Excluded Subject Matter American Style - Association of Molecular Pathology v Myriad (CAFC, 2011)

Important patent things have been happening ‘across the pond’ from the muggy and badly-ventilated London sweathouse that this particular Kat’s office has become over the past few days. (Readers will appreciate that this is not a reference to an actual pond – there little room for such an installation in the immediate vicinity of his office, and the inhabitants of the surrounding rooms would probably be less than impressed to find an impromptu water feature quite literally springing up under their desks (although given the weather in London at the moment the Kat is prepared to be proved wrong on this point). In any case, the Kat struggles to think of what patent related matters could be enacted on the other side of an actual pond that would: (a) be sufficiently important to grace the pages of this blog; and (b) have come to the Kat’s attention in any case. But I digress…). No, the reference to the pond (and things happening across it) is in fact an allusion to developments in the U.S. on patent matters in recent days). The Kat refers, in particular, to the decision of the Court of Appeals for the Federal Circuit (CAFC) in The Association of Molecular Pathology & Ors v The USPTO and Myriad Genetics Inc, __ F.3d __ (available here) (CAFC, 2011).

The decision is relatively page-heavy, weighing in at 105, but of only modest heft in terms of words (in the region of 27,000 – a 5.1 if you’re interested). It concerns, in part, the heated question of whether patents should be allowable in principle on isolated forms of naturally occurring DNA molecules – the short answer from the majority being “yes”.

Background
In essence, the Association of Molecular Pathology and a selection of other parties (collectively ‘the plaintiffs’) brought a suit against Myriad challenging the patentability of certain composition and method claims relating to human genetics. The challenged patents concerned two isolated human genes, BRCA1 and BRCA2, and certain mutations in these genes associated with a predisposition to ovarian and breast cancer – women with BRCA mutations, for example, apparently face a cumulative risk of between 50 to 80% of developing breast cancer (compared to the U.S. national average of 12-13%). The patents’ claims related to the isolated gene sequences themselves and to diagnostic methods of screening, analysing and comparing a patient’s BRCA sequence to the ‘normal’ sequence.

Having overcome the hurdles relating to standing (in contrast to the position in the UK, where there is no requirement of standing – s72 PA 1977 simply states that the “court… may by order revoke a patent for an invention on the application of any person” (emphasis supplied) – under U.S. law in order to bring a declaratory judgment suit challenging the validity of a patent a party must demonstrate that there is a “a case of actual controversy” of the type justiciable under Article III of the U.S. Constitution. In patent cases, this has been interpreted to mean that there must be a “definite and concrete” dispute that touches “the legal relations of parties having adverse legal interests,” which is “real and substantial,” and which admits of “specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” (See MedImmune v Genentech, 549 U.S. 118, at 127 (Sup Ct, 2007)), the Court moved to consider the main issue at play in the case: patentable subject-matter.

Patentable Subject-Matter
Myriad had argued that the lower court’s rejection of its claims to “isolated” DNA sequences under §101 as “products of nature” was incorrect on a number of grounds. In particular, it alleged that the district court had: misread “Supreme Court precedent as excluding from patent eligibility all “products of nature” unless “markedly different” from naturally occurring ones”; and incorrectly focused on the similarity in the informational content between isolated and native DNAs rather than on their marked differences in other areas. Accordingly, it argued that “an isolated DNA molecule is patent eligible because it is, as claimed, “a nonnaturally occurring composition of matter” with “a distinctive name, character, and use.”

Myriad argued that as isolated DNA does not exist in nature, it could not be considered to be a “product” thereof. Furthermore, any categorical interpretation of this exception to patent eligibility would not only be “unworkable, as every composition of matter is, at some level, composed of natural materials”, but would also be contrary to precedent.

The plaintiffs, on the other hand, argued that claims to isolated DNA molecules failed to satisfy the §101 standard as “such claims cover natural phenomena and products of nature.” Accordingly, they asserted that Supreme Court precedent stated that a product of nature was not patent eligible even if it had undergone some highly useful change from its natural form. The critical question was whether the composition of matter had a distinctive name, character, and use, making it “markedly different” from the natural product. Only then would it be patent eligible. On the current facts, the plaintiffs argued that because the isolated DNAs retained the same nucleotide sequence as native DNAs, they did not have any “markedly different” characteristics.

Circuit Judge Lourie, giving the opinion for the court, explained that the distinction “between a product of nature and a human-made invention for purposes of §101 turns on a change in the claimed composition’s identity compared with what exists in nature. Specifically, the Supreme Court has drawn a line between compositions that, even if combined or altered in a manner not found in nature, have similar characteristics as in nature, and compositions that human intervention has given “markedly different,” or “distinctive,” characteristics.”

Accordingly, the fact that Myriad was claiming isolated DNAs – “a free-standing portion of a native DNA molecule” – was determinative. As Judge Lourie explained, isolated DNA is not simply purified DNA:

“Purification makes pure what was the same material, but was previously impure. Although isolated DNA must be removed from its native cellular and chromosomal environment, it has also been manipulated chemically so as to produce a molecule that is markedly different from that which exists in the body. It has not been purified by being isolated.”

Discussing the approach of the district court, Judge Lourie considered it had fallen into error in considering not whether the isolated DNAs were markedly different, in that they had a “distinctive characteristic” to distance them from naturally occurring DNAs, but rather whether they had the same informational content as native DNA sequences.

