The Federal Circuit's approach to Section 101 post-Alice and Mayo has confused and disappointed many. The two-step test articulated by the Supreme Court in those cases is much criticised, especially the second prong requiring that an invention covering laws of nature, natural phenomena and abstract ideas have "something more" in order to be patentable.
Critics including former Federal Circuit Chief Judge Randall Rader have torn into last June's Alice v CLS Bank decision, arguing that it is vague and unworkable and that it integrates concepts of novelty and non-obviousness (Rader also characterised the decision as the Supreme Court's tendency to hand down vague balancing tests). The former chief judge and others also argue that the decision has hampered innovation in both software and life sciences.
Filing for business method patents has dropped more than 50% since Alice, though critics of such patents argue that is actually a positive development. The uncertainty is what is most frustrating for practitioners and rights holders. "After Alice we know what the Supreme Court doesn't like, where that one goal line is, but we don't know where the other goal line is, what sort of patents they do like," says Q Todd Dickinson of Novak Druce. "The tea leaves are hard to read."
DDR – the outlier
One year since Alice, there is now a bit more guidance, though as Dickinson notes it pertains more to what is not patentable than what is. There have been 11 Federal Circuit cases (another case had a concurring opinion that discussed Alice but the case was resolved on other grounds) that have applied Alice, and in only one case was the invention found to be patent eligible.
That case is DDR Holdings v Hotels.com, which involved a patent that covers systems and methods for combining content from an external website with the style of the original page so that the user stays on the original page even though she has clicked on a link to another site. Judge Raymond Chen, writing the majority and joined by Judge Evan Wallach, found that the invention passes the Alice two-step test.
First, Chen said that unlike other recent Section 101 cases where the inventions were found ineligible, the claims here "stand apart because they do not merely recite the performance of some business practice known from the pre-internet world along with the requirement to perform it on the Internet" but instead provide a computer specific solution to a problem specific to computer networks.
Furthermore, unlike the ineligible invention in Ultramercial, "the claims at issue here specify how interactions with the Internet are manipulated to yield a desired result". And, because of the specificity in the claims, the patent does not pre-empt every application of the idea. Thus, the patent contains the "additional features" needed to clear the patentability bar set in Alice.
Ching-Lee Fukuda, a partner at Ropes & Gray, says that plaintiffs increasingly point to DDR to try to convince the Court of a patent's validity. That's not surprising, given that it is the only case thus far applying Alice where the patent was not invalidated. However, she warns that not only does DDR not create a new "test" as some may seem to suggest, that holding also has several murky areas, such as what point is a problem specific to computer networks.
The building blocks
After several years of being led by Judge Rader who held that an invention had to be "manifestly abstract" to fail Section 101, the Federal Circuit seems to have swung in the other direction. Though some may say this is merely an application of the Supreme Court's Alice decision, the Federal Circuit's reading may be broader than the decision requires.
"The Supreme Court warned that virtually every patent is based on an abstract idea, so we have to be careful about applying that standard too broadly," explains David Wille, partner at Baker Botts. "Both Bilski and Alice talked about fundamental economic practices and the building blocks of the modern economy, and the dangers of overly broad patents granting monopolies on those. However, I think this language has been virtually ignored in the post-Alice decisions."
This issue may already be receiving increasing attention. Fukuda says she is seeing this line of reasoning more and more from patent holders, arguing that their patent does not pre-empt other ways of practising a particular method, because the DDR opinion cites this as one reason that the invention there is patentable.
"This analysis is related more to the second prong of the Alice test," Fukuda explains. "In Mayo, the Court talks about the problem of an invention foreclosing more future invention than the underlying discovery can reasonably justify, and I've always read that as the idea that if the invention contributed a lot of inventive concept, you're probably allowed to foreclose more of these future inventions, since patent rights naturally have a certain level of foreclosure."
Federal Circuit judge's number of Section 101 decisions since Alice, as of July 14 2015 |
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Source: BilskiBlog
What's on first?
The uncertainty about Section 101 has also led to debate as to when it should be applied. Judge Haldane Robert Mayer in three separate concurrences has forcefully argued that 101 analysis should be the initial inquiry. As he argued in Ultramercial, Section 101 analysis "bears some of the hallmarks of a jurisdictional inquiry" (see our feature "Judge Mayer's quest for Section 101 reform in the US" for a more detailed analysis of Mayer's recommendations on 101).
"Just as a court must assure itself of its own jurisdiction before resolving the merits of a dispute, it must likewise first assess whether claimed subject matter is even eligible for patent protection before addressing questions of invalidity or infringement," he wrote.
Given the increasing popularity and high success rates in Alice challenges, practitioners say there may be practical reasons for tackling 101 issues early on.
"I have a couple of cases pending before the Eastern District of Texas where we've filed Alice motions and are now trying to get a stay on the rest of the proceedings until the motion is decided," Wille explains. "The issue with not allowing a stay is that you run into the problem where even if you have a meritorious Alice motion, you have to spend a lot of money to get to the point where it can be decided. This leads to defendants deciding to settle non-meritorious cases against them simply because it is less expensive than filing the Alice motion."
