Fresh From the Bench: Recent Patent Cases From the Supreme Court and the Federal Circuit
Alice v. CLS Bank – The Supreme Court unanimously rules that the claimed invention is no more than an abstract concept for managing risk in computerized trading, and as such does not constitute patentable subject matter.
STC – Rejecting the argument that the involuntary joinder provisions of Rule 19(a) should be applied, a divided panel of the Circuit affirms the dismissal for lack of standing because a co-owner of the patent elected not to join the suit.
Q.I. Press - The Circuit reverses and remands a portion of a Board's ruling in an inter partes reexamination based on the fact that some claims that were rejected and some were allowed even though those claims were extremely similar in scope.
Alice Corporation Pty. Ltd. v. CLS Bank International et al., Supreme Court (June 19, 2014)
Finally finding grounds for agreement with the Federal Circuit and in doing so providing some badly-needed guidance to patent practitioners and industry, the Court raises the bar on whether computer-related business method patents can recite patentable subject matter. With three justices arguing in affirmance that business method patents can never recite patentable subject matter, a unanimous Court strikes down the claims at issue.
The claimed invention is designed to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary. Specifically, the patents in suit claim (1) a method for exchanging financial obligations, (2) a computer system configured to carry out the method for exchanging obligations, and (3) a computer-readable medium containing program code for performing the method of exchanging obligations.
Following Bilski v. Kappos, 561 U.S. 593 (2010), the district court found all of the claims ineligible for patent protection under 35 U. S. C. §101 as being directed to an abstract idea. The en banc Federal Circuit affirmed but because the Circuit was so split in its expression of what constitutes patentable subject matter (compare Judge Lourie's opinion with that of Judge Moore), the decision provided little guidance.
The Supreme Court holds that because the claims are drawn to a patent-ineligible abstract idea, they are not patent eligible under §101. The opinion, written by Justice Thomas, is summarized by the Court:
(a) The Court has long held that §101, which defines the subject matter eligible for patent protection, contains an implicit exception for ‘"[l]aws of nature, natural phenomena, and abstract ideas.'" Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U. S. ___ (2013) In applying the §101 exception, this Court must distinguish patents that claim the "‘buildin[g] block[s]' " of human ingenuity, which are ineligible for patent protection, from those that integrate the building blocks into something more, see Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. __ (2012), thereby "transform[ing]" them into a patent-eligible invention.
(b) Using this framework, the Court must first determine whether the claims at issue are directed to a patent-ineligible concept. If so, the Court then asks whether the claim's elements, considered both individually and "as an ordered combination," "transform the nature of the claim" into a patent-eligible application.
(1) The claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement. Under "the longstanding rule that ‘[a]n idea of itself is not patentable,' " Gottschalk v. Benson, 409 U. S. 63 (1972), this Court has found ineligible patent claims involving an algorithm for converting binary-coded decimal numerals into pure binary form, a mathematical formula for computing "alarm limits" in a catalytic conversion process, Parker v. Flook, 437 U. S. 584 (1978); and, most recently, a method for hedging against the financial risk of price fluctuations, Bilski. It follows from these cases, and Bilski in particular, that the claims at issue are directed to an abstract idea. On their face, they are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is " ‘a fundamental economic practice long prevalent in our system of commerce,' " ibid., and the use of a third-party intermediary (or "clearing house") is a building block of the modern economy. Thus, intermediated settlement, like hedging, is an "abstract idea" beyond §101's scope.
(2) Turning to the second step of Mayo's framework: The method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention.
(i) "Simply appending conventional steps, specified at a high level of generality," to a method already "well known in the art" is not "enough" to supply the " ‘inventive concept' " needed to make this transformation. Mayo . The introduction of a computer into the claims does not alter the analysis. Neither stating an abstract idea "while adding the words ‘apply it,' " Mayo , nor limiting the use of an abstract idea " ‘to a particular technological environment,' " Bilski, is enough for patent eligibility. Stating an abstract idea while adding the words "apply it with a computer" simply combines those two steps, with the same deficient result. Wholly generic computer implementation is not generally the sort of "additional featur[e]" that provides any "practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself." Mayo.
