In response to the U.S. Supreme Court’s decision in Bilski v. Kappos (see our post here), the USPTO issued a memorandum to provide interim guidance to the Patent Examining Corps (see our post here).  Some commentators (here) have criticized the new policy because the interim guidelines state if there is no “clear indication” that the invention is something other than an abstract idea, the examiners should reject the application. At this point, applicants have the burden to explain why the invention is not an abstract idea.  This approach to examination appears to be contrary to Oetiker, where the Federal Circuit held that “the examiner bears the initial burden, on review of the prior art or on any other ground, of presenting a prima facie case of unpatentability.”  In re Oetiker, 977 F.2d 1443, 1445 (Fed. Cir. 1992) (see MPEP 2106(IV)(D)).

Today, at the National Association of Patent Practitioners (NAPP) 2010 Annual Meeting in Alexandria, Virginia, Robert L. Stoll, Commissioner for Patents at the USPTO, told the audience that updated, more detailed interim guidance was in the review and approval process and that he hoped to have it available for use within the next few weeks.  He also emphasized that it was never the intent of the current interim guidance to shift the burden of proving patentability to the applicant and that examiners still have the burden of presenting a prima facie case of unpatentability.

Going forward, Stoll said that the USPTO would be soliciting public comments and closely monitoring court decisions in an attempt to create and maintain up-to-date examination guidance regarding patentable subject matter.

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Following the Supreme Court’s decision in Bilski v. Kappos (see our post here), the USPTO issued a memorandum to provide interim guidance to the Patent Examining Corps.  For now, the USPTO will continue to use the Federal Circuit’s machine-or-transformation test as the benchmark for patentability determinations under Section 101.

The pertinent part of the memo reads:

Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101. If a claimed method meets the machine-or-transformation test, the method is likely patent-eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea. If a claimed method does not meet the machine-or- transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected under section 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea.

The USPTO is reviewing the decision in Bilski and will be developing further guidance on patent subject matter eligibility under 35 U.S.C. § 10 1.

To read the Bilski memo to the Patent Examining Corps, click here.

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The U.S. Supreme Court, on June 28, 2010, decided the long-awaited Bilski case, affirming the Federal Circuit’s judgment.  The Court ruled that business methods are eligible subject matter but declined to accept the Federal Circuit’s machine-or-transformation test as the exclusive test for the Section 101 determination.  Most of the Court’s opinion is supported by 5 votes, and other parts are supported by only 4 votes.  All nine justices agreed that Bilski’s risk management method claims related to hedging against weather-related losses in the energy industry were too abstract, and thus not patentable subject matter.  Four justices, led by retiring Justice John Paul Stevens, said that methods of doing business should never be patentable.  They expressed “serious doubt” that business innovators need patents to succeed.

The Court held that the machine-or-transformation offers “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process.”

This decision is a win for financial institutions.  It is also a win for e-commerce and software companies, especially start-ups, who often rely heavily on business method and software patents to attract investors.

The following language is supported by a majority of the Court:

“Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

“And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past.  See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

What’s next?  The Supreme Court left unanswered exactly what would be needed for a business method to be considered patentable subject matter. Also left open are the questions of patentable subject matter for software patents and medical diagnostic methods.  Thus, while business method patents are still alive – or have at least survived – the district courts and Federal Circuit will be using the next several years to develop “other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

To read the full Bilski v. Kappos opinion, click here.

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U.S. District Courts in California continue to be somewhat hostile towards patent applications when it comes to the question of what constitutes patentable subject matter.  On July 7, the U.S. District Court for the Central District of California applied the Bilski machine-or-transformation test to the patentability of a method claim and found the claimed system for automating credit applications invalid for failure to disclose a “particular machine” (DealerTrack Inc. v. Huber, C.D. Cal., No. CV 06-2335 AG (FMOx), 7/7/09).  The court declared the claims of one asserted patent invalid for unpatentable subject matter because they were tied to “general purpose computer” systems that were not “specially programmed” to perform the steps claimed.

DealerTrack Inc., a provider of software and data solutions for the automotive retail industry, owns patents (5,878,403; 6,587,841; and 7,181,427) directed to an automated credit application system.  The company brought a patent infringement lawsuit in April 2006 against its competitors Finance Express LLC and RouteOne LLC, Finance Express’ founder David L. Huber, and unnamed auto dealers using competing systems.  RouteOne is a joint venture established by GMAC, Ford Motor Credit, Toyota Financial Services and DaimlerChrysler Financial Services in 2002.

