Fresh from the Bench: Precedential Patent Cases from the Federal Circuit
By Peter E. Heuser and Nika Aldrich
Queen's – A divided panel grants a petition for mandamus as to the production of communications with a Queen's patent agent, establishing for the first time a patent agent privilege. The majority relies heavily on Congress's recognition of patent agents' ability to practice before the USPTO and the Supreme Court's 1963 Sperry case, which held that patent agents, prosecuting patents before the USPTO, were in fact engaged in the practice of law. This distinguishes the patent agent from accountants and other non-attorney professionals that have in the past claimed a privilege.
The majority thus rules that, to the extent Congress has authorized patent agents to engage in the practice of law before the Patent Office, a patent-agent privilege must be recognized. A client has a reasonable expectation that all communications relating to obtaining legal advice on patentability and legal services in preparing a patent application will be kept privileged. Communications that are not reasonably necessary and incident to the prosecution of patents before the Patent Office fall outside the scope of the patent-agent privilege. For instance, communications with a patent agent who is offering an opinion on the validity of another party's patent in contemplation of litigation or for the sale or purchase of a patent, or on infringement, are not reasonably necessary and incident to the preparation and prosecution of patent applications or other proceeding before the Office.
Bamberg – This case arises out of an interference proceeding between Bamberg and Dalvey in which the Board ruled that Bamberg's patent application lacked an adequate written description to support the copied claims. The involved claims disclose a method for the transfer of printed images onto dark colored textiles by ironing over a specialty transfer paper. Dalvey argued that the copied claims recite a white layer that melts at a wide range of temperatures, but Bamberg's specification only discloses a white layer that does not melt at ironing temperatures (i.e., below 220°C). The panel finds no error in the Board's conclusion that the broadest reasonable interpretation of Dalvey's claimed "white layer" includes within its scope a white layer that melts at temperatures both above and below 220°C. The panel then rules that substantial evidence supports the determination that Bamberg's specification fails to support the melting both above and below 220°C.
During the interference proceeding, Bamberg moved to amend the claims of its applications in response to Dalvey's motion alleging lack of written description support. The PTO's rules provide that, in the context of interference proceedings, this burden is best satisfied with a claim chart, which Bamberg did not include in its motion. The panel holds that the Board's decision to deny the motion to amend for failing to comply with its interference regulation is not an abuse of discretion.
Varma – The panel reverses the construction of two phrases that formed the bases of rejection of claims being reexamined in a patent directed to systems for performing statistical analyses of investment data. Multiple reexaminations were successfully filed by IBM and SAS after they were sued by InvestPic, but on appeal the panel disagrees with the Board's construction of two critical limitations in the claims.
First, the panel rules that the claim language explicitly demonstrates that the phrase "bias parameter" (that determines the degree of randomness in a sample) was improperly interpreted by the Board. As to the second phrase at issue, "a statistical analysis request corresponding to two or more selected investments," the panel concludes that two different but related interpretations implicitly relied on by the Board were both unreasonable. In interpreting the second phrase, the panel notes that "comprising" means that the claim can be met by a system that contains features over and above those specifically required by the claim element. But this is only true if the system still satisfies the specific claim-element requirements: the claim does not cover systems whose unclaimed features make the claim elements no longer satisfied.
The Board also cited the article "a" before "statistical analysis request" to support its interpretation of the statistical analysis phrase. But while "a" sometimes is non-restrictive as to number, permitting the presence of more than one of the objects following that indefinite article, context matters even as to whether the word has that meaning. Here the question is not whether there can be more than one request in a claim-covered system: there can. Rather, the question is whether "a" can serve to negate what is required by the language following "a": a "request" (a singular term) that "corresponds" to "two or more selected investments." It cannot. For a dog owner to have "a dog that rolls over and fetches sticks," it does not suffice that he have two dogs, each able to perform just one of the tasks. In the present case, no matter how many requests there may be, no matter the variety of the requests the system may receive, the system must be adapted to receive a request that itself corresponds to at least two investments.
The panel reverses the cancellation of the claims based on construction of the first phrase but concerning the Board error as to the second phrase, the cancellation of claims is vacated and the case is remanded to compare the properly interpreted claims to the prior art.
Smith – The Circuit holds that claims directed to a new method of playing blackjack, but still using a conventional deck, are directed to patent ineligible subject matter under Mayo and Alice. To determine whether an invention claims ineligible subject matter, the panel applies the two-step test: first, it is determined if the claims at issue are directed to a patent-ineligible concept; second, the elements of the claim are examined to determine if it contains an inventive concept sufficient to "transform" the claimed abstract idea into a patent-eligible application.
