (Bilski);

  • creating a contractual relationship (buySAFE);

  • using advertising as an exchange of currency (Ultramercial);

  • processing information through a clearinghouse (Dealertrack);

  • comparing new and stored information and using rules to identify options (SmartGene);

  • using categories to organize, store and transmit information (Cyberfone);

  • organizing information through mathematical correlations (Digitech);

  • managing a game of bingo (Planet Bingo);

  • the Arrhenius equation for calculating the cure time of rubber (Diehr);

  • a formula for updating alarm limits (Flook);

  • a mathematical formula relating to standing wave phenomena (Mackay Radio); and

  • a mathematical procedure for converting one form of numerical representation to another

    (Benson).

Part 2

If no abstract idea is found in Part 1, then Part 2 need not be addressed. But if Part 1 identifies an abstract idea in the claims, Part 2 is considered. The Guidance stresses the importance of considering the claim as a whole, rather than addressing individual elements on their own.

The Guidance provides examples of limitations that may be enough to qualify as “significantly more” when recited in a claim. These examples include:

  • improvements to another technology or technical field;

  • improvements to the functioning of the computer itself;

  • applying the abstract idea with, or by use of, a particular machine;

  • effecting a transformation or reduction of a particular article to a different state or thing;

    • adding a specific limitation other than what is well-understood, routine and conventional in the field, or adding unconventional steps that confine the claim to a particular useful application; and

    • other meaningful limitations beyond generally linking the use of the abstract idea to a particular technological environment.

      These examples are consistent with the recent Federal Circuit Decision in DDR Holdings, LLC. v. Hotels.com (DDR).

      Limitations that do not qualify as “significantly more” include:

    • adding the words “apply it” (or an equivalent) with the abstract idea, or mere instructions to implement an abstract idea on a computer;

    • simply appending well-understood, routine and conventional activities previously known to the industry, specified at a high level of generality, to the abstract idea, e.g., a claim to an abstract idea requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry;

    • adding insignificant extrasolution activity to the abstract idea, e.g., mere data gathering in conjunction with the abstract idea; and

    • generally linking the use of the abstract idea to a particular technological environment or field of use.

      2-Part Analysis Not Always Necessary

      According to the Interim Guidance, examiners do not need to perform the complete 2-part analysis when eligibility is self-evident. A full analysis may not be needed where the claims clearly do not preempt the abstract idea in such a manner that others cannot practice it. For instance, the interim guidelines note that a claim directed to a complex manufactured industrial product or process that recites meaningful limitations along with an abstract idea may sufficiently limit its practical application so that a full eligibility analysis is not needed. As an example, a robotic arm assembly having a control system that operates using certain mathematical relationships is not an attempt to tie up use of the mathematical relationships and would not require the examiner to perform the full 2-part analysis to determine eligibility.

    The Interim Guidance is effective on December 16, 2014 and is not legally binding. The USPTO is seeking public comments on this Interim Guidance along with additional suggestions on claim examples by March 15, 2015.

Apple Gets Another Bite At $368 Million Verdict

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You don’t get two bites at the apple, it is sometimes said, but Apple Inc. is getting a second bite at defending itself against a massive damages award after the Federal Circuit Court of Appeals vacated a $368 million jury verdict in a patent infringement case.

The court vacated the award because it found that the plaintiff’s damages expert improperly relied on a model known as the Nash Bargaining Solution to calculate reasonable royalty damages.

Federal district courts have split on whether to allow expert testimony using the Nash Bargaining Solution, but the Federal Circuit held that the expert failed to establish the tie between the Nash theorem and the facts of this case.

The underlying issue in the case was whether two of Apple’s products — FaceTime, which allows secure video calling between Apple devices, and VPN On Demand, which creates a virtual private network from an iOS device — infringed four patents owned by VirnetX, a Nevada software and licensing company.

A jury in federal court in Tyler, Texas, concluded that all four patents were valid and that Apple had infringed them. It awarded VirnetX damages of $368 million.

Proving Reasonable Royalties

On appeal, the Federal Circuit upheld the jury’s verdict of infringement with regard to the VPN On Demand product but reversed and remanded aspects of the infringement verdict with regard to the FaceTime product.

The court then turned its attention to Apple’s challenges of the testimony of VirnetX’s damages expert. In a patent case, when infringement is found, a court is to award damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”

To establish a reasonable royalty rate in this case, VinetX’s expert offered three alternative methods of calculation. Apple challenged the admissibility of all three methods under Daubert, but over Apple’s objection, the trial court admitted the testimony.

On appeal, however, the Federal Circuit found problems with all three theories.