Judge Andrew J. Guilford previously agreed with RouteOne that its dealer management services did not infringe the ‘841 patent in light of the court’s 2007 claim construction order.  Key to that order was a construction of the claim term “communications medium” as “a network for transferring data, not including the internet.”

The case went forward with the ‘427 patent still asserted against all parties and Finance Express still subject to the infringement claim on the ‘841 patent.  However, one month after the court’s initial decision, the U.S. Court of Appeals for the Federal Circuit announced its “machine-or-transformation” test for the patentability of claims directed to processes in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (en banc).  Finance Express and RouteOne then filed in March a new motion for summary judgment of invalidity of the ‘427 patent for unpatentable subject matter, based on the new test.

Claim 1 of the ‘427 patent is a method claim for computer-aided management of a credit application.  DealerTrack conceded that its asserted ‘427 patent claims do not meet the transformation prong of the Bilski test.  As to the machine prong, Guilford noted preliminarily that the Federal Circuit opted to “leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

The claims at issue in the ‘427 patent included three separate structures that arguably satisfied Bilski’s machine requirement:  1) a central processor “consisting of a specially programmed computer hardware and database”; 2) “a remote application entry and display device”; and 3) a “remote funding source terminal device.”  Judge Guilford found, however, that none of these structures satisfied Bilski, because they did not require a particular machine.  First, the ‘427 patent did not specify how the computer hardware and database were “specially programmed.”  Consequently, the claims described nothing more than a general-purpose computer programmed in an unspecified manner, which the court found insufficient to satisfy Bilski. 

Second, the Court found that the “remote application entry and display device” and the “remote funding source terminal” were generic terms referring to “any device, e.g., a personal computer or dumb terminal remote from the central processor” for completing the recited steps.  He again relied on the claim construction order (issued one year before Bilski was decided) that described claim-related machines as “any device, e.g., personal computer or dumb terminal.”  With that construction and without special programming, Guilford concluded that “none of these devices constitutes a ‘particular machine’ within the meaning of Bilski, and granted summary judgment of invalidity of the ‘427 patent under the Bilski test.

Guilford cited several cases from the Patent and Trademark Office’s Board of Patent Appeals and Interferences and one from the U.S. District Court for the Northern District of California that have invalidated claims under the machine prong for only reciting a tie to a general purpose computer, rather than being “sufficiently tied to particular machines.”  See, e.g., Ex parte Cornea-Hasegan, No. 2008-4742, 89 USPQ2d 1557 (B.P.A.I. Jan. 13, 2009); CyberSource Corp. v. Retail Decision Inc., No. 04-03268 (N.D. Cal. March 26, 2009).  Our analysis of the CyberSource case can be found here and here.

Guilford rejected as well DealerTrack’s attempt “to bring the Internet back within the scope of the asserted claims” under the doctrine of equivalents, inasmuch as the Internet was specifically excluded from the scope in the claim construction order.  He therefore granted Finance Express’ motion for summary judgment of noninfringement.

In a July 8 press statement, DealerTrack’s Chairman and Chief Executive Officer Mark O’Neil, said the company would appeal, noting the Supreme Court’s decision to grant certiorari in Bilski.

Source:  multiple sources including BNA’s Patent, Trademark & Copyright Journal No. 131, July 13, 2009

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Patent practitioners discussed the viability of business method/software patent protection during a recent BNA audioconference looking at recent decisions by the U.S. Court of Appeals for the Federal Circuit.  But, they also provided clues on best strategies for litigating patents that have already been granted.

The June 3rd conference, sponsored by BNA’s Legal & Business EDge division, featured attorneys from IP law firm Finnegan.  Robert E. Yoches, Jeffrey A. Berkowitz, Kara F. Stoll, and Erika Harmon Arner, from the firm’s offices in Washington, D.C., and Reston, Va., first described the impact of three Federal Circuit decisions on business method and software patenting generally:

In re Bilski set rules for patent-eligible methods under the “machine-or-transformation” test.  545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir.  2008) (en banc).

In re Comiskey initially held that the “routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness,” but, post-Bilski, a revised opinion deleted that limitation.  554 F.3d 967, 89 USPQ2d 1655 (Fed. Cir.  2009).