“Adopting this approach, the district court disparaged the patent eligibility of isolated DNA molecules because their genetic function is to transmit information. We disagree, as it is the distinctive nature of DNA molecules as isolated compositions of matter that determines their patent eligibility rather than their physiological use or benefit. Uses of chemical substances may be relevant to the non-obviousness of these substances or to method claims embodying those uses, but the patent eligibility of an isolated DNA is not negated because it has similar informational properties to a different, more complex natural material that embodies it.”

Nevertheless, the CAFC considered that the district court was correct in holding that Myriad’s claims directed to comparing and analysing gene sequences were patent ineligible, as these claims contained no transformative steps and covered only patent ineligible abstract steps. Finally, the claims directed to methods of screening potential cancer therapeutics via changes in cell growth rates were considered to be patent eligible, presenting, as they did, ““functional and palpable applications” in the field of biotechnology”

Circuit Judge Moore, concurring in part, noted that

“DNA is a chemical polymer. In principle, a polymeric DNA sequence is no different than any other well known polymer, for example, nylon. Like any polymer, DNA is made up of repeating monomer units, connected by chemical bonds to form one larger molecule.”

Nevertheless:

“Isolation of a DNA sequence is more than separating out impurities: the isolated DNA is a distinct molecule with different physical characteristics than the naturally occurring polymer containing the corresponding sequence in nature.”

According to Circuit Judge Moore, the fact that human action had “whittled the chromosomal DNA molecule down” to a shortened version of its natural self, “defining the parts to be retained and discarded” rendered it “entirely different” from the naturally occurring gene from which it was obtained.

Circuit Judge Moore explained that whilst she might conclude that and isolated DNA sequence that includes most or all of a gene was not patentable subject matter if she was approaching the factual matrix from a blank canvas, this was not in fact the case. There was a “substantial historical background” with the courts having been authorised by Congress to approach the issue of patentable subject matter expansively. The established practice was to allow patents on isolated DNA sequences – such patents having being allowed by the USPTO for “decades” according to the Judge.

Accordingly, the Judge explained that she considered that “we must be particularly wary of expanding the judicial exception to patentable subject matter where both settled expectations and extensive property rights are involved. Combined with my belief that we should defer to Congress, these settled expectations tip the scale in favor of patentability.”

Nevertheless, as numerous commentators who have been quicker off the mark than this Kat in digesting this judgment have noted, whilst diluted somewhat Myriad’s patents remain strong and the plaintiffs are likely to seek an en banc rehearing in the CAFC or file a writ of certiorari with the Supreme Court.

Letter from AmeriKat: America Invents Act Remix

The AmeriKat taking what would
be the first of many Kleenexes this
week (picture by prettyinprint reporduced
here under CC licence)

Summer - a time meant for lounging on Scottish wool blankets nibbling on sandwiches flanked by the grounds of a National Trust property. Or for traipsing down some tree-lined avenue with branded bags of summer sales goodies swinging from one's arm. Or for skipping out of work into the summer night to drink Pimms with friends. It is not meant, submits the AmeriKat, to be inundated with torrential rain (cue view outside) or to be suffering from a summer cold (cue view inside). The AmeriKat is currently, and embarrassingly for a Kat, barking like a dog (shudder) as she is battling a bout of bronchitis that has seen her boringly bedridden for the past 48 hours. Those who know her know its a feat to get her to rest and keeping to form, she has kept her mind active by reading the latest US IP reports and listening to hours of Senate and House debates on patent reform on C-SPAN. Exciting times...

Race to Obama - America Invents Act clears House hurdle

The oracle that is USPTO Director David Kappos predicted earlier this spring that he was "off-the-charts optimistic" that the House would pass similar patent reform legislation to the Senate's earlier success of S.23. Sure enough, on 23 June 2011, the House of Representatives passed HR 1249 - the Leahy-Smith America Invents Act (AIA) -with a bipartisan vote of 407 to 117. The bills are substantially similar, but with some important differences (see below). Given there are differences, the two bills will now have to be negotiated and reconciled in a House and Senate conference committee before it goes to the Senate vote and finds it way before President Obama for signing into law.

Both patent reform bills introduce, for the first time in 60 years, a considerable overhaul of US patent law. The biggest change to US patent law is the transition from a first-to-invent system towards a first-inventor-to file (FITF) system whereby each patent application would be allocated an “effective filing date” (the FITF provisions in HR. 1249 and S.23 are substantively identical). Like in the EU, the application’s novelty and obviousness is then judged on the prior art available before the effective filing date of the patent, but with a one year grace period still remaining in effect in respect of the inventor’s own disclosures (see controversy re grace periods and the AIA here and as debated in the House here).

But, as previously reported by this Kat and others, the introduction of FITF was not without vocal opposition in both Houses. Democratic Senator Dianne Feinstein's proposed Amendment No. 133 to S.23, which sought to remove the "first-to-file" provision given its arguable burden on a small independent inventors, went on to be voted down 87-13 by the Senate. During the House debates of the same provision in HR 1249, Constitutional arguments were bounded about claiming that "first-to-file" violated the Constitution as it rewards the winner of the race to the USPTO's doors rather the actual "inventor". Arguments against this opposition were that the availability of applications such as pre-issue disclosure, post-grant review and inter-partes review would rebalance any alleged burden that the first-to-file paradigm could create (even if these same measures are argued to increase the USPTO's patent backlog). (picture, above left - former Attorney-General Michael Mukasey)