Smallest Salable Unit

The expert’s first theory was to apply a one percent royalty rate to the base. He derived the one percent rate from the royalty VirnetX typically sought in licensing its patents. For the base, he used what he called the “smallest salable unit” — the lowest sale price of each model of the iOS devices that contained the challenged features. With this theory, he calculated the total damages to be $708 million.

Apple argued that the expert erred by using the entire market value of its products as the royalty base without demonstrating that the patented features drove the demand for those products. The Federal Circuit agreed.

“The law requires patentees to apportion the royalty down to a reasonable estimate of the value of its claimed technology, or else establish that its patented technology drove demand for the entire product,” the court explained. “VirnetX did neither.”

The court went on to say that the expert “did not even try to link demand for the accused device to the patented feature, and failed to apportion value between the patented features and the vast number of nonpatented features contained in the accused products.”

The Nash Bargaining Solution

For both the expert’s second and third theories — each of which he used only with regard to FaceTime — he relied on the Nash Bargaining Solution, a so-called game theory developed in 1950 by John Nash, a mathematician and co-winner of the 1994 Nobel Prize in economics.

In his first use of the Nash theorem, the expert began by calculating the profits associated with the use of FaceTime. He did this based on the revenue generated by Apple’s addition of a front-facing camera on its mobile devices. He then determined that, under the Nash theory, the parties would have split this revenue 50/50. However, after accounting for Apple’s stronger bargaining position, he concluded that Apple would have taken 55 percent of the profits and VirnetX, 45 percent. That amounted to $588 million in damages.

For his second use of the Nash theorem, the expert assumed that FaceTime “drove sales” for Apple’s iOS products. Eighteen percent of all iOS sales would not have occurred without the addition of the FaceTime feature, he concluded. Based on that, he calculated the amount of Apple’s profits that he believed were attributable to FaceTime and apportioned 45 percent of those profits to VirnetX. That amounted to $606 million in damages for FaceTime.

Apple challenged both these theories, arguing that the expert’s use of the 50/50 split as a starting point was akin to the 25 percent rule of thumb for royalties that the Federal Circuit had rejected in earlier cases. Here again, the Federal Circuit agreed with Apple’s argument.

The problem, the court explained, is that the Nash theorem arrives at a result that follows from a certain set of premises. Here, the expert never tied his use of the theorem to the facts of the case.

“Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises,” the court said. In this case, the expert never did that.

Based on these conclusions, the court vacated the damages award and sent the case back to the district court for further proceedings.

Has an expert ever used the Nash Bargaining Solution, or other game theory, in one of your cases? If so, was the result positive?

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More GMO Woes: Another Corn Exporter Sues Syngenta for its Failure to Isolate its GMO Corn

Mintz Levin Law Firm

Last month, Archer Daniels Midland Co. (“ADM”) joined a slew of corn exporters and other stakeholders who have sued Syngenta based on allegations that China rejected these exporters’ products because Syngenta’s genetically modified corn seed, which contains a trait that China has not yet approved for import, was not kept separate from the plaintiffs’ products.

Corn Thrasher

Syngenta’s corn seed contains MIR 162, a patented genetically modified (“GMO”) trait that may protect corn crops from insect damage.  This corn is also known as “Viptera corn.”  The ADM suit against Syngenta, which was filed in Louisiana state court on November 19, alleges that Syngenta was negligent in marketing its GMO corn.

The complaint explains that although Syngenta told the U.S. Department of Agriculture that it would put into place programs to keep the GMO corn separate from other strains so that it would not end up on ships headed for countries that have not yet approved the import of foods containing MIR 162. Syngenta has not implemented any such programs.

One major issue stemming from Syngenta’s alleged failure to isolate GMO corn is that MIR 162 has not been approved in all major export markets, including China, the world’s second-largest consumer of corn behind the United States.  Therefore, when the Syngenta seed is mixed with other corn seed during shipment, as corn in the United States is “commoditized,” or mixed together, during export, the entire lot is rejected when it reaches China because MIR 162 has not yet been approved for import.  Over the past year, China has rejected over one million tons of U.S. corn and corn products because they contained MIR 162.

ADM, which alleges “substantial economic losses and damages” due to these rejections, joins over one hundred farmers and corn exporters who have filed lawsuits against Syngenta for damages stemming from Syngenta’s failure to segregate its GMO corn seed.  For example, corn exporters Cargill Inc. and Trans Coastal Supply recently sued Syngenta for damages suffered due to China’s rejection of their corn shipments.