MuniAuction Inc. v. Thomson Corp. addressed software in the Internet context, and said that it would have been obvious to modify prior art, non-Internet software to incorporate conventional Web browser functionality for the online auction business method patent at issue.  532 F3d 1318, 87 USPQ2d 1350 (Fed. Cir. 2008).

The conference then turned to strategies for moving forward with already-issued software patents, with Yoches offering the following strategies for patent owners:

Seek a reissuance of the patent.  If the patent was issued more than two years ago, you may still be able to add narrowing claims.  If you are one of the “stark minority of people” who was granted a software patent in the last two years, he said, broader claims might even be possible.  He pointed out the risk, in that the “hostility” of the USPTO might result in losing the patent entirely, but said that “you may face that risk in court anyway.”

Preempt MuniAuction issues by reexamination.  Yoches recommended “amend claims and emphasize other differences from prior art.”  He noted that reexamination can take years and warned listeners to “guard against inequitable conduct changes based on knowledge gained after the original patent issued.”

Yoches also had advice for accused infringers:

At least file a summary judgment motion on 35 U.S.C. 101 patentability.  Section 103 obviousness may be a legal issue as well “if there is no dispute about the differences between the invention and the prior art.”

A request for inter partes reexamination may delay a trial, and the PTO’s hostility may work in your favor, he said, but the risk is that the patent’s validity will be enhanced if claims do issue, and reexamination also gives the patent owner an opportunity to draft narrow claims that cover the precise accused device.

Post-judgment, a favorable reexamination result and a Rule 60 motion could be effective, he said, citing a case where the Federal Circuit deferred to a reexamination of a patent at issue and vacated a jury award for infringement.  Translogic Technology Inc. v. Hitachi Ltd., 250 Fed. Appx. 988 (Fed. Cir. 2007).

Yoches also acknowledged, however, that current advice could become obsolete when the U.S. Supreme Court issues a ruling on business method/software patentability issues in its pending review of Bilski.  The Finnegan firm authored the certiorari petition on behalf of the unsuccessful business method patent applicants in that case.

To an audience member’s question for advice if you are in the midst of litigation now, he said, “I’d suggest a stay.  The Supreme Court is going to be addressing this directly within a year.”  Especially if your case is before the Federal Circuit now, he said, “you have every reason to ask for a stay.”

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The case is a challenge to an en banc ruling last October by the U.S. Court of Appeals for the Federal Circuit that a process for predicting and hedging risk in commodities markets did not deserve a patent, because it was not tied to a machine, and did not result in a physical transformation.

The In re Bilski machine-or-transformation test for patentable subject matter is “drawn directly from” the U.S. Supreme Court’s decisions on the issue, the U.S. Solicitor General argued in a May 4 brief submitted in opposition to the petition for a writ of certiorari in the case (Bilski v. Doll, U.S., No. 08-964, brief filed 5/4/09).

Saying that further review of the case is not warranted, the brief also noted with approval that the U.S. Court of Appeals for the Federal Circuit repudiated its “useful, concrete, and tangible” test for patentable processes.

Further, in countering both the petition and the dissenting opinions in the case, the brief contended that the patent application in the instant case does not provide an opportunity to confront the issue of whether the machine-or-transformation test forecloses patentability on “frontier technologies.”

Questions Presented

The U.S. Court of Appeals for the Federal Circuit, in weighing the patentability of the claimed risk-hedging process, defined the test for determining patentable subject matter for process claims on Oct. 30 in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (en banc) (211 PTD, 10/31/08).

The court held that “A claimed process is surely patent-eligible under [35 U.S.C.] §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

The majority opinion generated several critical reactions from the patent community immediately after the decision, and continues to stir debate even among international jurists.

The petition seeking Supreme Court review was filed Jan. 28 by the law firm Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., on behalf of the rejected business method patent applicants, but citing as the real party in interest EQT IP Ventures LLP, Las Vegas(17 PTD, 1/29/09).

The petition presented two questions:

Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.”  35 U.S.C. §273.

The petition frequently cited the dissenting opinion of Judge Pauline Newman that accompanied what the petition called the Federal Circuit’s “fractured decision.”

Test Drawn Directly From Diehr

The government’s brief in opposition, submitted by Solicitor General Elena Kagan, questions the petitioners’ claim that the Federal Circuit’s ruling was “fractured.”