Constitutionally, the proponents stated the FITF is consistent with the Constitutional requirement that patents be awarded to the inventor; a mere $110 filing fee for a provisional application, it is argued, allows any inventor, large or small, an inexpensive way to obtain an early priority date with a year to submit a formal patent application. Under the current system, however, an interference proceeding (where two inventors file their patents nearly simultaneously) could cost an inventor upwards to $500,000 - it was argued that such high legal costs act as a chilling mechanism on access to the patent system to inventors. Further, it was argued that FITF helps to ensure that US patent laws accomplish the goals in the Copyright Clause of the Constitution, i.e., by promoting the Progress of Science and Useful Arts (see former Attorney-General Mukasey's legal analysis and reasonsing here). Proponents of FITF also submitted that the patent filing system run by the Founding Fathers' generation in the 1790s, a first-inventor-to-register system, was similar to FITF and further argued the US courts did not even care about who was the "first to invent" until 1870 when the much criticized and expensive interference proceedings were introduced.

USPTO Director David Kappos previously stated that the US is already effectively running a first-to-file system because in 2007 there were only 7 interference applications of which only one was decided on priority of the invention. However, Representative Lamar Smith (R-TX) (picture, right), who introduced HR. 1249, stated that the first-to-invent system was

"outdated and dragged down by frivolous lawsuits and uncertainty regarding patent ownership."

Well...which is it? Will the introduction not result any any noticeable difference, a la Kappos, or will result in a more efficient, less contentious patent ownership procedure, a la Smith? Or is this FITF rhetoric irrelevant and the real reason for it's introduction is just to, dare she say the word... harmonize the US position with its international trading partners? (click here for Matt the Kat's post about Director Kappos's views on the matter)

Harmonization of US patent law was exactly what spirited Rep. Rohrabacher (R-CA) during the House debate into calling the legislation a "travesty", adding to the PTO backlog and "break[ing] the back of small inventors...and empower[ing] multinational and foreign corporations" (see his fiery speech at minute 37 including a citation to a Hoover Institution report damning the AIA). Representative Rohrabacher, writing about the AIA in Politico in March stated:

" We're told [the first-to-file system] is necessary to harmonize with Japanese and European patent law. But these systems were established by elitists and economic shoguns interested in corporate power, not individual rights . If patent law is to be harmonized - their system should be raised to our high standards, not ours eroded to conform to their weaker ones."

Ahhh....this fondly reminds the AmeriKat of this Lewis Black skit (warning: his name is Black, but his language gets a bit blue). But despite the fiery opposition, in which Rohrabacher was not alone, both Houses passed substantively identical first-to-file provisions. First-to-file is here to stay, it seems.

There are several other tweaks to language and addition of some provisions in HR 1249 but one of the bigger changes is that of the funding of the USPTO. S.23 included an amendment which ended the annoying fee diversion whereby the excess fees collected by the USPTO (excess in that it is more than what the USPTO was apportioned in funding by Congress) go back to the federal government where the monies can be invested for things other than the USPTO. Frustratingly, this amendment did not make it in tact to HR 1249 and instead the House "decided to water down [the] language" according to Senator Tom Coburn, the introducer of the fee diversion amendment in the Senate. Now, the excess funds, instead of being controlled by USPTO would, under section 22 of HR 1249, be controlled by the Appropriations Committee. Yikes...kiss that money good-bye! (picture, above, left - Senator Coburn)

For the non-US readers, the Appropriations Committee basically controls the purse of the US government. He who controls the pursue, has the power. And he who hath the power, well...does not necessarily always do what is best. Senator Coburn has more damning things to say about the Appropriations Committee (click here for his press release urging the Senate to oppose Congress's version). Director Kappos, as an unelected member of the executive branch of the government, more coolly stated that

"We are encouraged by the statements of so many Members of Congress calling for the USPTO to have full access to its fees when fee collections exceed Congress' annual appropriation for USPTO. Full funding of the USPTO is necessary for the USPTO to successfully implement the legislation and to more effectively perform its core mission."

The Wall Street Journal reports that despite the further compromise that the bill needs before President Obama sees it, the White House has already signalled its approval of HR 1249. So will there even be a fight on fee-diversion and other controversial provisions like expanded prior-user rights, or will the Senate just adopt the House version? Anyone want to put some money (or milk) on the Senate just voting through HR 1249's text as is?

Letter from AmeriKat II: US Supreme Court ruling in Stanford v Roche

The Majority Opinion

Justice Roberts (picture, below left), giving the majority opinion of the Court stated, after the usual round of dicta about the Progress Clause and unnecessary factual references to the first US Patent (not No.1. as they were not numbered back then), that:

"Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not. Under the law in its current form, "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefor."

Like with the UK, the general rule is that the rights in an invention belong to the inventor (Gayler v Wilder (1851));Solomons v US (1890)). An inventor can assign his rights in an invention to a third party (US v Dubilier Condenser Corp (1933)). Unless there is an agreement to the contrary, an employer does not have rights in an invention "which is the original conception of the employee alone" (Dubilier Condenser Corp at 189).

Stanford and the US Government (an obvious amicus curaie in the case given their interest in not this but thousands if not millions other federally funded inventions), argued that the Bayh-Dole Act reorders that normal priority of rights in an invention when it is conceived or practiced as a result of federal funds. The Act essentially moves the inventor from the front of the line (not que, thank you) to the back with the inventor's employee or federal contractor obtaining title. However, the Court argued that where this "re-ordering" does occur in statute it is unambiguously clear that it does. For example, in the instances of nuclear materiel and atomic energy patents, USC 42 section 2182 states that title in such inventions "shall be vested in, and be the property of, the [Atomic Energy] Commission."

