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Intellectual Property Outlook: Cases and Trends to Follow in 2020 — PART 2

PART 2: EFFORTS TO CLARIFY PATENT ELIGIBILITY UNDER § 101

In this four-part series, we take a look forward at the cases, legislation, and other trends that are likely to have a significant impact on intellectual property law and practice in 2020. The first part of the series – looking at IP issues currently pending before the Supreme Court – can be found here.

In this second part of the series, we look at possible developments in the law of patent eligibility under 35 U.S.C. § 101. Since the Supreme Court’s decisions in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012), and Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014), patent eligibility has likely been the single most confounding and controversial issue in the area of patent law. In this article, we consider:

  • The current state of patent eligibility since the decisions in Mayo and Alice;

  • Efforts to get the Supreme Court to address § 101 again;

  • The growing trend of avoiding § 101 issues through artful pleading;

  • Whether courts will return to a modified version of the “machine-or-transformation” test as a way to ensure patentability of “physical” inventions; and

  • Potential legislative “fixes” to patent eligibility.

1. The 101 on § 101 after Mayo and Alice

The threshold question for any invention is whether the subject matter of that invention is patentable under 35 U.S.C. § 101. Under § 101, “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Although this section uses positive language to indicate what is patentable (i.e., a “process, machine, manufacture, or composition of matter”), the Supreme Court has crafted certain negative exceptions for inventions that are not patent eligible. These exceptions include “laws of nature, natural phenomena, and abstract ideas.” Mayo, 566 U.S. at 70. The Court has explained that these exceptions exist to prevent patents on the basic building blocks and tools of science. While laws of nature, natural phenomena, and abstract ideas are not patentable, specific “applications” of such subject matter may be patentable. In fact, all inventions in some way reflect the use or application of otherwise foundational and unpatentable principles. The question then becomes where to draw the line.

In order to determine patent eligibility under § 101, the Supreme Court has articulated what is commonly referred to as the Alice/Mayo test. This test proceeds in two parts. A court must first examine whether the particular claim is “directed to” a law of nature, abstract idea, or natural phenomena. If so, the court must then examine whether the limitations of the challenged patent claim go beyond the ineligible subject matter so as to “transform the nature of the claim into a patent-eligible application.” Alice, 573 U.S. at 217. In other words, a patent claim “directed to” patent ineligible subject matter may be patentable if the claim adds something beyond “well-understood, routine, conventional activity” to the ineligible concept. Mayo, 566 U.S. at 79-80.

While easily recited, application of the patent eligibility test has resulted in numerous difficulties. For example, in the five years since Alice, courts have failed to provide a standard for identifying an “abstract idea.” Instead, courts have largely reasoned by analogy – e.g., if “x” is an abstract idea, then “y” must also be an abstract idea. See, e.g.Credit Acceptance Corp. v. Westlake Servs. (Fed. Cir. 2017) (“Each of the claims is directed to the abstract idea of processing an application for financing a purchase. We see no meaningful distinction between this type of financial industry practice and ‘the concept of intermediated settlement’ held to be abstract in Alice.”).

Application of the Alice/Mayo test has also resulted in invalidation of arguably groundbreaking patents in the medical diagnostic area on the basis that the claimed inventions were directed to natural phenomena combined with conventional diagnostic techniques. See, e.g., Ariosa Diagnostics, Inc. v. Sequenom, Inc. (Fed. Cir. 2015) (agreeing that the claimed invention “revolutionized prenatal care,” but still invalidating patent claims because “[g]roundbreaking, innovative, or even brilliant discovery does not by itself satisfy the § 101 inquiry”).

Key Takeaway

Since the Alice decision, district courts have granted roughly 40% of motions challenging patent eligibility. Perhaps the most troubling aspect of these decisions is the lack of predictability. Indeed, in cases involving arguably similar patents, the Federal Circuit has reached divergent results. Compare, e.g., Trading Techs. Int’l, Inc. v. IBG LLC (Fed. Cir. 2019) (affirming Patent Trial and Appeal Board decisions finding patent claims ineligible) with Trading Techs. Int’l, Inc. v. CQG, Inc. (Fed. Cir. 2017) (finding challenged claims are patent eligible). Recognizing the confounding state of the law on patent eligibility, Federal Circuit judges have almost universally recognized the need for Supreme Court intervention. See Athena Diagnostics, Inc. v. Mayo Collaborative Servs., (Fed. Cir. 2019) (denying petition for rehearing en banc).

2. The Supreme Court Is Unlikely to Clarify Patent Eligibility Standards in 2020

Hopes that the Supreme Court would clarify patent eligibility standards in 2020 have now largely been dashed. Indeed, as if sending a signal to the entire patent bar, the Court denied five separate petitions directed to § 101 on January 13, 2020, including the petition in Athena Diagnostics Inc. v. Mayo Collaborative Services, LLC, No. 19-430. On January 27, 2020, the Court denied three additional petitions directed to § 101.