Additionally, groups of Midwestern farmers filed proposed class actions in Nebraska and Illinois federal courts in October 2014, in which they accused Syngenta of continuing to market and sell seeds containing MIR 162 and misleading farmers into planting this GMO corn alongside the rest of their corn crops.  In response to these prior suits, Syngenta has continually stated that these cases have no merit.  For example, in a recent conference call with analysts, Syngenta’s CFO stated that the company believes that it has complied with all laws, rules, and regulations in all of the countries in which it sells its GMO corn.

As we’ve explored in past posts, GMO foods continue to be controversial in the United States.  The ADM case is just one example of how the development and use of GMO foods in the United States can have far-reaching effects that extend beyond American consumers and legislation and into international trade.  Stay tuned for updates regarding Syngenta’s response to the ADM complaint.

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U.S.-Centered Negotiations for Product Made and Sold Outside United States Do Not Constitute Sale or Offer for Sale in United States

Mcdermott Will Emery Law Firm

Halo Elecs., Inc. v. Pulse Elecs., Inc. and Pulse Elecs. Corp.

In a case exploring the limits of what constitutes a sale or offer for sale “within the United States” under 35 U.S.C. § 271(a), the U.S. Court of Appeals for the Federal Circuit found that sales were carried out outside of the United States and, even though they were partially negotiated in the United States, did not constitute an infringement of U.S. patent rights under § 271(a).  Halo Elecs., Inc. v. Pulse Elecs., Incand Pulse Elecs. Corp., Case Nos. 13-1472; -1656 (Fed. Cir., Oct. 22, 2014) (Lourie, J.) (O’Malley, J., and Hughes, J., concurring).

Halo accused Pulse of infringing its patents related to surface mount electronic packages containing transformers for mounting on a printed circuit board.  Pulse’s products were manufactured in Asia and the majority of its products were delivered to customers in Asia.  Pulse received the purchase orders for these products abroad.  However, Pulse engaged in pricing negotiations with its customers in the United States, and Pulse’s U.S.-based employees had to approve prices quoted by its agents when those prices fell beneath a threshold.  The district court granted Pulse summary judgment of non-infringement finding that its activities for these sales were insufficient to constitute a sale or offer for sale “within the United States.”  After a trial finding that the same products that did enter the United States infringed Halo’s patents, the district court found Pulse’s substantial invalidity defense negated the objective prong of willfulness under In re Seagate.  Halo appealed.

On appeal, the Federal Circuit panel affirmed that Pulse’s U.S.-based activities for its products manufactured and sold in Asia were not sales or offers for sale “within the United States.”  The Court noted that while a sale is not necessarily limited to the place of transfer of the tangible property, but may also be determined by the place where agreement to such a transfer takes place, extraterritorial applications of U.S. patent law were disfavored.  The Court found it was undisputed that the products at issue were manufactured, shipped and delivered abroad; that the purchase orders were received abroad; that the negotiations that occurred in the United States did not constitute a firm agreement to buy and sell; and that Pulse was paid abroad for its products.  Based on these facts, the Court found it need not reach Halo’s argument that the place of formation of a contract can be determinative of whether a sale has occurred “within the United States.”  The Court further explained that for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States, and that Pulse’s actions therefore did not constitute an offer for sale cognizable under the Patent Act.  Finally, the panel affirmed the district court’s finding of no willfulness, agreeing that Pulse’s presentation of a substantial invalidity defense at trial negated the objective prong of the willfulness test.

Practice Note: In a concurrence, Judge O’Malley and Judge Hughes, while agreeing with the finding of no willfulness under current case law, urged the full court to reexamine its enhanced damages jurisprudence in light of the Supreme Court of the United States’ decisions in Highmark v. Allcare Health Management Sys., and Octane Fitness v. ICON Health & Fitness.  Specifically, the concurrence urged reconsideration of the two-part subjective/objective test required under Seagate; the requirement that willfulness be proven by clear and convincing evidence; whether de novo review is the appropriate standard on appeal; and whether willfulness must be decided by the court as a matter of law.

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Antares Pharma Bolsters the “Original Patent” Rule for Reissued Patents

Michael Best Logo

On November 17, the Federal Circuit decided Antares Pharma, Inc. v. medac Pharma Inc., holding reissued patent claims invalid for failing to comply with the “original patent” requirement of 35 U.S.C. § 251. The court’s decision casts a spotlight on the original patent rule and reinvigorates the little-used doctrine as an invalidity defense against reissued patent claims.