Such clear statutory language, the Court held, was "notably' absent" from the Bayh-Dole Act. The Act does not state that title in an invention is expressly vested in contractors or anyone else or that inventors are deprived of their priority interest in federally funded inventions (picture, below right - the building that stands for all things federal). All that the Act does is provide that contractors may "elect to retain title to any subject invention". A "subject invention" means "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement." Stanford argued that the phrase "invention of the contractor" means "all inventions made by the contractor's employees with the aid of federal funding." The Court disagreed and said the definition is not so broad as to include all inventions "made by" the contractor, but all inventions "owned by the contractor". Stanford's reading, although plausible because it is often the case that whatever an employee produces in the course of his employment belongs to his employer, is not the case in patent law. The Court had repeatedly rejected the idea that mere employment is sufficient to vest title to an employee's invention to the employer. Against this over 200-year background the definition has to be read of meaning "inventions owned by the contractor" not merely "made by the contractor" or its employees.

But what does this "elect to retain title" provision mean then? One cannot elect to retain something that they do not already have, surely? Well, first you have to have it, says the Supreme Court (and Stanford didn't under the agreement). The Court held that the provision "elect to retain title" does not mean that the contractor owns or that the Act confers ownership in the invention to the contractor - all it does is assure that contractors keep title to whatever it is they already have. If they do not have it, by way of an assignment - then they do not get to retain it.

So far, not good for Stanford. However, the US Government had one more argument to swing at the Supreme Court. The Act states that it

"take[s] precedence over any other Act which would require a disposition of rights in subject intentions . . . that is inconsistent with the [Act]."

The United States argued that this provision operates to displace the basic principle that an inventor owns the rights to his invention. However, the Court held that the Act only applies to "subject inventions" as "inventions of the contractor" not an inventor's antecedent title to his invention. It is only when an invention belongs to the contractor does the Act come into operation. Nice try, in other words.

Some arguments relating to the procedural operation of the Act were also considered by the Court, but again bruskly dismissed as doing nothing but supporting the Court's view against Stanford. The Court concluded stating that although it was unnecessary for the Court to state it was nevertheless worth noting that its construction of the Act reflects the common practice among the parties who operate under the Act:

"Contractors generally institute polices to obtain assignments from their employees. Agencies that grant funds to federal contractors typically expect those contractors to obtain assignments. So it is with NIH, the agency that granted the federal funds at issue in this case. In guidance documents made available toe contractors, NIH has made clear that "[b]y law, an inventor has initial ownership of an invention" and that contractors should therefore "have in place employee agreements requiring an inventor to 'assign' or give ownership of an invention to the organization upon acceptance of Federal funds."

Stanford's employment contract with Holodniy did not do that - it was only a mere promise to assign, unlike Cetus's agreement which was an actual assignment. Had Stanford's contract been an effective assignment, those inventions, if federally funded would have become "subject inventions" and the Act would have worked the way in which Stanford was arguing it should. The Act would have done so

"without violence to the basic principle of patent law that inventors won their inventions"

The Dissent

Although the Court's decision may seem like a no-brainer, it did leave at least 2.5 Justices a bit uneasy (Justice Breyer (picture, below left), joined by Justice Ginsburg, and a little bit of "dissent" from Justice Sotomayor in respect of the FilmTec point). Justice Breyer argued that the majority's decision could not be easily reconciled with the objective of the Act and that there were questions to be raised with the Court of Appeals interpretation of the Stanford and Roche contracts.

First, Justice Breyer argued that the three-tier system in the Act sets out that the ownership in an invention would first vest in the contractor, then the US Government, and then the employee. The Act does this not because it blindly takes the inventor's rights and grants them to the Government, but rather it assumes that the federal funds' recipient, such as a university, will and should possess those rights for public policy reasons. This mechanism seeks to encourage those institutions to commercialize inventions for public benefit which was the basis of the legislation in the first place. It was because of this that the dissenting Justices stated that they could not easily accept the majority's conclusion that an individual inventor can lawfully assign an invention produced by public federal funds to a third party. This result would be at odds with Act's intention.

Second, Justice Breyer argued that to come to a more consistent opinion with the statute's objectives the Supreme Court could set aside the federal Circuit's interpretation fo the licensing agreements and its related licensing doctrine. That doctrine governs the interpretation of agreements made before an invention is conceived. The Federal Circuit held that "hereby assign" means that when an invention comes into existence the clause automatically operates to assign that invention to Cetus, whereas "agree to assign" did not. At the time of Holodniy's agreement with Stanford, patent law appeared to have specified that a present assignment of future inventions vested equitable, but not legal title to the assignee. As such, Cetus's agreement would have also only given rise to an assignment of equitable interests. In 1991, the Federal Circuit in FilmTec adopted a new rule that

"[o]nce the invention is made and [the] application for [a] patent is filed. . . .legal title to the rights accruing thereunder would be in the assignee . . , and the assignor-inventor would have nothing remaining to assign."

Under the Federal Circuit's interpretation, it is Cetus would win but without any explanation by the Federal Circuit for what seems to a significant change to the law on assignments to future inventions, especially where they implicate the Bayh-Dole Act. However, because Stanford did not challenge the decision on these grounds, the Justices' hands were tied, at least until a future case is before them.

The Lesson

IP lawyers and judges could say this until they are blue in the face, but it is true: Draft your patent assignment agreements with care! Further caution should also be taken in the wake of the Court's warning about their interest to review the words "blessed by the Federal Circuit" in FilmTec. Let the drafting challenge begin!