Many – including the Solicitor General on behalf of the United States – had urged the Court to hear the Athena case. In that case, the Federal Circuit held that a patented method of diagnosing an autoimmune disease was invalid for claiming a “natural law.” Specifically, the court found that the correlation between the presence of naturally-occurring autoantibodies and certain neurological diseases was a correlation that “exist[ed] in nature apart from any human action.” Therefore, the patent claims reciting this correlation were “directed to” a law of nature under step 1 of the Alice/Mayo test. The Federal Circuit also found that the additional limitations of the challenged patent claims were merely “conventional techniques to detect that natural law” and not “an improvement in the underlying immunoassay technology.” The panel thus affirmed the trial court’s dismissal of the patent under § 101. Later, the entire court declined to rehear the case en banc (7 to 5) even though the judges largely agreed that the invention should have been patentable as a matter of public policy.

Athena petitioned for certiorari and asked the Supreme Court to provide further guidance as to the scope of Mayo. The Solicitor General and numerous amicae supported the petition for certiorari. Despite the strong support for Athena’s petition (and the frustration expressed by several Federal Circuit judges with the current state of § 101 jurisprudence), the Court denied the petition, as well as numerous others relating to other questions of patent eligibility. The Court seemed to be sending a message to the bar that it was not interested in wading into the § 101 bog again and that it would be up to policymakers and legislators to address the concerns that have been expressed in the wake of Alice and Mayo.

Key Takeaway

In light of the Supreme Court’s refusal to reconsider the test for patent eligibility, we expect that the Federal Circuit and district courts will take it upon themselves to further winnow the impact and applicability of the § 101 defense in 2020. Procedurally, we expect an increasing number of courts to delay consideration of patent eligibility until after fact and expert discovery, which will lessen the potency of the defense. We also expect courts will continue chipping-away at the types of ideas that qualify as “abstract.” Indeed, certain decisions have already signaled a possible return to a modified version of the “machine-or-transformation” test, where an idea is not “abstract” if it relates to a physical device other than computer equipment. Finally, the Supreme Court’s refusal to re-engage will likely increase the pressure on Congress to enact a legislative “fix” to § 101.

3. Will We See a Rise in Artful Pleading to Avoid § 101 in 2020?

In February 2018, the Federal Circuit issued a pair of decisions holding that the Alice/May test may raise questions of fact that cannot be resolved on the pleadings. See Berkheimer v. HP, Inc., No. 2017-1437Aatrix Software, Inc. v. Green Shades Software, Inc., No. 2017-1452. For example, under part 2 of the Alice/Mayo test, “[t]he question of whether a claim element or combination of elements is well-understood, routine and conventional to a skilled artisan in the relevant field is a question of fact.”

The procedural issues addressed in Berkheimer and Aatrix have substantial practical significance. A large part of the potency of § 101 defenses following Mayo and Alice has been that those defenses can be raised at the earliest stages of a case, before incurring the expenses of fact and expert discovery. The availability of a dispositive defense at the beginning of a case has been particularly effective in combatting the type of litigation cost arbitrage on which may non-practicing entities relied. The decisions in Berkheimer and Aatrix raised a concern that plaintiffs would be able to thwart early case resolutions through artful pleading. For example, can plaintiffs now avoid a motion to dismiss by including allegations that an invention is not “abstract” or that claim limitations are not “routine” or “conventional”?

Key Takeaway

Although district courts have granted roughly 40% of motions challenging patent eligibility since Alice, the rate has been on a declining trend, especially in recent years. For example, in 2019, this rate dropped to roughly 33%. In 2020, we expect to see fewer motions granted as patent owners become more savvy at alleging facts and creating disputes that cannot be resolved on the pleadings.

4. Will Courts Seek to Breathe New Life into the “Machine-or-Transformation” Test in 2020 to Limit “Abstract” Ideas?

Under Federal Circuit law prior to Alice, courts used the machine-or-transformation test to determine whether or not an invention was a patent eligible “process” under § 101. See Bilski v. Kappos, 561 U.S. 593, 602 (2010) (“Under the Court of Appeals’ formulation, an invention is a ‘process’ only if: ‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’”). In Bilski, the Supreme Court cautioned that “the machine-or-transformation test [was] a useful and important clue, an investigative tool,” but that it was “not the sole test for deciding whether an invention [was] a patent-eligible ‘process.’” Id. at 604. Later in Alice, the Supreme Court expressly found that the claimed invention was ineligible for patenting even though the invention was tied to various physical components of a computer.