Of the 9-3 decision, Kagan said that only Newman’s dissent “would have held that petitioners’ claimed method was patentable.”  Judge Randall R. Rader’s dissenting opinion would still have rejected the application “solely on the ground that it seeks to patent an abstract idea,” Kagen said, adding that Judge Haldane Robert Mayer’s dissent would have held all patents directed to methods of conducting business unpatentable.

Supporting the majority opinion, Kagan said that the machine-or-transformation test “is drawn directly from [the Supreme Court's] most recent decisions.”  The brief cited with approval the Federal Circuit’s view that the test is effectively a restatement of the holding that “[t]ransformation and reduction of an article ‘to a different state or thing’ is the clue to the patentability of a process claim that does not include particular machines” in Diamond v. Diehr, 450 U.S. 175, 205 USPQ 488 (1981).

Put ‘Anything Under the Sun’ in Context

The solicitor general’s brief also knocked down the argument made by petitioners and others that Congress, in passing the 1952 Patent Act, intended a broader scope for patentability, reflected in the Supreme Court’s decision in Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ 193.

In that decision, the court echoed a phrase in the legislative record that “anything under the sun that is made by man” is patentable, but Kagan presented the full quote:

A person may have ‘invented’ a machine or a manufacture, which may include anything under the sun that is made by man, but it is not necessarily patentable under section 101 unless the conditions of the title are fulfilled.

Thus, she said, that language “was not addressed to process claims at all, but rather to machines and ‘manufactures,’ which this Court had previously construed to encompass ‘anything made for use from raw or prepared materials.’ ”  “It refers to things ‘made by man,’ not to methods of organizing human activity,” she said, quoting Judge Timothy B. Dyk’s concurring opinion in Bilski.

Opinion Does Not Address Frontier Technologies

The government’s brief further took issue with the petitioners’ contention that the machine-or-transformation test “threatens to stifle innovation in emerging technologies.”  “Newman’s dissenting opinion in Bilski was even more strongly worded, referring to the need for patentability in technologies at “the frontiers of science,” and saying the majority opinion would limit “eligibility for patenting to what has been done in the past, and to foreclose what might be done in the future.”

The solicitor general instead argued that the majority opinion “does not address the application of the machine-or-transformation test to computer software, data-manipulation techniques, or other such technologies not involved in petitioners’ risk-hedging claim” (emphasis added).  The brief cited with approval the Federal Circuit’s approach to emerging technologies, quoting from the Bilski opinion:

[W]e agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade. … And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.  At present, however, and certainly for the present case, we see no need for such a departure.

“Such an accretionary approach is entirely consistent with [the Supreme Court's] decisions,” the solicitor general said, lauding the approach as “prudent” in also providing a clear rule for process claim examination by the Patent and Trademark Office.

Case Not a Suitable Vehicle

Even if the petitioners’ policy concerns were justified, Kagan argued, “they are essentially irrelevant to the proper disposition of this case because petitioners’ patent application involves none of the frontier technologies on which the petition dwells.”

The inventors’ risk-hedging claim should not be considered allowable under the two Federal Circuit cases deemed by many to have authorized business method patents, she said, distinguishing those cases.  Unlike the petitioners’ claims, which describe nothing more than a series of steps performed by humans, she said, the disputed claim was drawn to a “machine” in State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368, 47 USPQ2d 1596 (Fed. Cir. 1998), and to a “machine-based process” in AT&T Corp. v. Excel Communications Inc., 172 F.3d 1352, 50 USPQ2d 1447 (Fed. Cir. 1999).

Finally, the brief addressed petitioners’ second question presented, that the majority opinion is inconsistent with Section 273 of the Patent Act, which provides an infringement defense to preexisting users of patented business methods.

First, Kagan said, “This case does not provide a suitable vehicle for addressing the meaning and scope of Section 273.” She noted that the issue was neither argued nor “a focus of the briefing” below, inasmuch as infringement was not at issue here.

More importantly, she said that “nothing in the decision below is inconsistent with Section 273. … The text of Section 273 does not address the criteria for patent-eligibility, much less adopt a ‘useful, concrete, and tangible result’ test.”