Letter from AmeriKat I: US Supreme Court ruling in Stanford v Roche

The rain has come to London. Rumor has it that while the AmeriKat was at INTA in May the sun was shining down on the now rain-saturated streets. Now, with her paw pads slipping on her wood floor and her whiskers dripping over her bowl of milk she finds those rumors hard to believe. However, the rain's refreshing qualities are meant to rejuvenate the old and bring in the new - which may go some way of explaining the recent appearance of at least two newly designed IP chambers' websites, as well as the AmeriKat's desire to purchase a brand new clutch in the summer sales. But prior to the tides of torrential rains gracing London's streets, the US Supreme Court issued a flurry of IP decisions - including last week's i4i case (see AmeriKat report here). Now, in an unique moment of silence, of which it is sure to be interrupted, the AmeriKat has set out the tail of the Stanford v Roche patent assignment case, which was decided by the US Supreme Court on 6 June 2011.

Background

A year before the AmeriKat formally became a kitten, in 1985 Cetus, a small California research company, began to develop methods for quantifying bloodborne levels of the human immunodeficiency virus (HIV), the precursur to AIDS. The technique developed at Cetus called polymerase chain reaction (PCR) was a key part to this method of quantification. Cetus then began collaborating with Stanford University's Department of Infectious Diseases to test the the new AIDS drugs and with this collaboration came Dr. Mark Holodniy. Dr. Holodniy joined Stanford as a research fellow where he worked to develop an improved method for quantifying HIV levels in blood samples using PCR. Under his employment with Stanford, Holodiny signed a Copyright and Patent Agreement which stated that he "agree[d] to assign" to Stanford his "right, title and interest in" inventions resulting from his employment there.

Holodniy was unfamiliar with PCR and so it was arranged that he would conduct his research at Cetus. As a precondition for gaining access to Cetus, Holodniy signed a Visitor's Confidentiality Agreement (VCA) which stated that Holodniy "will assign and do[es] hereby assign" to Cetus his "right, title and interest in each of the ideas, inventions and improvements" made "as a consequence of [his] access". And so, with the VCA signed Holodniy conducted his research at Cetus where he devised a PCR-based procedure for calculating the amount of HIV in a patient's blood allowing doctors to determine whether a patient was benefiting from HIV therapy. Along with colleagues at Stanford, Holodniy tested the technique and over the next few years Stanford obtained written assignments of rights from Holodniy's colleagues involved int he refinement of the technique. With these written assignments in their pocket, Stanford (picture, above right) filed several patent applications related to the procedure and secured three patents.

In 1991, Roche Molecular Systems acquired Cetus's PCR-related assets including the rights Cetus had obtained through agreements such as the VCA signed by Holodniy. Roche commercialized the procedure developed by Holodniy after they conducted clinical trials. Today, Roche's HIV tests "kits are used in hospitals and AIDS clinics worldwide." The Board of Trustees of Stanford University brought a lawsuit against Roche claiming that these HIV tests kits infringed Stanford's Patents. Roche argued that Holodniy's agreement with Cetus gave it co-ownership of the technique and therefore Stanford lacked standing to bring the suit. Stanford argued that Holodniy had no rights to assign to Cetus in the first place because Stanford had superior rights under the Bayh-Dole Act. The Federal Court agreed with Stanford, but the Court of Appeals for the Federal Circuit (where all patent cases from the federal circuit appeal to), held that Holodniy's agreement with Stanford was only a "mere promise to assign rights in the future" and it was his agreement with Cetus that actually assigned his rights. The CAFC also held that the Bayh-Dole Act did not automatically void an inventor's rights in federally funded inventions. Which brings us on to....

The Bayh-Dole Act

In 1980 the US Congress passed the Bayh-Dole Act with the object that it would

"promote the utilization of inventions arising from federally supported research...promote collaboration between commercial concerns and nonprofit organizations...[and] ensure that the Government obtains sufficient rights in federally supported inventions"

To meet this objective, the Act allocates rights in federally funded inventions between the Federal Government and federal contractors, including a non-profit institutions such as a university. Under section 202(a) of the Act, contractors may elect to retain title to the invention as long as they fulfil a number of obligations imposed by the Act, such as disclosing the invention to the Federal agency and filing for a patent application prior to any statutory bar date (Section 202(c)(1)-(3)). If a contractor fails to comply with any one of the obligations, the Federal Government may receive title to the patent. Even without actual ownership in an invention, the Federal Government agency that allocated the federal funds receives a non-exclusive, irrevocable, paid-up license to practice the invention and the ability to grant a licence to a third party under certain circumstances where the contractor fails to take "steps to achieve practical application" of the invention.

All of this matters because some of Stanford's research related to the HIV measurement techniques were funded by the National institute of Health (NIH) and thus the invention at issue is subject to the Bayh-Dole Act. Under the Act, Stanford argues that irrespective of the status of the assignment agreements with Holodniy the Act operates to enable the Government to become a non-exclusive licensee of the patented procedure with Stanford retaining title to the invention. Such operation, would therefore trump a later assignment between the inventor and a third-party, like Roche.

The Question

Does the Bayh-Dole Act displace the norm that the rights in an invention first belong to the inventor and, instead, automatically vest title to federally funded inventions in federal contractors?

The Supreme Court's Answer

No - 7 to 2 with Justice Breyer and Justice Ginsburg dissenting.

For discussion on the Court's opinion click here for Part II.