As to the first step, the panel concludes that Applicants' claims, directed to rules for conducting a wagering game, compare to other fundamental economic practices found abstract by the Supreme Court in, for example, Alice'smethod of exchanging financial obligations and Bilski'smethod of hedging risk. As to the second step, the panel holds that appending purely conventional steps to an abstract idea does not supply a sufficiently inventive concept. The claims here require shuffling and dealing physical playing cards. But the panel rules that, just as the recitation of computer implementation fell short in Alice, shuffling and dealing a standard deck of cards are "purely conventional" activities.
In re Queen's at Kingston,Fed. Cir. Case 2015-145 (March 7, 2016)
Queen's University is engaged in a patent infringement action against Samsung Electronics. Queen's seeks a writ of mandamus directing the Eastern District of Texas to withdraw its order compelling the production of Queen's communications with its patent agents on grounds that the communications are privileged. We grant the petition.
Queen's produced privilege logs identifying documents that were withheld based on its assertion of a privilege relating to communications with its patent agents. Samsung moved to compel production of such documents discussing the prosecution of the patents-in-suit. The magistrate granted Samsung's motion, finding that the communications are not subject to the attorney-client privilege and that a separate patent-agent privilege does not exist. The court overruled Queen's objections to the order but declined to certify the issue for interlocutory appeal. However, the district court stayed production pending mandamus.
After first ruling that Federal Circuit law applies because the Circuit applies its own law for questions impacting substantive patent questions, the panel turned to the issue of whether mandamus is appropriate. The majority concluded it is because "(1) there is raised an important issue of first impression, (2) the privilege would be lost if review were denied until final judgment, and (3) immediate resolution would avoid the development of doctrine that would undermine the privilege."
In supplemental briefing, Samsung informed the Circuit that it had filed a request for IPR, that the PTO had instituted those IPRs, and that the district court had thus stayed the proceedings. The majority rejected Samsung's argument that this makes a difference in the present mandamus action.
Given Congress's Recognition of Patent Agents Practicing Law Before the PTO, Supreme Court Rulings Applying that, and the Clients' Reasonable Expectation of Privilege, the Majority Recognizes the Existence of the Patent-Agent Privilege
In federal district courts, the scope of discovery is governed by new Rule 26(b)(1) Fed. R. Civ. P, which provides in relevant part: "Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case . . . . Information within this scope of discovery need not be admissible in evidence to be discoverable." Thus, while the scope of permissible discovery is broad, it only encompasses documents relating to "nonprivileged matters."
Rule 501 of the Federal Rules of Evidence states that common law, as interpreted by U.S. courts in the light of reason and experience, governs a claim of privilege. We thus turn to "reason and experience" in order to determine whether a patent-agent privilege is now appropriate. We do so with caution, however, recognizing that there is a presumption against the recognition of new privileges. Federal courts must be cognizant of the age old principle that "the public . . . has a right to every man's evidence." Indeed, the Supreme Court has warned that evidentiary privileges "are not lightly created nor expansively construed, for they are in derogation of the search for truth." United States v. Nixon, 418 U.S. 683 (1974).
It is well established that an attorney-client privilege exists to encourage full and frank communication between counselor and client and thereby promote broader public interests in the observance of law and administration of justice. It is true that courts have consistently refused to recognize as privileged communications with other non-attorney-client advocates, such as accountants. The same is true for jailhouse lawyers. Samsung concedes that, where a patent agent communicates with counsel or receives communications between his client and counsel, the attorney-client privilege may protect those communications from discovery. It contends, however, that, where counsel is not involved in the communications—as Queen's concedes is the case here—we should neither expand the scope of the attorney-client privilege nor recognize an independent patent agent privilege to protect such communications from discovery. For the reasons we explain, we find that the unique roles of patent agents, the congressional recognition of their authority to act, the Supreme Court's characterization of their activities as the practice of law, and the current realities of patent litigation counsel in favor of recognizing an independent patent-agent privilege.
In Sperry v. State of Florida ex rel. Florida Bar, 373 U.S. 379 (1963), the Supreme Court was faced with a challenge to the State of Florida's attempt to regulate the activities of patent agents on grounds that those activities constitute the practice of law. The Supreme Court addressed the challenge in two stages: first, determining whether the activities of patent agents before the Patent Office constitute the practice of law, and, second, determining whether, if so, the State of Florida had the authority to regulate those activities. The Supreme Court answered the first question in the affirmative and the second in the negative.
The Supreme Court found that "the preparation and prosecution of patent applications for others constitutes the practice of law." Id. Sperry, thus, confirms that patent agents are not simply engaging in law-like activity; they are engaging in the practice of law. To the extent that the attorney-client privilege is justified based on the need for candor between a client and his or her legal professional in relation to the prosecution of a patent, that justification would seem to apply with equal force to patent agents.