In Antares Pharma, the plaintiff alleged infringement of U.S. Patent RE44,846. Specifically, the plaintiff asserted four claims that had been added through reissue proceedings to broaden the original patent. The original claims were directed to various embodiments of a jet injection device, and the asserted reissue claims covered particular safety features for any injection device. The patentee sought a preliminary injunction, which the district court denied. The court found substantial questions of validity regarding whether the reissued claims impermissibly recaptured subject matter surrendered during prosecution to obtain the original claims.

On appeal, the Federal Circuit declined to address the recapture issue. The court instead decided the case by invoking the original patent rule, an issue that had been argued but not resolved below.

Section 251, which governs reissue applications, states in pertinent part that where a patentee has by error claimed more or less that it had a right to claim in a patent, the Patent Office will “reissue the patent for the invention disclosed in the original patent.” The italicized provision had previously been applied in a manner analogous to the written description requirement to require that reissue claims found adequate support in the disclosure of the original patent. In Antares Pharma, however, the Federal Circuit turned to Supreme Court precedents dating back as far as 1854 to read a more stringent standard into the “original patent” provision of § 251. In particular, the court held that whether or not the written description requirement was satisfied, “the specification must clearly and unequivocally disclose the newly claimed invention as a separate invention.”

Applying that standard to the reissue claims on appeal, the court not only affirmed the denial of a preliminary injunction, but also held the asserted reissue claims invalid as a matter of law. The court concluded that the safety features claimed during reissue were never described separately from the jet injector or disclosed in the particular claimed combinations. Because the original specification lacked “express disclosure” of the exact embodiments recited in the reissue claims, those claims failed to satisfy the original patent requirement.

The Antares Pharma decision provides guidance to potential reissue applicants and offers a significant new weapon for parties accused of infringing a reissued patent. For patentees, the decision expands the risks associated with using a reissue application to seek supplemental or complementary patent protection—the reissue applicant not only risks intervening rights and undesirable modification or loss of previously issued claims, but now faces a heightened requirement, not applicable to continuing applications, for clear and unequivocal disclosure of the newly claimed subject matter as a separate invention. To the extent practical, new applications should clearly set forth each potential invention with detailed examples. For parties accused of infringement, the exacting Antares Pharma standard will provide an additional, robust basis for validity challenges against asserted reissue claims during litigation.

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They Know It When They See It: Patentable Subject Matter After Alice

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To those with even a casual interest in the preparation and prosecution of patents in the United States, the holding in the Supreme Court’s June 2014 decision in Alice Corp. v. CLS Bank International is well known: claims directed to intermediated settlement encompass an abstract idea, and generic recitation of a computer implementation in such claims fails to transform the abstract idea into patent-eligible subject matter. Predictably, numerous articles have since been published extolling the virtues (or lack thereof, as the case may be) of theAlice decision. While the patent eligibility debate is good and necessary, it leaves open the question of many would-be patentees: may I get a patent on my software-based innovation?

While the Court provided virtually no “bright line” rules in answer to this question, the decision nevertheless suggests various approaches that may be employed going forward to best ensure your patent application embraces patent-eligible subject matter.

Background

Alice Corporation obtained various patents directed to, as the Court put it, “a computerized scheme for mitigating ‘settlement risk’—i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation.” In a highly fractured opinion, the Court of Appeals for the Federal Circuit concluded that all of Alice’s claims were directed to patent-ineligible subject matter.

On further appeal, the Court cited its recent decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., in which the Court laid out its two-step process for separating patents directed to patent ineligible concepts from “those that claim patent-eligible applications of those concepts.” First, one must “determine whether the claims at issue are directed to . . . patent ineligible concepts.” If so, in the second step, one must then ask what else is in the claims that may be sufficient to “transform” the ineligible concept into a patent-eligible application thereof.

Unfortunately, the Court provides no guidance how one goes about determining whether claims are directed to ineligible concepts in the first step. In fact, the Court expressly takes a pass on the issue, stating that it “need not labor to delimit the precise contours” of what constitutes a patent-ineligible concept. Instead, the Court noted that it’s Bilski decision concerned claims directed to “hedging,” which “all members of the Court agreed” constituted an abstract idea. Without further reference to the actual language of the claims, the Court stated that Alice’s “claims . . . are drawn to the concept of intermediated settlement.” With this setup, the Court quickly concluded that “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is a ‘fundamental economic practice long prevalent in our system of commerce.'”

Turning to the second step, the Court had little trouble in determining that various other recitations in the claim beyond the abstract idea failed to “do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” Looking at “the claim elements separately,” the Court stated that “each step does no more than require a generic computer to perform generic computer functions.” Further, considering the claimed computer elements “as an ordered combination” did not add anything “that is not already present when the steps are considered separately.”

