INVENTIVE STEP

On Monday, the Supreme Court heard oral argument in Microsoft v. i4i regarding the appropriate burden of proof for challenging issued patents.  A transcript of the argument is available here.  I have previously summarized the issues in the case.  Many others have already posted summaries and impressions of the argument.  I simply seek to add some of my thoughts on the issues here.

Many groups and individuals, such as UCLA Law Professor Doug Litchman in a New York Times editorial, suggest that the issues are very simple.  Patent examiners cannot rightfully be characterized as experts because they are overworked and under-informed.  Way too many bad patents are being issued.  All bad patent stifle innovation and the economy.  Thus, there should be no deference accorded to the work of patent examiners.

Although I’m not sure that Professor Litchman has the experience to provide an expert opinion on what exactly happens during patent prosecution, that is beside the point.  The issue is clearly more complex than he presents.

During argument at the Supreme Court, Justice Breyer seemed to want to focus almost exclusively on the issue of bad patents and the harm they cause.  He seemed to dismiss concerns on the opposite side raised by Seth Waxman, arguing for i4i, about legitimate patents that have been granted by the PTO being improperly invalidated by lay juries.

Other members of the Court seemed to take a more nuanced approach to the issues in the case.  One of the issues is the intent of Congress when it enacted the relevant statutory provision 35 U.S.C. § 282:

A patent shall be presumed valid. . . . The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.

The legislative history of this section seems to indicate that Congress sought to codify existing Supreme Court standards of proof when it enacted this law in 1952.  Supreme Court precedent before, and lower court precedent after, 1952 were anything but crystal clear.  Only once the Federal Circuit took over reviewing patent decisions did it standardize the burden of proof to clear and convincing evidence.

During argument in i4i, there was a great deal discussion about Justice Cardozo’s 1934 opinion in RCA v. Radio Engineering Labs.  In that case, Justice Cardozo appears to have set forth a high burden for invalidating a patent (“a heavy burden of persuasion”).  Microsoft’s attorney, Thomas Hungar, tried to distinguish that case, but the Court seemed to give it a great deal of weight.

Another issue in the case, initially alluded to by the Court in dicta in KSR, is that there doesn’t seem to be any justification for a heightened burden when using evidence that was not previously considered by the administrative agency.  This could create a dual-burden regime where invalidity must be proven by clear and convincing evidence when evidence was considered by the PTO and by a preponderence of the evidence when it was not.

The government, arguing in support of i4i’s position, suggested that this approach would be unworkable.  First, it would require the jury to make an initial finding as to whether the evidence was previously considered by the PTO and, if not, whether it is more pertinent to prior art that was considered.  Then, it would need to apply two different standards of proof to various evidence presented in the case.  When multiple prior art references are considered, the jury may need to apply different evidentiary standards to each.  Neither party was aware of any other area of administrative law having multiple burdens of proof.

The Federal Circuit’s current approach is much more workable and errs in favor of deference to the expertise of the Patent Office.  All challenges to issued patents must be proven by clear and convincing evidence.  If some particular evidence was not previously considered by the PTO, this evidence could be weighed more heavily than evidence that was reviewed by the agency.

Justice Breyer did cite positively to the AIPLA’s brief where it noted that the burdens of proof apply to facts and not to the underlying decision.  Under current law, to prove invalidity, facts supporting such a finding must be proven by clear and convincing evidence.  The ultimate conclusion of invalidity is a legal determination made by the court.  Although this is a legitmate distinction that has been countenanced by the courts, in practice, juries are usually simply asked whether the patent claim is invalid under one or more provisions of the Patent Act.

The Chief Justice has recused himself from this case.  A decision by the Court is expected by the end of the current term in June.

On April 18, the Supreme Court will hear arguments in Microsoft v. i4i regarding the proper burden of proof for challenging the validity of an issued patent.  I previously covered the issues in this case, including the meaning of the various standards of proof discussed below.

Last week, the US Government filed an amicus brief where it, somewhat surprisingly, sided with the respondent that the burden to challenge a patent should be clear and convincing evidence, regardless of whether the prior art had been previously considered by the patent examiner.

United States Brief

The Solicitor began the brief by arguing that § 282′s presumption of validity merely codified Supreme Court precedent prior to enactment of the 1952 Patent Act that required a higher standard of proof than a preponderance to overturn an issued patent.  The prior Supreme Court decisions cited in the brief refer to the challenge of a patent as a collateral attack on the agency’s decision to grant the patent.  Thus, principles of administrative deference require a heightened standard of proof.

The next argument is that permitting a lay jury de novo review of the PTO’s decision to grant the patent is inconsistent with administrative law principles.  The patent examiner, having expertise in the field of the invention, conducts fact-finding pursuant to the PTO’s statutory authority.  The heightened standard to challenge the issued patent supports the theory of the PTO’s expertise, which the lay jury clearly does not possess.

The Solicitor then rebuts the petitioner’s argument of PTO bias in the examination process in favor of patent applicants.  To take this argument to the extreme, why have a PTO examination process at all?  Why not simply issue all patent applications and let challengers fight them in court?  Congress has made the determination that ex parte patent application proceedings strike the proper balance between agency resources and protection of the public interest.