While this holding in Sperry is important, it is the rest of the Sperry opinion we find most informative. It is not the fact that—within the limited authority granted to them by the Patent Office—patent agents engage in the traditional practice of law that is the most meaningful takeaway from Sperry; it is the Supreme Court's explanation of why states may not regulate that practice of law that lends most support to the recognition of a patent-agent privilege. In holding that the State of Florida had no authority to regulate the admitted practice of law by patent agents, the Supreme Court emphasized that it is Congress who has authorized and continues to permit the practice of law by patent agents when appearing before the Patent Office.
In explaining its holding, the Supreme Court discussed the history of the Patent Office's power to regulate patent agents. Looking to legislative history, the Court traced the discussion of patent agents by Congress "back to 1861, when Congress first provided that 'for gross misconduct' the Commissioner of Patents may refuse to recognize any person as a patent agent, either generally or in any particular case . . . ." The 1869 Rules and Directions issued by the Commissioner provided that any person of intelligence and good moral character may appear as the attorney in fact or agent of an applicant upon filing proper power of attorney. From the outset, a substantial number of those appearing in this capacity were engineers or chemists familiar with the technical subjects to which the patent application related. Many of them were not members of the bar. It probably never occurred to anybody that they should be. In 1899, because nonattorney agents were found "particularly responsible for the deceptive advertising and victimization of inventors" at the Patent Office, the Commissioner first required the registration of those who practiced before the Office. Then, "in 1922, the patent statute was amended to expressly authorize the Commissioner to prescribe regulations for the recognition of agents and attorneys, to provide for the creation of a patent bar, and to require a higher standard of qualifications for registry.
Samsung does not challenge the proposition that the prosecution of patents before the Patent Office constitutes the practice of law or that non-lawyer patent agents are allowed to engage in such practice under federal law. Nor can it, given the Supreme Court's clear language in Sperry. In Sperry, the Court found that the rights conferred to patent agents are federal rights and that Congress expressly permitted the Commissioner to promulgate regulations that allow patent agents to practice before the Patent Office in the 1952 Patent Act. Ultimately, Congress endorsed a system in which patent applicants can choose between patent agents and patent attorneys when prosecuting patents before the Patent Office. Based on this, the Court found that Florida could neither prohibit nor regulate that which federal law allowed.
Today, "the Office—may establish regulations, not inconsistent with law, which—may govern the recognition and conduct of agents, attorneys, or other persons representing applicants or other parties before the Office." 35 U.S.C. § 2(b)(2)(D). Pursuant to these powers, the Office has determined that "any citizen of the United States who is not an attorney, and who fulfills the requirements of this part may be registered as a patent agent to practice before the Office." 37 C.F.R. § 11.6(b).
To the extent Congress has authorized non-attorney patent agents to engage in the practice of law before the Patent Office, reason and experience compel us to recognize a patent-agent privilege that is coextensive with the rights granted to patent agents by Congress. A client has a reasonable expectation that all communications relating to "obtaining legal advice on patentability and legal services in preparing a patent application" will be kept privileged. Whether those communications are directed to an attorney or his or her legally equivalent patent agent should be of no moment. Indeed, if we hold otherwise, we frustrate the very purpose of Congress's design: namely, to afford clients the freedom to choose between an attorney and a patent agent for representation before the Patent Office.
The Scope of the Privilege Is Limited to Communications in Furtherance of Patent Prosecution in the USPTO
Regulations promulgated by the Office regarding the scope of a patent agent's ability to practice before the Office help to define the scope of the communications covered under the patent-agent privilege. In particular, 37 C.F.R. § 11.5(b)(1) provides:
Practice before the Office in patent matters includes, but is not limited to, preparing and prosecuting any patent application, consulting with or giving advice to a client in contemplation of filing a patent application or other document with the Office, drafting the specification or claims of a patent application; drafting an amendment or reply to a communication from the Office that may require written argument to establish the patentability of a claimed invention; drafting a reply to a communication from the Office regarding a patent application; and drafting a communication for a public use, interference, reexamination proceeding, petition, appeal to or any other proceeding before the Patent Trial and Appeal Board, or other proceeding.
Communications between non-attorney patent agents and their clients that are in furtherance of the performance of these tasks receive the benefit of the patent-agent privilege. Communications that are not reasonably necessary and incident to the prosecution of patents before the Patent Office fall outside the scope of the patent-agent privilege. For instance, communications with a patent agent who is offering an opinion on the validity of another party's patent in contemplation of litigation or for the sale or purchase of a patent, or on infringement, are not "reasonably necessary and incident to the preparation and prosecution of patent applications or other proceeding before the Office."
Thus, we grant Queen's petition for mandamus relief. On remand, the court shall assess whether any particular claim of privilege is justified in light of the privilege we recognize today.