Breaking News: US Supreme Court rejects Microsoft in i4i battle

The AmeriKat has been a busy bee ever since her flight from California's INTA 2011 madness touched its wheel's onto Heathrow's tarmac two weeks ago. Since then the AmeriKat has watched helplessly as not one, not two, but three patent decisions rolled out of the US Supreme Court over the past few days. But thankfully, this evening AmeriKat was able to momentarily lift her whiskers from the stack of bundles and papers circulating her desk at the moment, to bring you breaking news of the US Supreme Court's decision in the epic battle between i4i and Microsoft (see previous AmeriKat reports here). She has not and will not have time to digest the yummy decision from Justice Sotomayor until the weekend, but she sets out below a brief summary of the court's decision. (picture, left - with no time for a Kat nap for this kitten, the AmeriKat rests her chin one of her stacks of papers)

Background

The four year epic patent infringement battle between Canadian software company, i4i, and Microsoft, involved i4i’s US Patent No 5.787, 449 (“449 Patent”) which related to markup languages and Extensible Markup Language (“XML”) used in electronic documents. In 2007, i4i filed a patent infringement action against Microsoft in the Eastern District of Texas. Microsoft claimed that i4i's '449 patent was invalid because an earlier version of i4i’s software had anticipated the claim ("on-sale bar" under section 102(b) of the Patent Act 1952). However, this earlier software, S4, had been destroyed ten years prior to the case so the USPTO Patent Examiners never had the opportunity to examine the i4i’s patent application in light of this alleged prior art. Because the S4 data had been destroyed, Microsoft argued that they never had an opportunity to provide “clear and convincing evidence” of invalidity. The trial jury found in i4i’s favor, Microsoft appealed to the Circuit Court of Appeals who upheld the lower court’s finding and then appealed to the US Court of Appeals for the Federal Circuit. The US Court of Appeals upheld the Circuit Court’s ruling and so Microsoft appealed to the Supreme Court. The Supreme Court granted certiorari in the case November 2010.

The Arguments

Microsoft argued that the evidential standard to invalidate a patent should be one of a “preponderance” and not of the higher “clear and convincing” standard. i4i argued that Section 282 (the section that deals with the burden of establishing invalidity)is not silent on the burden of proof requirement. It uses language that has a settled meaning - that of a “clear and convincing” standard which is itself settled by Federal Circuit and Supreme Court case law , i.e., section 282 codified the existing evidential standard. In addition, this heightened standard of proof has specifically been used in cases dealing with prior-use claims of invalidity, such Microsoft's claim in this case. Most of i4i's argument is devoted to the stronger underlying public policy argument of maintaining the heightened evidential standard, i.e., promoting strong and stable patent rights to protect the incentives for innovation and investment. A weaker standard, such as the preponderance standard, would arguably have the counter-effect as well as weakening the powers and judgment of the USPTO. (picture, left - Justice Sotomayor who delivered the opinion of the court)

The Question

The question before the Supreme Court was thus:

Under section 282 of the Patent Act of 1952, "[a] patent shall be presumed valid" and "[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity." Does section 282 require that a defence of invalidity be proved by a "clear and convincing" standard or a "preponderance of the evidence" standard?

The Supreme Court's Answer

In an unanimous decision (save for Justice Roberts who recused himself due to his ownership of some $100,000 in Microsoft shares), the "clear and convincing" standard is the standard of proof for a party to meet when arguing a defence of patent invalidity under section 282.

The Court held that Congress had indeed prescribed the governing standard of proof in section 282 - that of a clear and convincing standard. Although there was no express articulation of that standard in the statute itself, Congress did use a common-law term in the section, i.e. "presumed valid". Where Congress uses a common-law term in statute, then the Court must assume that the term "comes with a common law meaning" (Safeco Ins Co of America v Burr )(2007)). With this common law meaning comes "nearly a century of case law" where the courts have held that the presumption that a patent is valid should not be overthrown except by clear and cogent evidence. The Court found Microsoft's arguments that decisions prior to the 1952 Patent Act supported the clear and convincing standard were limited to only two instances and their arguements to be unpersuasive.

The Supreme Court also did not find favor with Microsoft's argument that a preponderance standard must apply where evidence was not before the PTO during the patent's examination process. Although the Court agreed that the rationale behind the presumption of validity for granted patents is weakened in such cases (KSR Int'l co v Teleflex), it nevertheless remains that Congress still specified the applicable standard of proof even in these circumstances. Nothing in section 282's text suggests that this standard should be departed from in these circumstances and indeed the Supreme Court has applied the clear and convincing standard irrespective of whether the prior-art evidence has been before the PTO examiner (Smith v Hall).

Despite both camps, especially i4i's, extensive policy arguments advancing their respective positions, the Supreme Court stated that the Court was in

"no position to judge the comparative force of the parties' policy arguments as to the wisdom of the clear-and-convincing evidence standard that Congress adopted."

In short - "we don't care, take your complaints to Congress." ["Love it!" - says the AmeriKat]

The Reaction

The real winner in this case is not i4i itself, but patent owners generally (including you, Microsoft!) and of course the USPTO who can continue to glow under their crown of "assumed validity".

However, patent owners want strong patents that are able to withstand weak invalidity challenges, but they also want to ensure that bad patents are able to be easily invalidated, especially when prior-art evidence is not in front of the examiner during examination proceedings. Microsoft was therefore essentially arguing for and against their interests at the same time - an impossible task that looked destined to fail at some point.