Again, she repeated that the Bilski decision “did not hold that business methods are categorically ineligible for patent protection,” and made note of the fact that the majority did not accept Mayer’s dissenting opinion that would have held just that.

In a footnote, she added, potentially anticipating concerns about the broader implications of the Federal Circuit’s ruling, that “nothing in the decision below threatens the eligibility of biotechnological or chemical inventions for patent protection, as long as they involve a transformation.”

Accordingly, the brief concluded, the petition for writ of certiorari should be denied.

Should be interesting to see how it will play out that Bislsi “does not address the application of the machine-or-transformation test to computer software, data-manipulation techniques, or other such technologies ….”

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Patent

Supreme Court nominee Judge Sonia Sotomayor has understandably had few patent-related cases while on the Second Circuit, but was more involved in patent trials while on the Southern District of New York.  She has never sat on the Federal Circuit as a Visiting Judge.

District Court Patent Cases

Judge Sotomayor had two cases that reached the Federal Circuit on appeal. 

The appellate panel agreed with her on one case where she held a patent unenforceable based upon inequitable conduct.  REFAC Intern., Ltd. v. Lotus Development Corp., 887 F.Supp. 539 (S.D.N.Y. 1995) (Sotomayor, J.), aff’d, 81 F.3d 1576 (Fed. Cir. 1996)(Lourie, J.).

Her claim construction ruling in another case was disagreed with in Intellectual Property Development, Inc. v. UA-Columbia Cablevision of Westchester, Inc., 336 F.3d 1308, 1317 (Fed. Cir. 2003)(Schall, J.), initial claim construction ruling, 1998 WL 142346 (S.D.N.Y. 1998) (Sotomayor, J.)(Markman ruling), subsequent rulings by different trial judge, 2002 WL 10479 (S.D.N.Y. 2002).

Judge Sotomayor was also involved in Dow Corning Wright Corp. v. Biomet, Inc., 1993 WL 60571 (S.D.N.Y. 1993)(Sotomayor, J.)(denying summary judgment motion of noninfringement on the basis that prosecution history estoppel did not limit scope of protection).

Second Circuit Patent Cases

Innomed Labs, LLC v. Alza Corp., 368 F.3d 148, 161-62 (2nd Cir. 2004)(Sotomayor, J.) (Robinson-Patman Act antitrust issue implicating patent exhaustion)

Nadel v. Isaksson, 321 F.3d 266, 273 n.3 (2nd Cir. 2003)(Sotomayor, J.)(distinguishing novelty in court action under dispute from patent law novelty);

In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2nd Cir. 2001)(Sotomayor, J.)(class certification of antitrust claims).

Copyright

Sotomayor played a role in one of the major copyright disputes of recent years, a case in which freelance journalists eventually won the right to demand royalties for online archiving of their works.  As a judge of the U.S. District Court for the Southern District of New York, Sotomayor ruled in favor of the newspaper and magazine publishers who argued that they could include the freelancers’ works in electronic collections of their publications under the Copyright Act’s revision right.  New York Times Co. v. Tasini, 533 U.S. 483, 59 USPQ2d 1001 (2001) (122 PTD, 06/26/01).

In the Tasini case, a group of freelance journalists filed suit against the New York Times Co. and other publishers for taking stories that they had independently contributed to for publication, and converting them for use on electronic databases and CD-ROM devices.  Sotomayor granted summary judgment to the publishers, holding that the transfer of collective works to electronic media fell within the legitimate revisions publishers are allowed to make under 17 U.S.C. §201(c).  972 F. Supp. 804, 43 USPQ2d 1801 (S.D.N.Y. 1997).

Sotomayor’s opinion was overruled when the Supreme Court affirmed the Second Circuit’s interpretation of Section 201(c).  In its opinion, the Supreme Court said that the publisher’s privilege of revision does not include the right to convert the subject matter to electronic formats because these transfers are not a mere conversion of intact periodicals or revisions from one medium to another.  The court pointed out that databases offer users individual articles, not intact periodicals and that this makes the content of the transfer not necessarily “a part of” the original collective work.

In A. Brod Inc. v. SK&I Co. LLC, 998 F. Supp. 314, 47 USPQ2d 1008 (S.D.N.Y. 1998), Sotomayor held that a determination of copyright ownership on the basis of express or constructive trust theories is not preempted by the Copyright Act.