(ii) Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. Taking the claim elements separately, the function performed by the computer at each step—creating and maintaining "shadow" accounts, obtaining data, adjusting account balances, and issuing automated instructions—is "[p]urely ‘conventional.'" Mayo. Considered "as an ordered combination," these computer components "ad[d] nothing . . .that is not already present when the steps are considered separately." Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field. An instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer is not "enough" to transform the abstract idea into a patent-eligible invention.
(3) Because petitioner's system and media claims add nothing of substance to the underlying abstract idea, they too are patent ineligible under §101. Petitioner conceded below that its media claims rise or fall with its method claims. And the system claims are no different in substance from the method claims. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea. This Court has long "warn[ed] . . . against" interpreting §101 "in ways that make patent eligibility ‘depend simply on the draftsman's art.'" Mayo. Holding that the system claims are patent eligible would have exactly that result.
In a concurring opinion, Justice Sotomayor wrote, citing Justice Steven's concurring opinion in Bilski: "I adhere to the view that any claim that merely describes a method of doing business does not qualify as a ‘process' under §101." She was joined in that opinion by Justices Ginsburg and Breyer.
STC.UNM v. Intel Corporation, Fed. Case 2013-1241 (June 6, 2014)
A divided panel affirms the dismissal of a patent case for lack of standing because a co-owner of the patent, who could not be involuntarily joined, elected not to join the suit.
The district court, relying on Ethicon, Inc. v. United States Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), granted Intel's motion to dismiss, holding that when a patent is co-owned, a co-owner seeking to enforce the patent must join all other co-owners to establish standing. The court acknowledged that Federal Rule of Civil Procedure 19(a) generally gives a court the ability to join a required party involuntarily but determined that the circumstances that would allow involuntary joinder were not present.
According to the panel, the Federal Circuit has long applied the rule that a patent co-owner seeking to maintain an infringement suit must join all other co-owners. STC argued that the holding in Ethicon yields to Rule 19(a)'s involuntary joinder test.
Rule 19(a) states:
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot ac- cord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the per- son's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise in- consistent obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.
The panel felt that Rule 19(a) does not change the fact that rules of procedure, such as that in Rule 19(a), must give way to substantive patent rights. There are two exceptions that the co-owner of a patent may use to overcome the rule against involuntary joinder: (1) when a patent owner has granted an exclusive license, and (2) when, by agreement, a co-owner has agreed to be joined in an enforcement action. Neither situation is present here. Moreover, each of the recognized exceptions relies predominantly on an absent co-owner who has in some way affirmatively given up its substantive right to refuse to join the suit. In this case, Sandia has—at the other end of the spectrum— affirmatively retained this right by consistently expressing its desire to not join the case.
In dissent, Judge Newman cites to 35 U.S.C. §262 (Each co-owner of a patent has the right to make, use, and sell the patented subject matter, as well as to alienate its interest in whole or in part.), 35 U.S.C. §281 (A patentee shall have remedy by civil action for infringement of his patent.), and Rule 19(a) (Entities with enforcement rights who do not voluntarily join in such suit "must" be joined involuntarily.), and characterizes the majority's holding as a ruling that Rule 19 "uniquely does not apply in patent cases." .
This case reminds us that when clients suggest co-ownership, we need to make sure a written agreement is drafted providing for the joinder in the event enforcement is necessary. The opinion notes that co-ownership provides some rights such as the right to license the patent without the approval of the other owner, but even that right is a hollow one if the right to sue is not available in the event the would-be licensee is reluctant to enter into a license.
Q.I. Press Controls, B.V. v Lee, Fed. Cir. Case 2012-1630-31 (June 9, 2014)
The Circuit reverses and remands a portion of the Board's inter partes reexamination decision because very similar claims were found to be valid and invalid, citing an obligation to the public not to provide inconsistent rulings of patentability.