Judge Reyna's Dissent
I disagree that this court should create a new agent-client privilege. The presumption against the creation of new privileges has not been overcome by any showing that the public interest will be served or that there is a real need for such a privilege. Congress recognized that agents would not have the same privileges as attorneys, and no appellate court or legislature has created an agent-client privilege. An attorney-client-like privilege should not apply merely because someone is enabled to practice limited law before a single specific administrative agency. I dissent, because in the absence of a showing that there is a real need for a new privilege to be created, the need to ascertain the truth should prevail.
ULF Bamberg v. Jodi A. Dalvey, Fed. Cir. Case 2015-1548 (March 9, 2016)
This case arises out of consolidated interference proceeding between Bamberg and Dalvey. The claims at issue originated in four Dalvey patents that claim priority to an application filed September 9, 1999. Bamberg, believing that they had earlier invented the claimed methods, copied the Dalvey claims into four patent applications to provoke an interference. Bamberg's applications claim priority to a PCT application filed on June 1, 1999. To determine which party had priority of inventorship, the Board declared three interferences. As the junior party, Dalvey was required to prove an earlier priority date.
The involved claims disclose a method for the transfer of printed images onto dark colored textiles by ironing over a specialty transfer paper. The transfer paper generally contains: (1) a removable substrate coated with silicon, (2) a hot-melt adhesive, (3) a white layer, and (4) an ink-receptive layer. To use the transfer sheet, an image is first printed on the ink-receptive layer. The removable substrate is then peeled off and the remaining portion (the hot-melt adhesive, white layer, and the ink-receptive layer) is placed on the dark textile with the printed ink-receptive layer facing up. The user then places the removable substrate over the ink-receptive layer and applies heat with an iron which melts the hot-melt layer causing the white layer and the ink-receptive layer to adhere to the dark textile.
Dalvey filed a motion alleging that Bamberg's claims were unpatentable for lack of written description. Dalvey alleged that the copied claims recite a white layer that melts at a wide range of temperatures, but Bamberg's specification only discloses a white layer that does not melt at ironing temperatures (i.e., below 220°C). Therefore, Bamberg's specification failed to meet the written description requirement because it does not disclose an invention in which the white layer melts at temperatures below 220°C.
The Board reviewed the claims in light of the Dalvey patent specification and concluded that the claims were not limited to a white layer that melts at or above 220°C, but rather the claims also include within their scope a white layer that melts below 220°C. After reviewing Bamberg's specifications, the Board granted Dalvey's motion, finding that Bamberg failed to provide an adequate written description of a white layer that melts below 220°C. Because the written description requirement is a threshold issue, the Board did not decide Dalvey's remaining motions.
The Construction of "White Layer" Is Affirmed
Bamberg urges us to find that the Board erred in its claim construction by improperly importing a functional limitation requiring the white layer to melt below 220°C. We review underlying factual determinations concerning extrinsic evidence for substantial evidence and the ultimate construction of the claims de novo. Teva Pharm. U.S.A., Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015).
Because this is an interference, and Bamberg copied Dalvey's claims, we give the claims their broadest reasonable construction in light of the Dalvey specification. Under the broadest reasonable interpretation, the Board's construction cannot be divorced from the specification and the record evidence, and must be consistent with the one that those skilled in the art would reach. The Board analyzed the scope of the contested claims based on Dalvey's specification and concluded that the "white layer" does not have a minimum melting temperature. Bamberg asserts that the Board improperly imported a limitation into the claims and, instead, the Board should have concluded that the "white layer" is simply "a white layer that remains opaque after application."
Dalvey's specification defines "white layer" as "a layer on a transfer sheet positioned between a release layer and a receiving layer. The white layer imparts a white background on a dark substrate." The specification discloses embodiments in which the white layer melts at a number of different temperatures. We find no error in the Board's conclusion that the broadest reasonable interpretation of "white layer" includes within its scope a white layer that melts at temperatures both above and below 220°C.
Substantial Evidence Supports the Holding that Bamberg
Did Not Possess a White Layer that Melts Below 220°C,
So Bamberg's Specification Fails to Meet the Written Description Requirement
Bamberg disputes the Board's determination that the specification failed to provide adequate written support under 35 U.S.C. § 112. To satisfy the written description requirement, the specification must sufficiently describe an invention understandable to a person of ordinary skill in the art and show that the inventor actually invented the invention claimed. Satisfying the written description requirement is a question of fact that we review for substantial evidence.
Because the contested claims are properly construed in light of Dalvey's specification to encompass a white layer that melts above and below 220°C, Bamberg's specification must also support a white layer that melts above and below 220°C to satisfy the written description requirement. Substantial evidence supports the determination that Bamberg's specification fails to meet the written description requirement.