Trademark

While serving on the Second Circuit, Sotomayor helped define the parameters of the Anticybersquatting Consumer Protection Act by ruling as a matter of first impression that the ACPA provides in rem jurisdiction over a disputed domain name only in the judicial district where the domain name registrar, registry or other authority is located.  Mattel Inc. v. barbie-club.com, 310 F.3d 293, 64 USPQ2d 1879 (2d Cir. 2002).

She overturned the Southern District of New York’s ruling that a trademark owner’s earlier litigation under the ACPA barred it from seeking relief under the Uniform Domain Name Dispute Resolution Policy.  Storey v. Cello Holdings LLC, 347 F.3d 370, 62 USPQ2d 1641(2d Cir. 2003) (201 PTD, 10/17/03).

In an “advertising injury” case involving trademarks, Sotomayor filed a dissent, stating that given ambiguities in the meaning of “trademarked slogan,” the majority improperly ruled that an insurer had a duty to defend the trademark owner under a general liability policy.  Hugo Boss Fashions Inc. v. Federal Insurance Co., 252 F.3d 608, 59 USPQ2d 1161 (2d Cir. 2001) (120 PTD, 06/22/01).

In PRL USA Holdings Inc. v. U.S. Polo Association, 520 F.3d 109, 86 USPQ2d 1022 (2d Cir. 2008), Sotomayor joined in the opinion of the court, affirming a jury verdict for noninfringement in a trademark dispute on the grounds that a federal district court did not err in permitting a jury to hear evidence that the owner of Ralph Lauren’s polo-player trademark had, in previous settlement negotiations, stated that he would not object to the governing body of polo in the United States using a logo with two polo players.

In Playtex Products Inc. v. Georgia-Pacific Corp., 390 F.3d 158, 73 USPPQ2d 1127 (2d Cir. 2004) (233 PTD, 12/6/04), Sotomayor found in a trademark dispute that an Internet search engine did not cause a likelihood of confusion among consumers over the terms “Wet-Ones” and “Moist-Ones” in relation to moistened towelettes.

In Nadel v. Play-by-Play Toys & Novelties Inc., 208 F.3d 368, 54 USPQ2d 1810 (2d Cir. 2000), Sotomayor joined in the opinion of the court in vacating a summary judgment for a defendant in an unfair competition case, holding that contract claims in submission of ideas cases require proof of novelty to the buyer alone, whereas misappropriation in such cases requires proof of novelty generally.

In Schering Corp. v. Pfizer Inc., 189 F.3d 218, 51 USPQ2d 1705 (2d Cir. 1999), Sotomayor joined with her colleagues in the Second Circuit in holding that surveys may be admitted into evidence under the hearsay rule’s present state of mind exception for the limited purpose of establishing a pattern of implied falsehood in communications alleged to violate the Lanham Act.

Again, this is a non-exhaustive list compiled from various sources.

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After hearing presentations describing a different “post-eBay world” in the wake of the U.S. Supreme Court’s much debated decision on injunctive relief, Judge Joseph J. Farnan of the U.S. District Court for the District of Delaware argued that the high court’s 2006 ruling “hasn’t done a whole lot,” and rather can best be seen as telling federal judges to “make sure you do what you’ve been doing.”  Farnan was speaking on May 15 at the 2009 spring meeting of the American Intellectual Property Law Association in San Diego.

At issue was the court’s ruling in eBay Inc. v. MercExchange LLC, 547 U.S. 388, 78 USPQ2d 1577 (2006), a decision that practitioners generally believe substantially reduced the chances for a permanent injunction in a patent infringement case.

According to Farnan, however, the district court judge in the case, Judge Jerome B. Friedman of the U.S. District Court for the Eastern District of Virginia, generally applied the same analysis in the first instance as he did when the case came back to him on remand from the Supreme Court, so “Friedman didn’t see too much in [the Supreme Court's decision] apparently.”  Looking at his own record as a judge, Farnan noted that he has awarded permanent injunctions in 16 cases, and that all four of his denials of an injunction preceded the Supreme Court’s decision.

According to Judge Farnan, the eBay decision is actually a “trilogy” of opinions by Justice Clarence Thomas, Chief Justice John G. Roberts Jr., and Justice Anthony M. Kennedy (“TRK”).

He quoted first from Thomas’s majority holding:  “We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.”  Farnan paraphrased that as “Make sure you do what you’ve been doing.”