Since Alice, a number of courts have seemingly sought to resurrect a dichotomy between “abstract ideas” and “physical” or “concrete” inventions. For example, the district court in 2-Way Computing, Inc. v. Grands Tream Networks, Inc. (D. Nev. 2016) denied a § 101 motion because invention was “directed to a concrete, physical task” and not an “abstract concept.” A similar rationale was offered in Chamberlain Croup, Inc. v. Linear LLC (N.D. Ill. 2015), where the district court found that the claims were not directed to an “abstract idea” because they have “physical and tangible components.” Certain Federal Circuit decisions have resisted a return to relying on “physical” characteristics in assessing patent eligibility. For example, the court in ChargePoint, Inc. v. SemaConnect, Inc. (Fed. Cir. 2019) observed that “a tangible system (in § 101 terms, a machine) is not dispositive.” But other Federal Circuit cases, such as Versata Development Group v. SAP America, Inc., have relied on the absence of a “particular concrete or tangible form” as evidence that claims are directed to an abstract idea.

Key Takeaway

While the presence of “tangible” or “concrete” components is unlikely to become dispositive in § 101 challenges, we may see further elaboration of the role that physical components can play in the patent eligibility analysis. In particular, courts may increasingly rely the presence of such tangible components as a “useful tool” in determining that an invention is eligible for patenting.

5. Potential Legislative “Fixes” For Patent Eligibility Under § 101

We can expect further calls in 2020 for legislators to revise § 101, particularly in light of the Supreme Court’s refusal to clarify the Alice/Mayo test. Numerous proposals have been suggested over the past several years. One major challenge to bringing policymakers together has been that powerful stakeholders are often pitted on opposite sides of the debate. For example, biomedical companies have advocated limiting the significance of § 101, while technology companies have generally advocated maintaining a strong patent eligibility requirement.

Early last year , a group of Senators on the Judiciary Committee led by Senators Thom Tillis (R-NC) and Chris Coons (D-DE) made efforts to pursue legislative reform. They released a draft bill in May 2019 that would, among other things, require §101 to be construed in favor of eligibility, abrogate all judicial exceptions to patent eligibility, and reject step 2 of the Alice/Mayo analysis.

After release of the draft bill, the Judiciary Committee followed up with three intense days of hearings, soliciting views from 45 witnesses across industry and academia, including many public and private practitioners. After these hearings concluded, Senators Tillis and Coons released a joint statement reflecting concerns that recent court decisions had made it difficult to patent “life-saving precision medicine and diagnostics” as well as “exciting and important technologies like artificial intelligence.” The Senators determined that the system was “broken” and “desperately needs to be repaired.”

Key Takeaway

Since Senators Tillis and Coons released their joint statement in June 2019, there has been little further development in Congress. But the environment appears to be growing more hospitable to new legislation. Now that the Supreme Court has refused, at least for the short-term, to re-engage on the substantive test for patent eligibility, there may be new room for changes to the law. We expect that policymakers and legislators will once again bring these issues to the forefront in 2020.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Robert M. Masters Partner DC Entertainment and Digital Media Healthcare Intellectual Property Copyrights False Advertising, Lanham Act and Unfair Competition International Trade Commission (ITC)
Partner

Robert M. Masters is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Mr. Masters has extensive experience in all phases of intellectual property law. He routinely handles patent, trade secret, copyright and trademark/trade dress litigation in courts throughout the US, before the International Trade Commission, and before the US Patent Trial and Appeal Board (PTAB). In addition, Mr. Masters regularly advises clients on intellectual property licensing, negotiations, due diligence investigations,...

202-747-1935
Jonathan R. DeFosse Partner Intellectual Property Copyrights False Advertising, Lanham Act and Unfair Competition International Trade Commission (ITC)
Partner

Jonathan DeFosse is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Jon's practice focuses on intellectual property litigation and counseling involving product areas that include automotive technologies, consumer electronics, telecommunications, website design, cloud computing and medical devices. He regularly appears in federal courts throughout the U.S., including the U.S. District Courts for the Eastern District of Texas, the District of Delaware, the Northern and Central Districts of California and the Northern District of Illinois. Jon also regularly appears before the Patent Trial and Appeal Board in connection with post-grant review proceedings.

Jon established an accomplished track record through years of achieving successful outcomes on behalf of his clients. Within the last few years, he obtained complete victories for his clients in numerous matters, including cases concerning diesel fuel injection systems, online health records management systems, drowsiness detection systems and hybrid engines.  

202-747-1932
Associate

Kevin Ryan is an associate in the Intellectual Property Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Kevin focuses on intellectual property litigation and counseling, including patent litigation and portfolio assessments. He also has experience with general civil and commercial disputes.

202.747.2318