July 23, 2017

The Assault on Patents

The Assault on Patents

By Peter J. Toren

All three branches of the U.S. government have attacked the patent system in the past year. Congress is considering amending patent law to curtail litigation by nonpracticing entities, or “patent trolls,” as they’re pejoratively known, even though their impact on the patent system is open to debate. President Barack Obama compared patent trolls to “extortionists.” And the U.S. Supreme Court ruled against patent owners in five cases this term, overturning five of the six decisions from the U.S. Court of Appeals for the Federal Circuit involving questions of patent law. This lack of deference to rulings by the Federal Circuit, which by virtue of hearing all district court patent appeals is considered very patent savvy and sensitive to the interests of patent owners, also bodes ill for the long-term future of the rights of patent owners before the Supreme Court. Accordingly, inventors should consider alternatives to patent law to protect their intellectual property.

Congressional efforts to amend the Patent Act have stemmed largely from the (incorrect) perception that so-called patent trolls jeopardize the patent system by extorting settlements from companies and by engaging in other unethical practices. In addition to Obama referring to them as “extortionists,” a report from the President’s Council of Economic Advisers concluded that there was an explosion of “patent troll litigation” from 2010 until 2012. Putting aside that the report’s conclusion was fundamentally flawed and was completely discredited by a subsequent study by three law professors, supporters of amending the Patent Act in Congress have seized upon it as evidence that the Patent Act needs to be amended, even though it was amended about three years ago.

It is very possible that Congress will enact legislation in the near future that, under the guise reining in patent trolls, also will weaken the rights of other types of patentees. Indeed, previous bills have not clearly defined “patent troll,” and have simply tarred all NPEs with the broad brush. However, this is a gross oversimplification and may lead to undercut one of the most important stated goals of the patent system — to encourage the advancement of technology.

Contrary to criticism, most types of NPEs actually do play a constructive role and contribute to technological advances. For example, many prestigious universities may qualify as patent trolls since they do not generally manufacture products, but do seek to license and enforce their patents. However, universities are responsible for scientific and technological breakthroughs and provide a valuable source of revenue, which has become more and more important as federal funding has dried up. The patent system should be designed to encourage the creation of patents by universities and other nonprofit research entities.

While the impact of the proposed legislation is somewhat speculative, the same cannot be said for a number of Supreme Court decisions. The Roberts court has issued a number of opinions that narrow the scope of patentability and limit the enforceability of patent rights. In addition, the court has not been reluctant to become involved in the patent arena or to defer to the “expertise” of the patent judges on the Federal Circuit. Between 1982, when the Federal Circuit was created, and 2005, the high court decided only eight patent cases. Yet the Roberts court has decided around 20.

Prior to the recent term, in which the high court reversed the Federal Circuit on five of six cases, the Roberts court reversed the Federal Circuit nine times, vacated its decision three times, affirmed but changed the applicable standard twice, and affirmed only three times. In addition, in Limelight Networks v. Akamai Technologies, 134 S.Ct. 2111, 2117 (2014), Justice Samuel Alito, writing for the majority, stated, “The Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent.” Members of the patent bar described Alito’s language as an unnecessary “slapdown” of the Federal Circuit.

Further, the Roberts court has not been as friendly to the rights of patentees as the Federal Circuit. Roberts court opinions have had a negative impact on patent rights over a dozen times while having a positive effect approximately five times. Some of the older cases that have gone against patent owners or raised the standard of patentablity include: MedImmune Inc. v. Genentech Inc., 549 U.S. 118 (2007), which reversed the Federal Circuit and held that patent licensees can challenge the validity of the licensed patentees; Bilski v. Kappos, 130 S.Ct. 3218 (2010), which rejected the “machine or transformation” test as the sole test for determining whether business method claims were patentable subject matter; and Mayo Collaborative Services v. Prometheus Laboratories Inc., 132 S.Ct. 1289 (2012), which held that the patent at issue was an unpatentable law of nature and that new patents involving correlations between natural phenomena must do more than simply recite the natural correlation and describe how to apply it.

This trend continued with greater force this year. In Medtronic Inc. v. Mirowski Family Ventures LLC, 134 S.Ct. 843 (2014), the Supreme Court reversed the Federal Circuit and held that when a licensee seeks a declaratory judgment against a patentee the burden of proving infringement remains with the patentee. Next, Octane Fitness, LLC v. ICON Health & Fitness Inc., 134 S.Ct. 1749 (2014), reversed the Federal Circuit’s understanding of Section 285 of the Patent Act, which authorizes a district court to award attorney fees in “exceptional cases.” The Federal Circuit had held that a case is exceptional in two limited circumstances “when there has been some material inappropriate conduct,” or when the litigation is both “brought in subjective bad faith” and is “objectively baseless.” Brooks Furniture Mfg. Inc. v. Dutailier Int’l Inc., 393 F.3d 1378 (2005). The Supreme Court found that this framework is unduly rigid and impermissibly encumbers the statutory grant of discretion to district courts. In a companion case, the Supreme Court determined that an appellate court should apply an abuse-of-discretion standard to Section 285 decisions. Highmark Inc. v. Allcare Health Management System Inc., 134 S.Ct. 1744 (2014).

Finally, just before the end of the term in June, the high court ruled against patent holders in three cases. In Limelight Networks Inc. v. Akamai Technologies Inc., 134 S.Ct. 2111 (2014), the court reversed the Federal Circuit holding that a defendant is not liable for inducing infringement under Section 35 U.S.C. Section 271(b) when no party has directly infringed under Section 271(a) or any other statutory provision. It held in Nautilus Inc. v. Biosig Instruments Inc., 134 S.Ct. 2120 (2014), that the test used by Federal Circuit to determine whether a patent is invalid for indefiniteness that tolerates some ambiguous claims, but not others, does not satisfy Section 112’s definiteness requirement. The court stated “that a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform with reasonable certainty those skilled in the art about the scope of the invention.” Finally, in the only patent case in which the Supreme Court agreed with the Federal Circuit, in Alice Corp. Pty. Ltd. V. CLS Bank Intern., 134 S.Ct. 2347 (2014), the court concluded that because the claims of a business method patent are drawn to a patent-ineligible idea, they are not patent eligible under Section 101 of the Patent Act which defines the subject matter eligible for patent protection. The court found that the method claims of the patent, which merely require generic computer implementation, fail to transform the abstract idea of an “intermediated settlement” into a patent-eligible invention.

Past actions are not always an accurate predictor of future ones. However, given the actions by Congress, Obama and the recent trend of the Supreme Court, inventors and developers of technology would be remiss not to consider other alternatives. In particular, whether trade secrets may offer a better way to protect their intellectual property especially since Congress may finally enact a federal trade secrets act — not to mention that a California appellate court in Altavion Inc. v. Konica Minolta Systems Laboratory recently broadened the definition of what information can qualify as a trade secret.

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