The white background layer in Bamberg's specification "comprises or is composed of permanently elastic plastics which are non-fusible at ironing temperatures (i.e. up to about 220°C) and which are filled with white pigments—also non-fusible (up to about 220°C)." The specification clarifies that the "elastic plastics must not melt at ironing temperatures in order not to provide with the adhesive layer. . . . an undesired mixture with impaired (adhesive and covering) properties." Additionally, Ulf Bamberg testified that "we came to understand that clarity and resolution are decreased where the white background layer is permitted to melt . . . . Accordingly, we developed a white background layer that nonetheless formed a strong bind with the ink-receiving layer but did not melt at conventional iron-pressing temperatures (i.e., that is temperatures up to about 220°C)."
Consequently, we find that Bamberg does not possess a white layer that melts below 220°C because it specifically distinguished white layers that melt below 220°C as producing an "undesired" result. Even Mr. Bamberg's testimony confirms that his invention did not include a white layer that melted below a threshold of 220°C so as to not decrease the clarity and resolution of the final image.
Because substantial evidence supports the Board's conclusion that Bamberg did not possess a white layer that melts below 220°C, Bamberg's specification fails to meet the written description requirement.
The Court Did Not Abuse its Discretion in Denying Bamberg's Motion to Amend
Finally, Bamberg also appeals the Board's denial of its motion to amend. During the interference proceeding, Bamberg moved to amend the claims of its applications in response to Dalvey's motion alleging lack of written description support. A party seeking to add or amend a claim has the burden of establishing that the amended or new claim is supported by an adequate written description. See 37 C.F.R. § 41.121(b) The PTO has determined that, in the context of interference proceedings, this burden is best satisfied with a claim chart. 37 C.F.R. § 41.110(c).
We review a Board decision pursuant to the permissive rules governing a patent interference proceeding for abuse of discretion. Here, Bamberg did not provide a claim chart—the principal means for determining if Bamberg satisfied its burden of establishing that the proposed amended claims were supported by an adequate written description—and thus failed to comply with the regulations governing interference proceedings. The Board denied the motion after concluding that Bamberg's failure to provide a claim chart improperly shifted to Dalvey the burden of establishing that the amended claim is not supported by an adequate written description. We find that the Board's decision to deny the motion for failing to comply with its interference regulations, which improperly shifted the burden, is not an abuse of discretion.
In re Samir Varma, Fed. Cir. Case 2015-1667 (March 10, 2016)
These two appeals involve a '291 patent naming Samir Varma as the inventor and owned by InvestPic LLC (collectively, Varma). The patent describes and claims systems for performing statistical analyses of investment data. The PTAB cancelled certain claims of the '291 patent in two related reexamination proceedings filed by IBM and SAS. Varma's appeals center on two claim phrases: (1) a "bias parameter" that "determines a degree of randomness in sample selection in a resampling process"; and (2) "a statistical analysis request corresponding to two or more selected investments." We agree with Varma that the Board erred regarding both claim phrases. Correcting the first error, we reverse the cancellation of claims 1-5, 8-16, 19-21, and 24. Correcting the second error, we vacate the cancellation of claims 22, 23, 25, and 29-31 and remand for further proceedings on those claims.
The '291 patent's Summary of the Invention states that "the present invention utilizes resampled statistical methods for the analysis of financial data," which does not necessarily follow a normal probability distribution. Claim 1, amended during reexamination, is representative, for present purposes, of the claims that include the "bias parameter" limitation:
1. A method for calculating, analyzing and displaying investment data comprising the steps of:
(a) selecting a sample space, wherein the sample space includes at least one investment data sample;
(b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in sample selection in a resampling process; and,
(c) generating a plot of the distribution function.
Claim 22, also amended during reexamination, involves a request concerning two or more investments:
22. A system for providing statistical analysis of investment information over an information network comprising:
a financial data database for storing investment data;
a client database;
a plurality of processors collectively arranged to perform a parallel processing computation, wherein the plurality of processors is adapted to:
receive a statistical analysis request corresponding to [a] two or more selected investments;
based upon investment data pertaining to the two or more selected investments, perform a resampled statistical analysis to generate a resampled distribution; and,
provide a report of the resampled distribution.
IBM and SAS filed a request for inter partes reexamination of claims 1-31 of the '291 patent—claims lacking the language underlined in the quotations just above. IBM and SAS argued in the reexamination request that the claims are anticipated by each of two prior-art references, Sortino and Barraquand, and in any event rendered invalid for obviousness by those references, with or without additional references.
The examiner granted the request for inter partes reexamination as to many of the claims and then rejected all of those claims for anticipation by Sortino or for obviousness over Sortino in view of other references. In response, InvestPic amended claims 1 and 11 to clarify that "the bias parameter determines a degree of randomness in sample selection in a resampling process." But after considering the amendment, the examiner again rejected the claims on the same bases. On appeal, the Board affirmed the rejections.
After the examiner had granted the request for inter partes reexamination, SAS requested an ex parte reexamination of claims 22-31. The examiner granted the request for reexamination of claims 22-28, then confirmed the validity of claims 26-28 but rejected claims 22-25 (when lacking the underlined language) for obviousness over the combination of Sortino, Barraquand, and the prior-art patent Maggioncalda.