“Then Roberts told me,” Farnan said, that history shows “courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases,” and also told me that “Discretion is not whim.”  That looks like a general rule, Farnan suggested, adding that it was “pretty much” applied as such when the Federal Circuit initially reversed the district court in eBay Inc., 401 F.3d 1323, 74 USPQ2d 1225 (Fed. Cir. 2005).

Kennedy provided “what I consider the actual teaching of the case,” he said— that there is an exception to the general rule for non-practicing entities.  “In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases,” Farnan said, quoting from Kennedy’s concurrence.

He went on to quote Kennedy’s recognition that “An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”  “Oh, my God, somebody is trying to make money out of private property and he is on to them,” Farnan said, again questioning what was new in the high court’s analysis.

He concluded by summarizing the TRK trilogy’s holding in eBay as follows:  (1) always touch on the four factors for injunction analysis, (2) grant permanent injunction in the majority of cases and (3) seriously consider denying injunctive relief when a non-practicing patent holder is the plaintiff.*

But if the patent holding plaintiff is “a real fine university like Johns Hopkins, think twice” before you deny an injunction, Farnan added.  “And don’t ever, ever use words like ‘presumption,’ or ‘general rule,’ or ‘categorical,’ and certainly never use ‘patent troll’ ” when referring to patent holders that do not practice their patents, he said.

We hope the good judge will also keep in mind inventors like Dean Kamen, who runs a company called DEKA Research & Development and is inventor of the Segway, among other things.  In congressional testimony, Kamen has stated that versions of patent reform bills proposing to fix the perceived problems with trolls could be bad for anyone like him who holds many patents but does not actually build his own products, leaving that instead to deeper-pocketed companies through licensing arrangements.

Kamen has stated, “I had learned from all the experts that a troll, which is a bad thing, is somebody who’s abusing the patent system, and someone who abuses the patent system is somebody who never actually makes their own products.”  “I would sit there thinking, ‘Hmm, that sounds awful, that describes me.’”

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The In re Bilski machine-or-transformation test for patentable subject matter is “drawn directly from” the U.S. Supreme Court’s decisions on the issue, the U.S. Solicitor General argued in a May 4 brief submitted in opposition to the petition for a writ of certiorari in the case (Bilski v. Doll, U.S., No. 08-964, brief filed 5/4/09).

Saying that further review of the case is not warranted, the brief also noted with approval that the U.S. Court of Appeals for the Federal Circuit repudiated its “useful, concrete, and tangible” test for patentable processes.

Further, in countering both the petition and the dissenting opinions in the case, the brief contended that the patent application in the instant case does not provide an opportunity to confront the issue of whether the machine-or-transformation test forecloses patentability on “frontier technologies.”

Questions Presented

The U.S. Court of Appeals for the Federal Circuit, in weighing the patentability of the claimed risk-hedging process, defined the test for determining patentable subject matter for process claims on Oct. 30 in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (en banc) (211 PTD, 10/31/08).

The court held that “A claimed process is surely patent-eligible under [35 U.S.C.] §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

The majority opinion generated several critical reactions from the patent community immediately after the decision, and continues to stir debate even among international jurists.

The petition seeking Supreme Court review was filed Jan. 28 by the law firm Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., on behalf of the rejected business method patent applicants, but citing as the real party in interest EQT IP Ventures LLP, Las Vegas(17 PTD, 1/29/09).

The petition presented two questions:

Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.”  35 U.S.C. §273.

The petition frequently cited the dissenting opinion of Judge Pauline Newman that accompanied what the petition called the Federal Circuit’s “fractured decision.”

Test Drawn Directly From Diehr

The government’s brief in opposition, submitted by Solicitor General Elena Kagan, questions the petitioners’ claim that the Federal Circuit’s ruling was “fractured.”

Of the 9-3 decision, Kagan said that only Newman’s dissent “would have held that petitioners’ claimed method was patentable.”  Judge Randall R. Rader’s dissenting opinion would still have rejected the application “solely on the ground that it seeks to patent an abstract idea,” Kagen said, adding that Judge Haldane Robert Mayer’s dissent would have held all patents directed to methods of conducting business unpatentable.