Quad/Tech owns a patent directed to an imaging system for printing with large rolls of paper that uses an image sensor system containing an optical sensor to inspect printed pages for defects. Q.I. Press, accused of infringement in a related case, initiated an inter partes reexamination, alleging that the claims were obvious over patents to Ross, Maruyama and Sainio. The examiner finally rejected all 72 claims based on obviousness and/or as failing to meet the written description requirement under § 112, ¶1.
On appeal, the Board affirmed in part and reversed in part the examiner's rejections. Q.I. Press appealed the Board's reversal of the examiner's obviousness and written description rejections; Quad/Tech cross-appealed the Board's affirmance of the examiner's rejection of other claims.
The panel reviewed the Board's legal conclusions de novo, and the Board's factual findings underlying those determinations for substantial evidence. In PTO reexaminations, "‘the standard of proof—a preponderance of the evidence—is substantially lower than in a civil case' and there is no presumption of validity in reexamination proceedings." The panel affirmed many of the Board's rulings as to obviousness, citing KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 406–07 (2007) for the proposition that "The combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results." The panel noted, citing Leo Pharm. Prods., Ltd. v. Rea, 726 F.3d 1346, 1357–58 (Fed. Cir. 2013), that assessment of objective indicia of non-obviousness must be part of the inquiry, even in the reexamination context, but found that, Q.I. Press's marketing statements praising the circular configuration of the LED illumination do not change the obviousness conclusion.
In the cross-appeal, Quad/Tech argued that the Board erred in concluding that some of the claims were invalid for inadequate written description. The test for written description is that it "must clearly allow persons of ordinary skill in the art to recognize that the inventor invented what is claimed." The panel found that substantial evidence supports the Board's rejection under §112.
In the principal appeal, Q.I. Press argued that the Board erred in concluding that claims 1–60 would not have been obvious over Maruyama in view of Ross. Q.I. Press asserted that the Board's decision is inherently contradictory, finding that claims 1–60 would not have been obvious because Maruyama and Ross do not disclose a printing press, but also finding that the similar claims 61–72 would have been obvious over a combination of the printing press in Sainio and Ross. The panel agreed that claims 1–60 differ only slightly from claims 61–72, the rejection of which was affirmed. Given the minor differences in the claims themselves and similarities in the cited prior art, the panel noted that it seems apparent that the combination of Sainio and Ross discloses many of the elements of claims 1–60.
The panel noted that it is cognizant of the fact that the Board perhaps did not sua sponte reject claims 1–60 for obviousness over Sainio in view of Ross because that rejection would have constituted a new ground for rejection on appeal. However, under 37 C.F.R. § 41.77(b) the Board has the discretion to issue a new ground of rejection if it has knowledge of one. In those instances, the "Board must designate its decision a new ground of rejection and provide the appellant with an opportunity to respond." If a new ground of rejection is included in the opinion, the patentee then has the option to either reopen prosecution before the examiner or request rehearing.
The panel expressed that here, when all these references were before the Board, an obligation is owed to the public not to permit inconsistent results when a proper challenge to that inconsistency is made on appeal. The Board should have observed the similarities between the claims, noted those similarities between the claims and the references before the Board on appeal, analyzed whether the combination of Sainio and Ross would have rendered claims 1–60 obvious, and if so, issued a new ground of rejection. We do not hold that the Board should always apply references that are before it affecting some claims to every other claim on appeal, but we do find that in this instance, in which nearly identical claims were found both valid and invalid due to similar combinations of prior art resulting in a Board opinion that was seemingly inconsistent, the Board erred by not considering the combination of Sainio and Ross as a new ground for rejection of claims 1–60.
Q.I. Press also argued that the Board erred in reversing the rejection of claims 13–60 because those claims, added during the reexamination, improperly expanded the scope of the patent in violation of 35 U.S.C. § 305. However, the panel determined that since Q.I. Press failed to present that argument to the Board, Q.I. Press waived the argument.