Going Forward

So, you are now considering patent protection for your new, software-implemented invention, but the Court’s “guidance” in Alice has left you unsure whether it makes sense to proceed. Despite the outcome in Alice, patents based on software-implemented innovations have not been knocked out entirely, though they did take a pretty good punch to the gut. Going forward, would-be patentees must take greater care to ensure that they claim and present their inventions in a manner that minimizes the likelihood of being interpreted as an “abstract idea.” The following observations should help you avoid that pitfall.

1. Stay As Far Away From Bilski and Alice As You Can

As noted, the closest the Court came to providing concrete guidance for identifying patent-ineligible abstract ideas was to measure how close the underlying “inventive concept” of an invention comes to the abstract ideas found in Bilski and, in the future, Alice. That is, if the subject matter of your claims is reasonably analogous to the risk hedging claimed in Bilski or the intermediated settlement in Alice, it’s almost certainly going to be viewed as embracing an abstract idea. Instead, try to find a way to describe the subject matter of your invention as something other than a concept that is related to these concepts.

Even more so than before, for software-implemented ideas, application drafting will require a careful balancing of what you say in the specification and in the claims. That is, the difference between whatever abstract idea is arguably discussed in the specification versus the limitations in your claims (∆abst) should be as large as possible.

For example, assume an invention concerns a new technique for completing payments for goods and services via mobile, wireless devices, which method facilitates a more rapid exchange of certain types of data. Having a method claim that begins “A method for completing payments via mobile, wireless devices” strongly suggests that the “inventive concept” is directed to the mere idea of completing financial transactions, which starts to sound awfully similar to the intermediated settlement of Alice. Rather than focusing the claim on the novelty of the financial transaction itself, attempt to focus the claim on the effect the method has on the underlying mobile device, e.g., “A method for communicating transactional data by a mobile, wireless device.”

2. Get “Technical”

Perhaps more importantly, even if you can strongly contrast your claims to the underlying abstract idea, you may still be on shaky grounds if your application doesn’t somehow discuss how it leads to a technological improvement. In Alice, when rejecting the sufficiency of a generic computer implementation to rescue claims otherwise directed to an abstract idea, the Court specifically noted that the claim did not “purport to improve the functioning of the computer itself . . . [or] effect an improvement in any other technology or technical field.” Stated another way, rather than directing your specification and claims as teaching improvements to a traditionally human-implemented field of endeavor (e.g., hedging risk, mediating settlement risk), they should clearly establish how the innovation improves the operation of a machine (i.e., the computer implementing the software-driven method) or an overarching “technology or technical field” in which the computer-implemented method is employed.

The graph below illustrates the apparent “sliding scale” nature of the abstract idea and technology aspects of the Alice decision. As shown, the connection of the claimed subject matter to improvement to a particular technology is shown along one axis, and the distinction of the claims over an encompassed abstract idea (∆abst) is shown along the other. For claimed subject matter that demonstrates little distinction from the alleged abstract idea and that demonstrates a weak connection to a technological improvement, there is little likelihood (“No Chance”) of demonstrating subject-matter eligibility. Oppositely, for claimed subject matter that is strongly distinguished from the alleged abstract idea and that clearly concerns a technological improvement, there is a much greater likelihood (“No Problem”) of demonstrating subject-matter eligibility. It is to be expected, however, that the relative areas of the illustrated outcomes will be different according to the particular realm of abstract ideas at hand, i.e., the “No Chance” area is likely to be much larger when dealing with finance-related inventions versus inventions concerning, say, telecommunications.

 

For example, assume an invention concerns a new process applicable to trading platforms for various financial instruments, e.g., stocks, commodities, etc. Where possible, one should not stress how the claimed process makes trading markets more efficient or enables different types of financial instruments to be traded. Instead, it may be better to acknowledge in the specification that electronic trading is well-known and that the invention leads to better operation of the underlying machines (e.g., where the claimed process enables the machine to complete more trades per unit of time, complete the trades more accurately, in a manner less consuming of resources, etc.) or broadens the capabilities of such machines (e.g., where the process provides a function that was previously unavailable). In drafting the specification, carefully ascribe certain steps to humans versus machines where possible and then make sure the claims don’t include any of the human-performed steps.

3. Get to Know a European Patent Attorney

It has been observed by many commentators that the Alice decision is yet another nudge of U.S. practice in the direction of European practice, i.e., focused on a “technical problem” for which your invention must provide a “technical solution.” European patent attorneys have been dealing with such issues for many years and may be able to offer valuable insights how to best position your invention in an application.