Varma then amended claims 22, 24, and 25 by rewriting claims 24 and 25 in independent form, adding the above-underlined language regarding "two or more selected investments" to claims 22 and 25, and specifying that the bias parameter of claim 24 (applicable even to a single investment) "determines a degree of randomness in sample selection in a resampling process." The examiner entered the amendments and again rejected claims 22-25 for obviousness over Sortino, Maggioncalda, and Barraquand.
Varma appealed to the Board, arguing that because the bias parameter of claim 24 "cannot be construed as merely biasing in general, or biasing the randomness of something else outside of sample selection in the resampling process itself," Sortino does not disclose the requisite bias parameter. Varma also argued that Sortino does not teach a resampled analysis of two or more investments as required by claims 22, 23, and 25. The Board agreed with the examiner on both points.
Varma appeals under 35 U.S.C. § 141(b), challenging the Board's rejection of claims 1-5, 8-16, 19-25, and 29-31.
The Board's Construction of "Bias Parameter" Is Erroneous
Varma's first challenge is to the Board's understanding of the "bias parameter" as used in claim 1 and other claims. We agree with Varma that there is only one reasonable meaning of the claim language, considered alone and in light of the specification: the bias parameter is used in selecting samples from the sample space, not in creating a sample space, and not in making arithmetic combinations of statistical measures previously calculated from separate, resampled analyses. The claim language makes this clear. It explicitly states that the bias parameter "determines a degree of randomness in sample selection in a resampling process." Claim 1 clearly differentiates between "selecting a sample space," which occurs in step (a), and "sample selection," which occurs in step (b). The bias parameter is applied in sample selection in step (b), not in step (a)'s creation of a sample space. And "sample selection" is complete before any process of taking calculated statistical results of several distinct sampling processes and combining those measures in a preferred way.
The specification reinforces the distinctions that are clear in the claim language, as does the reexamination prosecution history.
Application of the Proper Construction of "Bias Parameter" Requires Reversal of the Sortino Rejection
Given the proper understanding of the bias-parameter limitation, the Board's rejection of claims 1-5, 8-16, 19-21, and 24 must be reversed. The Board's rulings in both reexamination proceedings rely solely on Sortino for this limitation, "finding that Sortino teaches the application of bias after an initial selection by application of the various enumerated scenarios." But Sortino does not teach or suggest biasing how samples are selected from a defined sample space to arrive at a resampling-based measure for that sample space.
Sortino allows for the introduction of bias in two ways: (1) by sorting the data into seven economic scenarios to perform separate bootstrap analyses of each scenario; and (2) weighting the individual results of the separate bootstrap analyses for the seven scenarios to produce a combined distribution. Neither option biases the selection of samples in the resampling process as required by the claims. First, Sortino is clear that once a scenario is created, all selection of samples from that scenario is random, not biased. Second, the post-bootstrap weighting of scenarios similarly does not change the selection of samples from a sample space, and therefore is not the result of the application of a bias parameter within the meaning of the '291 patent. And none of the expert declarations, all of which were submitted before the clarifying claim amendments, supports finding that Sortino biases the selection of samples from the sample space when performing a resampling process.
Finally, we note that the Board did not find, and we have not been shown, that Sortino's process—which sorts data into seven economic scenarios, performs a random bootstrap analysis on each individual scenario, and then allows for arithmetic combination of measures separately derived for each of the scenarios—is mathematically equal to applying a bias in choosing samples from a sample space to create bootstrap samples. We therefore need not decide whether such a showing, if made, would matter to the analysis. Therefore, we conclude that Sortino does not disclose a bias parameter that operates on the selection of samples from a sample space in a resampling process.
The Board's Construction of "a Statistical Analysis …" Is Also Erroneous
Varma also challenges the Board's understanding of "a statistical analysis request corresponding to two or more selected investments," as required by claim 22 and other claims.In finding this claim limitation met by Sortino, the Board implicitly relied on two related but different interpretations. In Interpretation 1, the claim phrase embraces a request that calls for a statistical analysis of a single investment. Thus, the Board reasoned that Sortino is covered by the claim even if "two requests would be necessary in the Sortino system to accomplish an analysis of 'two or more investments.'" In Interpretation 2, the claim phrase embraces a request that calls for statistical analyses of at least two investments, but each analysis may be an analysis of a single investment, and the single investment analyses may take place seriatim. Thus, the Board agreed with the examiner that there is no "temporal limitation from [the] claims indicating that 'two or more investments' are analyzed at the same time." We conclude that both interpretations are unreasonable.
The error of Interpretation 1 is plain from the claim phrase at issue. The phrase requires "a statistical analysis request corresponding to two or more selected investments." That language on its face excludes Interpretation 1. A single request must correspond to at least two investments.