Supporting the majority opinion, Kagan said that the machine-or-transformation test “is drawn directly from [the Supreme Court's] most recent decisions.”  The brief cited with approval the Federal Circuit’s view that the test is effectively a restatement of the holding that “[t]ransformation and reduction of an article ‘to a different state or thing’ is the clue to the patentability of a process claim that does not include particular machines” in Diamond v. Diehr, 450 U.S. 175, 205 USPQ 488 (1981).

Put ‘Anything Under the Sun’ in Context

The solicitor general’s brief also knocked down the argument made by petitioners and others that Congress, in passing the 1952 Patent Act, intended a broader scope for patentability, reflected in the Supreme Court’s decision in Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ 193.

In that decision, the court echoed a phrase in the legislative record that “anything under the sun that is made by man” is patentable, but Kagan presented the full quote:

A person may have ‘invented’ a machine or a manufacture, which may include anything under the sun that is made by man, but it is not necessarily patentable under section 101 unless the conditions of the title are fulfilled.

Thus, she said, that language “was not addressed to process claims at all, but rather to machines and ‘manufactures,’ which this Court had previously construed to encompass ‘anything made for use from raw or prepared materials.’ ”  “It refers to things ‘made by man,’ not to methods of organizing human activity,” she said, quoting Judge Timothy B. Dyk’s concurring opinion in Bilski.

Opinion Does Not Address Frontier Technologies

The government’s brief further took issue with the petitioners’ contention that the machine-or-transformation test “threatens to stifle innovation in emerging technologies.”  “Newman’s dissenting opinion in Bilski was even more strongly worded, referring to the need for patentability in technologies at “the frontiers of science,” and saying the majority opinion would limit “eligibility for patenting to what has been done in the past, and to foreclose what might be done in the future.”

The solicitor general instead argued that the majority opinion “does not address the application of the machine-or-transformation test to computer software, data-manipulation techniques, or other such technologies not involved in petitioners’ risk-hedging claim” (emphasis added).  The brief cited with approval the Federal Circuit’s approach to emerging technologies, quoting from the Bilski opinion:

[W]e agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade. … And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.  At present, however, and certainly for the present case, we see no need for such a departure.

“Such an accretionary approach is entirely consistent with [the Supreme Court's] decisions,” the solicitor general said, lauding the approach as “prudent” in also providing a clear rule for process claim examination by the Patent and Trademark Office.

Case Not a Suitable Vehicle

Even if the petitioners’ policy concerns were justified, Kagan argued, “they are essentially irrelevant to the proper disposition of this case because petitioners’ patent application involves none of the frontier technologies on which the petition dwells.”

The inventors’ risk-hedging claim should not be considered allowable under the two Federal Circuit cases deemed by many to have authorized business method patents, she said, distinguishing those cases.  Unlike the petitioners’ claims, which describe nothing more than a series of steps performed by humans, she said, the disputed claim was drawn to a “machine” in State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368, 47 USPQ2d 1596 (Fed. Cir. 1998), and to a “machine-based process” in AT&T Corp. v. Excel Communications Inc., 172 F.3d 1352, 50 USPQ2d 1447 (Fed. Cir. 1999).

Finally, the brief addressed petitioners’ second question presented, that the majority opinion is inconsistent with Section 273 of the Patent Act, which provides an infringement defense to preexisting users of patented business methods.

First, Kagan said, “This case does not provide a suitable vehicle for addressing the meaning and scope of Section 273.” She noted that the issue was neither argued nor “a focus of the briefing” below, inasmuch as infringement was not at issue here.

More importantly, she said that “nothing in the decision below is inconsistent with Section 273. … The text of Section 273 does not address the criteria for patent-eligibility, much less adopt a ‘useful, concrete, and tangible result’ test.”

Again, she repeated that the Bilski decision “did not hold that business methods are categorically ineligible for patent protection,” and made note of the fact that the majority did not accept Mayer’s dissenting opinion that would have held just that.

In a footnote, she added, potentially anticipating concerns about the broader implications of the Federal Circuit’s ruling, that “nothing in the decision below threatens the eligibility of biotechnological or chemical inventions for patent protection, as long as they involve a transformation.”

Accordingly, the brief concluded, the petition for writ of certiorari should be denied.

Should be interesting to see how it will play out that Bislsi “does not address the application of the machine-or-transformation test to computer software, data-manipulation techniques, or other such technologies ….”

Source:  BNA’s PTCJ May 7, 2009 and other sources

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