4. Be Prepared to Make Decision Makers Prove “Abstractness”

A concern with the Court’s lack of guidance when assessing whether a claim embraces excluded subject matter is that, not unlike those seeking to obtain patents, the examiners at the U.S. Patent & Trademark Office (USPTO) and federal district court judges will be equally in the dark. Unfettered from concrete guidance, it may be anticipated that examiners and judges will be more apt to make unsubstantiated assertions that claims encompass abstract ideas. Having drafted your claims and specification as noted above, i.e., emphasizing less how the invention helps achieve a business goal or perform human tasks better and instead illustrating how it improves/extends operation of an underlying machine or overarching technology, you will at least have a stronger foundation for arguing against the alleged abstract idea.

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U.S. Bancorp CBM Results in Cancellation of Retirement Capital Access Management Co.’s Patent Claims

Schwegman Lundberg Woessner

In 2011, U.S. Patent 6,625,582, entitled Method And System For Converting A Designated Portion of Future Social Security And Other Retirement Payments To Current Benefits, was assigned to Retirement Capital Access Management Company LLC.  Benefit Funding Systems LLC asserted the ’582 patent against U.S. Bancorp in June of 2012.  Benefit Funding Systems LLC v. U.S. Bancorp, Case No. 1:12-cv-803-LPS (D. Del. filed June 22, 2012).  In response, U.S. Bancorp filed a CBM petition requesting review of claims 1, 13, 14, 18, 30, and 31 of the ’582 patent on March 29, 2013.  U.S. Bancorp asserted that the ’582 patent qualified for CBM review under 35 U.S.C. § 324 and Sec. 18(a) of the Leahy-Smith America Invents Act, Pub. L. 112-29, 125 Stat. 284, 329 (2011), and that these claims were invalid under 35 U.S.C. § 101.

U.S. Bancorp’s CBM Petition states:

The specification states that “[t]he present invention relates generally to a system and method which provides a mechanism for a [beneficiary] of Social Security payments, or of other retirement payments, to access present value of a designated portion of its future retirement payments . . . . [W]ithout encumbering the beneficiary’s rights to its future retirement benefits.” See U.S. Bancorp Ex.1003 (‘582 patent), Col. 1:10-22.

The ‘582 patent explains that “retirement age individuals” are finding retirement benefits or the anticipated timing of those benefits “to be somewhat inadequate to meet their present and future financial needs, expectations, and objectives.” See U.S. Bancorp Ex.1003, Col. 1: 23-29. The ‘582 patent further states that such retirement benefits “have not generally been seen as an adequate source of current capital, particularly to support financing based upon future receipts” due to “the current legislated proscriptions . . . against assigning or otherwise alienating future retirement benefits.” U.S. Bancorp Ex.1003, Col. 1:35- 43. Therefore, the ‘582 patent purports to provide a financial program that allows a beneficiary to access the present value of future retirement payments while complying with U.S. laws restricting alienation of future retirement benefits. U.S. Bancorp Ex.1003, Col. 1:43-49. Curiously though, the ‘582 specification does not explain – and claims do not recite any limitations regarding – how the patented financial scheme complies with U.S. laws. Instead, each independent claim merely includes the limitation that monetary benefits are provided “without violating legislated proscriptions in the United States against alienation of future retirement funds.” See, e.g., U.S. Bancorp Ex.1003, Col. 9:8-9 (claim 1).

(CBM Petition at pp. 4-5.)

Claim 1, which is representative of the subject matter, recites:

1.  A computerized method for creating a source of funds based on present value of future retirement payments, comprising the steps of:

a. designating an account in a depository for a beneficiary to receive future retirement payments payable to said beneficiary from a source of said retirement payments for a preselected period of time;

b. designating a benefit provider for providing a monetary benefit to said beneficiary;

c. authorizing said depository to periodically disburse a predetermined portion of said retirement payments deposited in said account to said benefit provider during said preselected period of time;

d. providing said monetary benefit to said beneficiary from said benefit provider based at least in part on present value of a designated portion of said future retirement payments without encumbering said beneficiary’s right to said future retirement payments and without violating legislated proscriptions in the United States against alienation of future retirement benefits;

e. causing said future retirement payments to be deposited into said account throughout said preselected period of time;

f. causing said depository to transfer a portion of said retirement payments deposited into said account to said benefit provider during said preselected period of time; and

g. reimbursing said benefit provider from resources other than said future retirement payments if said transfer of a portion of said retirement payments from said depository to said benefit provider are curtailed prior to said end of said preselected period of time, and making said retirement payments available for the exclusive use of said beneficiary.