The Board relied on the claims' use of "comprising" as the transitional term, but that term does not support Interpretation 1. Although the transitional term "comprising" indicates that the claim is open-ended, the term does not render each limitation or phrase within the claim open-ended. "Comprising" means that the claim can be met by a system that contains features over and above those specifically required by the claim element, but only if the system still satisfies the specific claim-element requirements: the claim does not cover systems whose unclaimed features make the claim elements no longer satisfied. Thus, here, a claim-covered system may receive more than one request, but it must in particular be adapted to receive "a request" that itself corresponds to two or more selected investments.
The Board also cited the indefinite article "a" before "statistical analysis request" to support Interpretation 1. But while "a" sometimes is non-restrictive as to number, permitting the presence of more than one of the objects following that indefinite article, context matters even as to whether the word has that meaning. And here the question is not whether there can be more than one request in a claim-covered system: there can. Rather, the question is whether "a" can serve to negate what is required by the language following "a": a "request" (a singular term) that "corresponds" to "two or more selected investments." It cannot. For a dog owner to have "a dog that rolls over and fetches sticks," it does not suffice that he have two dogs, each able to perform just one of the tasks. In the present case, no matter how many requests there may be, no matter the variety of the requests the system may receive, the system must be adapted to receive a request that itself corresponds to at least two investments.
While the language of the "a statistical analysis request" phrase itself makes clear the unreasonableness of Interpretation 1, it is other claim language—specifically, language in claim 22 —that makes Interpretation 2 unreasonable as an understanding of the "a statistical analysis request" phrase. Claim 22 requires that the plurality of processors be adapted not only to "receive a statistical analysis request corresponding to two or more selected investments," but also to do these additional things: "based upon investment data pertaining to the two or more selected investments, perform a resampled statistical analysis to generate a resampled distribution; and provide a report of the resampled distribution." The reference to "the two or more selected investments" is to the immediately preceding "a statistical analysis request" language. A single resampled statistical analysis must be performed based on data pertaining to those two or more investments. A single resampled distribution must be generated by that analysis, and the single distribution must be reported. The interlocking of singulars in that language makes it unmistakable that at least two investments must be the subject of each statistical analysis that is the subject of the request in the claim phrase at issue. For those reasons, the language of claim 22 precludes Interpretation 2 for those claims.
The amendment history of the claims reinforces the conclusion that Interpretation 2 is unreasonable: Varma specifically argued against that interpretation in both proceedings based on the language at issue. After the unamended claims 29-31 were rejected in the inter partes reexamination, Varma amended claim 29 to add "corresponding to two or more selected investments." In doing so, Varma invoked that language to distinguish Sortino, arguing that "all of Sortino's analyses were based upon a single asset at a time." Similarly, Varma amended claims 22 and 25 in the ex parte reexamination in response to the examiner's rejections based on the examiner's implicit adoption of Interpretation 2: the examiner found that a request step in Sortino was "implicit, or at least obvious, because various analyses on S&P 500 were actually performed." Varma added the two-or-more investments limitation and argued that "Sortino disclosed a statistical analysis request corresponding only to a single investment or asset category."
We conclude that the Board relied on unreasonable interpretations of claim language in claims 22, 23, 25, and 29-31. The proper remedy, we also hold, is to vacate the Board's rejections of those claims for reconsideration of anticipation and obviousness under the correct claim construction.
The Board's Construction of "Resampled Statistical Analysis" Was Correct
Varma challenges the Board's understanding of "resampled statistical analysis," a term that appears in all claims at issue. Varma suggests that the term refers to "a statistical analysis using resampling of data involving multiple investments for multiple time periods, wherein the interrelationships in the financial data are preserved." That proposed construction goes far beyond the language supposedly being construed, which refers to a statistical technique that indisputably may be used for analysis outside the financial context altogether and, indeed, may be used for single-investment analysis, as many of the patent claims at issue here make clear. We reject Varma's narrowing construction of "resampled statistical analysis."