In a statement, Microsoft stated that

“While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system.”

Now it remains to be seen how i4i will spend their $290 million damages award

For more information please see this article in the Financial Times.

IP for the immature: Putzmeister vs. Schwing and the Bastardring

The tragedy unfolding in Fukushima is no laughing matter, but some could not hide a chuckle when it was announced that giant concrete pumps known under their brand name "Putzmeister" were sent to Japan to pour water on the damaged reactors, or, as some have re-phrased it, squirt liquid over the hot core.

The IP angle to the story comes into play when we learn that Putzmeister was sued by their biggest competitor Schwing GmbH over a seal technology referred to as the "Bastardring" (Schwing GmbH vs Putzmeister AG, 305 F.3d 1318). The case involved issues of claim construction regarding Schwing's US patent RE 32,657 "Two-cylinder pump for heavy flowable materials, such as concrete".

Pumping highly viscous material such as concrete over great distances requires a lot of pressure, and correspondingly strong seals. Schwing’s ’657 patent discloses a concrete pump in which the tight metal-to-metal seal between the cutting ring and the face plate is maintained by the use of a flexible elastic ring that is compressed between the cutting ring and the shutter mechanism, shown below in cross-section in Figure 4 of the ’657 patent.

The flexible elastic ring 23, located between shutter mechanism 3 and cutting ring 14, serves as a spring that pushes the cutting ring 14 tightly against the face plate. When the pump is assembled, the flexible elastic ring is mechanically pre-stressed. As the surfaces of the cutting ring and the face plate wear away, the compressed flexible elastic ring expands axially to compensate for the wear, thereby maintaining a tight seal between the cutting ring and the face plate. In order to prevent the flexible elastic ring from being dislodged from its seating by the intense compression of the parts, the ’657 patent discloses the use of an annular extension 33 on the cutting ring 14, and a corresponding annular extension 34 on the shutter mechanism 3, to hold the flexible elastic ring in place.

In 1989, Schwing and Putzmeister settled an infringement dispute regarding the ’657 patent by entering into an agreement in which Putzmeister agreed to stop manufacturing concrete pumps in which the flexible elastic ring was held in place by the placement of annular extensions on both the cutting ring and the shutter mechanism. In return, Schwing agreed not to sue Putzmeister for infringement based on concrete pumps that held the flexible elastic ring in place with an annular extension on the shutter mechanism, but with no annular extension on the cutting ring. The parties also agreed that Putzmeister could optionally place a metal insert in the flexible elastic ring. Putzmeister referred to that configuration as the “Bastardring I” (in other news: someone at Putzmeister has a sick sense of humour).

And if that wasn't enough, there is a Bastardring II, as well: Putzmeister changed the configuration of its pumping technology in 1992 to the “Bastardring II.” The Bastardring II has an annular extension on the cutting ring, but not on the shutter mechanism. Instead of the annular extension on the shutter mechanism, a metal ring is embedded in the flexible elastic ring near the shutter mechanism.

Schwing claimed that the Bastardring II infringed the '657 patent. The district court entered two orders granting summary judgment in favor of Putzmeister, holding that the Bastardring II and a modified version of the Bastardring II do not literally infringe the ’657 patent because they do not have an annular extension on the shutter mechanism. It relied on prosecution history estoppel based on remarks Schwing made to overcome a rejection, and held that prosecution history estoppel absolutely barred infringement by equivalent means. The Court of Appeal affirmed in part, vacated in part and remanded:

In Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 234 F.3d 558 (Fed. Cir. 2000) (en banc), this court held that prosecution history estoppel acts as a complete bar to the doctrine of equivalents, so that a claim limitation that has been narrowed by amendment must be limited to its strict literal terms. Shortly before oral argument in this case, the Supreme Court vacated our decision in that case. Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 122 S. Ct. 1831 (2002). The Supreme Court rejected the “complete bar” approach and required instead an examination of the subject matter surrendered by the narrowing amendment. Id. at 1840. In so doing, the Court adopted a rebuttable presumption that the narrowing amendment surrendered the particular equivalent in question, and discussed several ways in which the patentee could overcome that presumption. Id. at 1842. The patentee can overcome the presumption that prosecution history estoppel bars a finding of equivalence, the Court explained, if the patentee can show that the asserted equivalent was unforeseeable, that the rationale underlying the amendment bears only a tangential relation to the equivalent in question, or that there is some other reason that the patentee could not reasonably be expected to have described the substitute in question. Id. at 1841-42.

At oral argument, Schwing contended that if we conclude that the amendment narrowed the annular extension limitations, we should remand the case to the district court to determine, in light of the Supreme Court’s Festo opinion, whether Schwing can successfully rebut that presumption. We agree with Schwing that, at least as to the modified Bastardring II device, the case should be remanded to the district court to determine, in the first instance, whether Schwing can rebut the Festo presumption. A remand is not necessary with respect to the Bastardring II device, however, because in light of the written description of the ’657 patent the embedded metal ring in the Bastardring II cannot be deemed equivalent to the annular extension on the shutter mechanism recited in claim 1.

So there you go. You're a bastard if you smirked.