Patents create property interests on which patent owners and the public rely.  Many parties invest significant money on innovation and the patenting process.  In return for the inventor’s disclosure of the invention, he may be granted a patent if the PTO determines that the application meets the statutory standards.  To permit a jury, whose decision is granted deference on appeal, the ability to overturn the agency decision on a mere preponderance of the evidence, would disrupt this reliance and perhaps cause less investment in and disclosure of inventions.  The agency’s decision should only be overturned if it is clearly erroneous.

When a party challenges the validity of a patent, it has the choice to present the evidence of invalidity in a court proceeding or in a reexamination proceeding before the PTO.  Courts, unlike the PTO during a reexamination proceeding, do not have the ability to permit amendments or narrowing of a patent claim.  Thus, there is the lower burden of establishing invalidity in a reexamination proceeding that requests the agency to reconsider its own decision.  This justifies the higher burden of proof for challenging the patent in court even when the prior art had not been previously considered by the PTO. 

Reexamination proceedings should be encouraged as an alternative to litigation.  The lower burden of proof is one way Congress has chosen to do so.

Furthermore, having different burdens of proof for evidence that was considered by the patent examiner and that which was not puts the jury in a position to second-guess the PTO.  Difficult questions may arise as to whether the evidence is actually different or is merely cumulative of what the examiner did consider.  It also requires the jury to determine what the examiner would have or should have done when confronted with the evidence.

Any changes to the settled standards of proof for patent challenges should be made by Congress and not by the Court.

The Court’s Options

It is generally accepted that the Supreme Court has three options for this case. 

First, it could affirm the Federal Circuit and continue to require all challenges to issued patents to be by clear and convincing evidence.  This seems unlikely.

Second, it could change the standard to permit all challenges to be proven by a preponderance of the evidence.  If it goes this route, what does the statutory presumption of validity mean? 

Third, it could take a hybrid approach.  For prior art that was considered by the patent examiner, the burden would remain clear and convincing evidence.  For all “new” evidence, the standard would only be a preponderance of the evidence.

While this third option seems like the fairest and most logical approach, it is also the one that has the greatest unintended consequences.  Under US law, patent applicants have no requirement of performing a search of the prior art before or during the patenting process.  If the applicant, patent attorney, or others that are substantively involved in the prosecution have knowledge of prior art or other evidence that is material to the patentability of a pending claim, they have the duty to disclose this evidence to the PTO.  There is an exception, however, if the evidence is cumulative to evidence already of record.

What do you think will happen if the Supreme Court chooses this hybrid burden approach?  Patent applicants will obviously have an incentive to flood the patent examiner with prior art references, whether or not the applicant believes them to be relevant to patentability.  This will significantly increase the burden on an examination process that is already time-crunched.  It will also place the burden on juries to determine whether the evidence was not considered because it is cumulative.

A Fourth Approach

A group of law, business, and economics professors has suggested yet another approach.  They recognize that the hybrid burden suggested above would cause a flood of submissions to the PTO.  Thus, they suggest that the clear and convincing standard should only apply to “prior art or arguments actually discussed in writing by a patent examiner in an office action.”  Their brief does suggest that applicants can also discuss specific references on the record at their own behest to get the higher burden of proof.  In effect, a small percentage of references considered by the examiner during prosecution actually reach the level of discussion on the record or use in a rejection.  Thus, the proposal seeks to limit the higher burden to those few instances.

This proposal, unfortunately, does not live in the real world.  First, it basically renders irrelevant any prior art that applicants must now submit to fulfill their duty of disclosure to the PTO.  Why should applicants bother to or be required to submit references to the PTO if we assume that the references are ignored by the patent examiner?  Why not just do what a number of countries, including the EPO, do and not require any applicant submissions?

Next, the proposal seeks to encourage applicants to discuss references on the record that are not raised by the patent examiner.  This is actually a good suggestion provided that we eliminate most of the Federal Circuit’s jurisprudence on the issue.  The risk of estoppel, inequitable conduct, unintended claim construction, and frankly malpractice is simply too great to take this suggestion seriously.

There is no question that patent examination could be conducted in a better and more efficient and focused manner if applicants felt free to have frank discussions on the record with the patent examiner.  The Federal Circuit has done too much, however, to discourage this type of free exchange.  It simply won’t happen.

The professors even want their proposal enacted retroactively.  They suggest that applicants who relied on the current regime to obtain their patents and now desire the higher burden for challenging their patents could simply file reissue applications or requests for reexamination of their patents. 

This argument is a red herring.  Under the law, a reissue application can only be filed to correct an error in a patent.  An applicant should argue that the error in his patent is that he didn’t discuss references on the record that the patent examiner didn’t consider to be relevant enough to the patent to use to reject the claims in an office action?  Reexamination requires a substantial new question related to patentability.  If the prior art is already of record, the applicant must now argue that it does constitute a new question?  Are you serious?  This would be suicide for the patent.