The CBM Petition concluded:

Importantly, none of the claim steps is limited to performance on, or by, any specific device or computer. Indeed, no device or computer is needed at all, as all of the steps can be performed by a human.

(CBM Petition at p. 9.)

The Patent Owner (Retirement Capital Access Management Co. LLC) filed a Preliminary Response on July 2, 2013, arguing that the Petitioner failed to carry its burden of showing that it is more likely than not that at least one of the challenged claims of the ’582 patent is unpatentable under § 101, at least in part because:

 

  • the Petitioner cannot show “that, in practice, the claims cover the abstract concept itself”; and

  • the use of a computer as part of the specialized electronic funds transfer is not merely convenient, or done for the purpose of expediting calculations.

 

Despite these arguments, the Board granted institution of CBM review on September 20, 2013.  (CBM2013-00014, Paper 12, Sep. 20, 2013.)  A Patent Owner Response dated November 20, 2013 was filed that set forth the arguments from the Preliminary Response and provided an argument that § 101 is not a proper ground upon which a covered business method review may be maintained.  (Patent Owner Retirement Capital Access Management Company LLC’s Response, Paper 19, p. 37, Nov. 20, 2013.)  A Reply was filed by the Petitioner and an Oral Hearing was held on April 1, 2014.  No depositions were taken, based on the record in PRPS.

The Board issued a final written decision, dated Aug. 22, 2014, canceling each of the challenged claims under 35 U.S.C. § 101.  The Board dismissed Patent Owner’s assertion that CBM review cannot be premised on § 101, stating that the AIA allows for CBM reviews to include certain grounds of invalidity based on conditions for patentability, including § 101:

As recognized by the Supreme Court, § 101 is a condition for patentability. In Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 12 (1966), the Supreme Court stated that the 1952 Patent Act “sets out the conditions of patentability in three sections,” citing 35 U.S.C. §§ 101, 102, and 103. The Supreme Court has also addressed invalidity under § 101 when it was raised as a defense to an infringement claim under § 282. See Mayo Collaboration Servs. v. Prometheus Labs, Inc., 132 S.Ct. 1289, 1293 (2012).

(Decision at p. 9.)

What is also notable about this proceeding is that the CBM review didn’t include:

 

  • anticipation or obviousness grounds (and the necessary submissions of prior art),

  • an assertion of indefiniteness,

  • an expert declaration to support the CBM Petition, and

  • depositions of experts by either side.

 

Indeed, at 36 pages in length, the CBM Petition is roughly half the length allotted by the Board’s rules.  Thus, a relatively short record was produced in this CBM.  However, as covered in a previous post, this is not the only Petitioner to take advantage of this approach (See a similar approach in LinkedIn Corporation v. AvMarkets, Inc., CBM2013-00025.)

ARTICLE BY
Timothy Bianchi

OF
Schwegman, Lundberg & Woessner, P.A.

Facebook, Inc. v. Rembrandt Social Media, L.P., Granting Request for Rehearing IPR2014-00415

Drinker Biddle Law Firm

Takeaway: Compliance with Section 42.105(b) regarding service by electronic means or EXPRESS MAIL is not required under Section 42.106(a)(2) in order for a filing date to be accorded to a petition.

In its Decision, the Board granted Patent Owner’s Request for Rehearing, but only to revisit the Board’s earlier statement regarding compliance with the requirements for service of a petition.

In its Decision on Institution, the Board had stated that “mailing via FedEx after the cut-off time on Thursday without electing Saturday delivery failed to comply with 37 C.F.R. § 42.105(b).” Patent Owner contended that the Board “misapprehend[ed] the regulatory nature of an alleged error in service of the Petition in this case,” and that the Board misapprehended “whether a failure to effect service on February 6, 2014, was ‘harmless.’”

The Board found Patent Owner’s arguments not persuasive but granted the Request for Rehearing to address the service of the Petition in this case. The Board determined that service of the Petition in this case complied with 37 C.F.R. § 42.106, which states that a filing date will not be accorded until “service of the petition on the correspondence address of record as provided in [§] 42.105(a).”  The Board stated that “Section 42.106(a)(2) does not require compliance with § 42.105(b) for a filing date to be accorded,” and that the Petition was properly accorded a February 6, 2014 filing date in this case.

Facebook, Inc. v. Rembrandt Social Media, L.P., IPR2014-00415
Paper 14:  Decision on Request for Rehearing
Dated: July 31, 2014
Patent: 6,415,316
Before: Phillip J. Kauffman, Jennifer S. Bisk, and Matthew R. Clements
Written by: Clements

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First Written Decision Pertaining to Pharmaceuticals

ArmstrongTeasdale logo

Practitioners monitoring the use of inter partes review (IPR) proceedings to challenge pharmaceutical patents may want to note what appears to be a pair of first-time events.  The Patent Trial and Appeal Board (PTAB) recently issued the first Final Written Decision in an IPR proceeding involving a pharmaceutical-related patent. In addition, the first petition for covered business method review challenging an Orange Book-listed patent for a marketed drug was recently filed.