Louis Tompros, a partner at Wilmer Cutler Pickering Hale and Dorr in Boston, adds: "At the district court level, courts often have a whole apparatus for claim construction and to analyse issues such as validity and invalidity, and then to hold Marksman hearings, but this was really set up to drive analysis under 102 and 103. The question is, do you need to go through this whole process to get to the 101 question?"
However, many also say that 101 should not be applied initially. For example, David Kappos of Cravath Swaine & Moore has argued that Section 101 should be a coarse filter applied at the end of the analysis. The increasing focus on it has resulted in it being used too often to determine patentability questions, more so than it was intended. Similarly, Robert Stoll of Drinker Biddle & Reath tells Managing IP that rather than focus on Section 101, more attention should be paid to 102 and 103.
There are also concerns that putting 101 first may be unfair to patent holders in court. Forcing a plaintiff to respond to a 101 challenge at the outset, without the benefit of other procedures such as claim construction, can leave them unable to adequately respond.
One suggestion is for courts to use their discretion to decide whether an Alice challenge is appropriate at the outset. Both Tompros and Wille point to Judge Rodney Gilstrap of the Eastern District of Texas, who now requires defendants to show good cause before bringing an Alice motion. A similar approach, they both suggest, may allow courts to take up early 101 challenges only when the plaintiff would not be put at a disadvantage.
Such a mechanism may ensure that only clear-cut 101 motions would be decided early on, ones that would not turn on things such as claim construction.
Part of the uncertainty is that Section 101 challenges are relatively new. Tompros says that 10 or even five years ago, these challenges were relatively rare. But in the last few years, both the courts and the USPTO have taken Section 101 much more seriously. Because they are relatively rare to begin with, there is not much jurisprudence to draw on, and this uncertainty is compounded by the number of new judges on the Court.
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Still new ground
The new-found focus on Section 101, combined with the number of new judges, means that it is difficult to discern patterns in how they are approaching these issues. Whereas the Court under Judge Rader appeared to have clearer patterns as to which judges sided with Rader's "coarse filter" approach and which didn't (several lawyers pointed to the en banc Alice decision as a decent road map as to where judges stood on this issue back then), the Court since the Supreme Court's Alice decision appears to be more unified in its approach.
Every lawyer who spoke with Managing IP stresses that this jurisprudence is still developing, and that the judges appear to be largely applying the Supreme Court's guidance. "It's still the 'call-it-like-I-see-it' phase for the judges," says Tompros. While it is premature to identify tendencies or trends among the judges, some general stances can be gleaned. Both Judges Mayer and Dyk appear to be sceptical of business method patents in general, and Judge Alan Lourie appears to have been taking an increasingly forceful approach to Section 101. However, despite whatever tendencies the judges may have, they mostly appear to be adopting a similar reading of Alice and Mayo.
The biggest recent case was Ariosa Diagnostics v Sequenom. In a concurring opinion, Judge Linn lamented the broad language of step two of the test as articulated in Mayo that dismissed all conventional steps taken without qualification, even where no one had previously had thought to take all those conventional steps together to achieve the desired result. Because of this broadness, the Court held that the invention, which allowed doctors to test foetal DNA from what was previously considered medical waste, rather than more invasive techniques that took samples from the foetus or placenta, was not patent eligible.
Many observers, including Dickinson and Stoll, point to Ariosa as an example of the problems caused by the broad language of the Alice/Mayo two-step test. Speaking at the BIO Annual Convention in Philadelphia in June, Robert Armitage, former general counsel at Eli Lilly, described Ariosa as "the most disappointing decision I have ever read from the Federal Circuit". Sequenom has filed a petition for an en banc rehearing.
At the BIO International Convention, Kappos of Cravath Swaine & Moore said a Supreme Court appeal would provide an opportunity for debate. "It is bad enough when bad patents make bad law; it is terrible when good patents make bad law," he said. "If we now see a Supreme Court challenge, that gives in my view a wonderful opportunity for aggressive amicus activity because all is not lost yet and there is an opportunity on the back of good facts to explain to the court that the law has really gone into a major ditch here and that this case needs to be the one to back it all up and reset."
And, much like the debate over patent reform, the reaction to this focus on 101 may turn in part on which industry you're in.
"One thing that is emerging is how things seem to be a lot different on the life sciences side," says Fukuda at Ropes & Gray. "Many of the developments like Alice, the PTAB and CBMs, have been helpful to the tech community where much of my practice is. On the other hand, there is a lot of concern about how these developments are affecting the life sciences, and there's a bit of a cross-industry debate."
Similarly, despite the understandable frustrations with the broad standards drawn by Mayo and Alice, it may simply be part of the process of developing jurisprudence in an area where the Supreme Court has apparently decided a bright line rule is not suitable.
"What we're seeing in these cases is a list of cases slowly clarifying what is not patentable," notes Tompros at WilmerHale. "In many ways, it is classic development of the common law by analogy, and we will hopefully begin to see more cases telling us what is patentable."