In re Ray Smith, Fed. Cir. Case 2015-1664 (March 10, 2016)
Applicants appeal the decision of the rejection of the claims 1-18 of the '410 patent application for claiming patent-ineligible subject matter under 35 U.S.C. § 101. Representative claim 1 recites:
1. A method of conducting a wagering game comprising:
a) a dealer providing at least one deck of . . . physical playing cards and shuffling the physical playing cards to form a random set of physical playing cards;
b) the dealer accepting at least one first wager from each participating player on a player game hand against a banker's/dealer's hand;
c) the dealer dealing only two cards from the random set of physical playing cards to each designated player and two cards to the banker/dealer such that the designated player and the banker/dealer receive the same number of exactly two random physical playing cards;
d) the dealer examining respective hands to determine if any hand has a Natural 0 count from totaling count from cards, defined as the first two random physical playing cards in a hand being a pair of 5's, 10's, jacks, queens or kings;
e) the dealer resolving any player versus dealer wagers between each individual player hand that has a Natural 0 count and between the dealer hand and all player hands where a Natural 0 is present in the dealer hand, while the dealer exposes only a single card to the players;
f) as between each player and the dealer where neither hand has a Natural 0, the dealer allowing each player to elect to take a maximum of one additional card or standing pat on the initial two card player hand, while still having seen only one dealer card;
g) the dealer/banker remaining pat within a first certain predetermined total counts and being required to take a single hit within a second predetermined total counts, where the first total counts range does not overlap the second total counts range;
h) after all possible additional random physical playing cards have been dealt, the dealer comparing a value of each designated player's hand to a final value of the banker's/dealer's hand wherein said value of the designated player's hand and the banker's/dealer's hand is in a range of zero to nine points based on a pre-established scoring system wherein aces count as one point, tens and face cards count as zero points and all other cards count as their face value and wherein a two-digit hand total is deemed to have a value corresponding to the one's digit of the two-digit total;
i) the dealer resolving the wagers based on whether the designated player's hand or the banker's/dealer's hand is nearest to a value of 0.
The examiner rejected claims 1-18 as directed to patent-ineligible subject matter under § 101, applying the machine-or-transformation test described in Bilski v. Kappos, 561 U.S. 593 (2010). The examiner concluded that the claims represented "an attempt to claim a new set of rules for playing a card game," which "qualifies as an abstract idea." On appeal, the Board affirmed the rejection, applying the two-step test outlined in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), which had been decided in the interim. Applying step one, the Board determined that "independent claim 1 is directed to a set of rules for conducting a wagering game which constitutes a patent-ineligible abstract idea." Applying the second step, the Board concluded that "shuffling and dealing cards are conventional in the gambling art," and as such, "do not add enough to the claims" to render them patent eligible.
Section 101 defines patent eligible subject matter as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." "This provision contains an implicit exception. Laws of nature, natural phenomena, and abstract ideas are not patentable." Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012).
To determine whether an invention claims ineligible subject matter, we apply the two-step test introduced in Mayo, and further explained in Alice. First, we determine whether the claims at issue are directed to a patent-ineligible concept. Second, we examine the elements of the claim to determine whether it contains an inventive concept sufficient to "transform" the claimed abstract idea into a patent-eligible application.
On the first step, we conclude that Applicants' claims, directed to rules for conducting a wagering game, compare to other fundamental economic practices found abstract by the Supreme Court. As the Board reasoned here, "a wagering game is, effectively, a method of exchanging and resolving financial obligations based on probabilities created during the distribution of the cards." In Alice, the Supreme Court held that a method of exchanging financial obligations was drawn to an abstract idea. Likewise, in Bilski, the Court determined that a claim to a method of hedging risk was directed to an abstract idea. Here, Applicants' claimed "method of conducting a wagering game" is drawn to an abstract idea much like Alice's method of exchanging financial obligations and Bilski's method of hedging risk.
Moreover, our own cases have denied patentability of similar concepts as being directed towards ineligible subject matter. See OIP Techs., Inc. v. Amazon.com, Inc., 788 F.3d 1359 (Fed. Cir.) (finding offer-based price optimization abstract), cert. denied, 136 S. Ct. 701 (2015); Planet Bingo, LLC v. VKGS LLC, 576 F. App'x 1005 (Fed. Cir. 2014) (determining that methods of managing a game of bingo were abstract ideas). In light of these cases, we conclude that the rejected claims, describing a set of rules for a game, are drawn to an abstract idea.
Our inquiry, however, does not end there. Abstract ideas may be patent eligible if they contain an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application. Alice (quoting Mayo). But appending purely conventional steps to an abstract idea does not supply a sufficiently inventive concept. The claims here require shuffling and dealing physical playing cards, which Applicants argue bring the claims within patent-eligible territory. We disagree. Just as the recitation of computer implementation fell short in Alice, shuffling and dealing a standard deck of cards are "purely conventional" activities. We therefore hold that the rejected claims do not have an inventive concept sufficient to transform the claimed subject matter into a patent-eligible application of the abstract idea.
That is not to say that all inventions in the gaming arts would be foreclosed from patent protection under § 101. We could envisage, for example, claims directed to conducting a game using a new or original deck of cards potentially surviving step two of Alice.
Finally, we cannot address Applicants' argument that the PTO's 2014 Interim Guidance on Patent Subject Matter Eligibility ("Interim Eligibility Guidance") exceeds the scope of § 101 and the Supreme Court's Alice decision. As the Interim Eligibility Guidance itself states, it "is not intended to create any right or benefit, substantive or procedural, enforceable by any party against the Office." Thus we decline to consider Applicants' argument regarding the Interim Eligibility Guidance.