On June 20, 2014, the PTAB issued Final Written Decisions in four related IPR proceedings (IPR2013-00116IPR2013-00117IPR2013-118; and IPR2013-00119)  involving U.S. Patent Nos.  5,997,915; 6,011,040; 6,673,381; and 7,172,778, respectively. The patents generally disclose compositions for supplementing dietary folate and the challenged claims were directed to compositions comprising natural isomers of reduced folates and corresponding methods of using such compositions.  Petitioner Gnosis SpA initiated the IPR proceedings after it was sued for infringement of the patents by a group of plaintiffs including Merck KGaA (licensee of three of the patents) and Merck & Cie (owner of the remaining patent).  The decision to challenge the patents in an IPR proceeding was a successful one for Gnosis as the PTAB found all of the challenged claims to be unpatentable, holding that certain claims were anticipated and the remaining claims were obvious.

Several days later, on June 24, 2014, Amneal Pharmaceuticals, LLCPar Pharmaceutical, Inc., and Roxane Laboratories, Inc. (Petitioners) filed a petition for covered business method of a patent listed in the Food and Drug Administration’s Orange Book for the prescription drug product Xyrem®, which is marketed by Jazz Pharmaceuticals, Inc. The patent, U.S. Patent No. 7,895,059, generally discloses methods for controlling the distribution of, and access to, hazardous or abuse-prone drugs and the challenged claims are directed to “[a] computerized method of distributing a prescription drug under the exclusive control of an exclusive central pharmacy.”

Each of the Petitioners had previously filed an Abbreviated New Drug Application with the Food and Drug Administration seeking approval of a generic version of Xylem and been sued by Jazz for infringement of several Orange Book-listed patents including U.S. Patent No. 7,895,059. In their petition for covered business method review, the Petitioners asserted that the challenged method claims involve the verification of an insurance payment for the drug and therefore are related to a “financial product or service” (a requirement for covered business method review). Should the PTAB accept this argument and grant the petition, that determination could potentially encourage others to file petitions for covered business method review of additional Orange Book-listed patents containing similar “Risk Evaluation and Mitigation Strategies (REMS)”-type claims.

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Alice v. CLS Bank: Supreme Court Continues to Grope in Dark for Contours of Abstract Idea Exception

Schwegman Lundberg Woessner

In Alice Corp. v. CLS Bank Int’l (2014), the Supreme Court unanimously affirmed the one-paragraph per curium opinion of the en banc Federal Circuit, which found all claims of U.S. Patent Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375 invalid under 35 U.S.C. § 101 for being directed to an abstract idea.

The Court based its affirmance on an application of a two-step process outlined in Mayo Collaborative Services v. Prometheus Labs, 566 U.S. ___ (2012). The first step is the determination of whether the claims are directed to a patent-ineligible concept such as a law of nature, natural phenomenon, or abstract idea. This step implicitly includes the identification of the concept at issue. The second step is to determine if the claims recite “an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.”

The Court avoided providing “the precise contours of the ‘abstract ideas’ category” by relying on the similarity between Alice’s claims for intermediated settlement and Bilski’s claims for hedging. The Court characterized the Bilski claims as “a method of organizing human activity.” Accordingly, while only three justices signed Justice Sotomayor’s concurrence, stating that “any claim that merely describes a method of doing business does not qualify as a ‘process’ under §101,” the unanimous decision does implicate business methods as likely directed to abstract ideas.

At the Federal Circuit, the splintered opinion included a four-judge dissent that argued that the system claims should be patent-eligible even though the method claims were not. The Supreme Court disagreed with this view, finding that if the system claims were treated differently under §101, “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept” which would “make the determination of patent eligibility depend simply on the draftsman’s art.” To convey patent-eligibility, the claims at issue must be “significantly more than an instruction to apply the abstract idea … using some unspecified, generic computer.”

In my previous post regarding the oral argument before the Supreme Court, I noted that the Court seemed to be looking for reasonable and clear rules regarding the limits of the abstract idea exception to patentable subject matter, but did not get such a rule from any party. Perhaps as a result, this case was decided purely on its similarity to Bilski, and without providing much guidance as to the scope of the exception.

My thanks to Domenico Ippolito for this posting.

© 2014 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

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