Letter from AmeriKat: Return of the AmeriKat

For anyone who knows the AmeriKat personally and professionally, they will know that during the past seven weeks the AmeriKat has faced a flurry of deadlines, deliberations, duplicitous documents and a dosing of sleep deprivation. Her absence from her beloved letters was not one of choice, but one of necessity as every two days she was hit with another deadline. (picture, left - the AmeriKat up late in front of one of her many outstanding deadlines) The deadlines were increasing in frequency, but as the old saying goes “absence makes the heart grow fonder”, especially when the absence is not voluntary. When the AmeriKat was writing this post, she was curled up on her bed, watching her clock until she had to leave to catch a flight for yet another deadline. However, now with the passing of the last seven weeks, she has returned to first give you a brief glimpse of the first of the latest US IP tails. She will be back later throughout the week with more detailed posts on some of the most important news in US IP law.

Patent Reform Act 2011 Gets Senate’s Thumbs-Up

Two weeks ago the US Senate passed by overwhelming majority (95-5) the America Invents Act (“AIA”) (a.k.a. the Patent Reform Act 2011). Mr. IP himself, Senator Patrick Leahy (D-Vermont) introduced the Patent Reform Act 2011 to the Senate Judiciary Committee this past January. The AmeriKat has set out below the main provisions that the original draft bill contained before the Senate and what the AIA now contains below (a comparison of the two can be found here):

First -to-File: The biggest change introduced by the AIA would be the transition in the US from a first-to-invent system towards a first-to-file system where each patent application would be allocated an “effective filing date”. Similar to that in the EU, the application’s novelty and obviousness is then judged on the prior art available before the effective filing date of the patent, but with a one year grace period still remaining in effect in respect of the inventor’s own disclosures. Democratic Senator Dianne Feinstein had proposed an amendment (Amendment No. 133) that would have removed these provisions arguing that their effect would be especially burdensome to small independent inventors (click here to watch her introduction of the amendment.) However, the Senate voted down the amendment by 87-13 with proponents of the first-to-file provision arguing that the availability of applications such as pre-issue disclosure, post-grant review and inter-partes review would rebalance any alleged burden that the first-to-file paradigm could create. Opponents to the first-to-file system also believe that this introduction will worsen the huge backlog of patents faced by the USPTO (see post here) and result in the system being clogged up with thousands of unmeritorious inventions.

Damages: The review of the assessment of patent damages that was taken up by Microsoft in their initial appeals in the i4i case last year (see AmeriKat posts here) evidenced only a sliver of general unrest with the assessment of US patent damages. The original draft of the Patent Reform Act 2011 introduced proposed amendments that would provide for specific procedures on how judges in patent cases manage the damages assessment. These included mechanisms for the court to consider the evidentiary merit of each parties’ case on damages and then the judge introducing a methodology that would be used in assessing the damages awards. Close the AmeriKat’s heart at the moment was the old text also requiring a judge to split the damages portion of a trial at a parties request and only rejecting that request in the absence of a good cause, such as “the absence of “issues of significant damages or infringement and validity”. All of these draft provisions did not make it past the Senate's approval perhaps signaling a reluctance to delve into the problematic pool of patent damages which may have held the entire bill’s passage hostage.

Enhanced Damages: In the current US Patent Act, there is not specific reference that the increase of patent damages should only be reserved to cases of willful infringement. Section 284 of the current statute, instead, states that “the court may increase the damages up to three times the amount found or assessed.” The Federal Circuit’s interpretation has limited this section to cases to willful infringement and where the defendant’s actions were objectively reckless. The draft text of the Patent Reform Act had basically codified this precedent, but again, like with general damages, this did not make it to the final text.

USPTO Proceedings: The AIA also introduces under Sec 135 a “derivation proceeding” that arises when an original inventor claims that a patent applicant derived their invention from the original. Third parties will also be allowed to submit any prior art documentation with accompanying relevant reasons for the submission to the USPTO prior to the examination proceedings. A post-grant review proceeding would also be created and which allow any party within 9 months of the patent’s issue to present a validity challenge to one or more of the patent claims. Replacing the inter partes reexamination would be the inter partes review which would limit reviews to issues of novelty and obviousness arising from prior art patents and printed publications. The effect of the post-grant review has been considered by some as not ensuring the quality of the granted patents, but as potentially increasing the expense a patent-holder could face during the adversarial proceedings.

Besides deleting more interesting parts of the bill, the Senate did add Section 18 which deals with provisional measures for the establishment of post-grant review proceedings for the review of the validity of business-method patents. False marking lawsuits would be eliminated under the proposed 146 (k) except for ones filed by the US government or by a competitor who can prove competitive injury as a result of false marking. Also, reduced fees for small entities were also introduced.

The American Innovators for Patent Reform (AIPR), a trade association which promotes innovation by strengthening the US patent system, has opposed the AIA. Alexander Poltorak, the founder and President of AIPR and AIPR stated that the AIA, in particular the first-to-file provision would be viewed as a “defeat by many inventors”, however the removal of the damages provisions (which were referred to as the “most damaging provisions” – no pun intended) were heralded as a success. David Kappos, the USPTO's Director, has said that the US is already operating a pseudo-first-to-file system because in 2007 there have only been 7 interference applications (where two inventors file their patents nearly simultaneously) of which only one was decided on priority of the invention and "the truth is that only .01% of all patent applications could be affected" by the change.

The next stage of the bills life will be in the House (watch the life of a bill, courtesy of Schoolhouse Rock). If passed by Congress , the AIA could well be on its way of becoming the first substantial change to patent law in the U.S. in almost 60 years, but a bill’s life in Congress can be a rocky ride and can usually, as has been seen in IP legislation, die a quite death.

So what do non-US readers think? Is the introduction of the first-to-file system the end of civilization as we know it, or if the AIA is passed by Congress is Director Kappos correct and US inventors will not notice any difference at all?