Conclusion

Because the PTO has, justifiably or not, been getting a lot of bad press for issuing “bad” patents, the Supreme Court will probably feel obligated to change the burden of proof for challenging an issued patent.  And naturally, they would not have agreed to hear the case if they didn’t intend some change.  The question is, what will it be?

I sympathize with the difficulty in challenging patents and see merit in the view that the examiner’s expertise should not warrant the higher standard for prior art not considered during prosecution (by considered, I mean submitted or found by the examiner, not that the art had to be actually discussed on the record).  The consequences of this change, however, will significantly alter the patent process, both during prosecution and during later litigation.

The Chief Justice has recused himself from this case, so it will be heard by the other 8 justices.  A decision is expected by the end of the Court’s term in June.  i4i has collected the various briefs and other documents in the case here.

A defense to a claim of patent infringement is that the patent is invalid for failure to comply with one or more sections of the Patent Act.  These provisions include lack of novelty, obviousness, or violation of the written description or enablement requirement.  An accused infringer may have a patent claim declared invalid by a court for violation of these provisions.

Yet, the Patent Act also contains a provision that would seemingly help the patent owner.  “A patent shall be presumed valid.”  35 U.S.C. § 282.  What exactly does that mean?  The courts have interpreted this statutory provision to mean that, in order for a challenger to prove that a patent is invalid for violating one of the provisions of the Patent Act, he must make such proof by clear and convincing evidence.

Standards of Proof

In the law, there are a number of standards of proof that are used in particular cases.  In criminal cases, the prosecution must prove the elements of a crime were committed by the accused “beyond a reasonable doubt.”  This generally means that the trier of fact (the court or the jury) is convinced of the truth of the facts to the point where it would be unreasonable to doubt their veracity. 

In most civil cases, including patent infringement, the party seeking to prove a fact must do so by a “preponderance of the evidence.”  This means that the trier of fact must be convinced that the facts are more likely true than not true.

In a few instances, such as when attempting to prove that a patent claim is invalid, the party seeking to prove a fact must do so by “clear and convincing evidence.”  This standard is a bit uncertain, but it is a higher standard than simply more likely than not; it does not, however, reach the level of beyond a reasonable doubt.  It has been defined as a “strong belief” in the truth of the fact.

Presumption of Validity

Why did Congress grant patents a presumption of validity?  Why must invalidity be proven by clear and convincing evidence?  The rationale behind this statutory provision is that the PTO is a Federal agency that has already passed on the validity of the patent claims.  Patent examiners are presumed to be experts in the subject matter of reviewing and granting patents.  Thus, for the initial Federal review by an expert to have any meaning, a challenger must present evidence that reaches a higher level than merely more likely than not.

For some time now, there has been a discussion as to whether this presumption of validity should only cover issues that were actually considered by the patent examiner and not to newly raised issues.  For example, should the presumption of validity cover prior art references (to prove the patent claim is not novel or is obvious) that were not found or considered by the patent examiner?  Or should invalidity based on previously undiscovered references be determined by the trier of fact on the more likely than not standard of review?

On the one hand, the patent examiner is presumed to have searched for and discovered the most relevant prior art.  Perhaps he found the prior art presented by the accused infringer as new, but didn’t consider it pertinent or material enough to consider it with respect to the patent claims.  Is it really newly discovered or not?  Should it matter if the PTO passed on the patent claims?  Should a court or jury be allowed to second-guess the PTO?

On the other hand, sometimes the expertise of the patent examiner is overblown.  We know that examiners have little time to review each patent application.  They couldn’t possibly discover every pertinent piece of prior art in the world.  Accused infringers have strong incentives to discover such prior art.  We shouldn’t hamstring the trier of fact by the higher standard of proof required to invalidate the patent.

Microsoft v. i4i

Yesterday, the Supreme Court granted certiorari in Microsoft v. i4i.  The Court will consider the question:

Whether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence.

The Federal Circuit, following long standing precedent, ruled that Microsoft was required to prove invalidity by clear and convincing evidence even when the prior art had not been considered by the patent examiner.  The prior art in this case being a sale made by i4i more than one year before it filed the patent application.

A number of parties filed amicus briefs where they urged the Supreme Court to review this case.  It seems likely that the Supreme Court will lower the standard of proof from clear and convincing evidence.  The main question the justices must decide then is:  what does the statutory presumption of validity mean?  Simply lowering the standard to a preponderance of the evidence would render the presumption of validity a nullity.

Is this case important?  How often will an accused infringer not be able to prove invalidity by the clear and convincing standard, but still be able to prove it by a preponderance of the evidence?  Do juries even understand the difference?  Does anyone?  Juries usually don’t indicate that they would find a patent invalid under the lower standard, but because they are constrained by the higher standard they don’t find it invalid.

The case is important because the presumption of validity and the higher standard of proof required provide a psychological barrier to invalidity arguments, especially for juries.  A ruling in Microsoft’s favor may indeed result in more patents being declared invalid in litigation.

The Court will hear arguments in the case in the spring.  A decision is expected by the end of the Court’s current term in June.  The Chief Justice recused himself from the case, so it will be decided by the remaining 8 justices.

This morning the Supreme Court granted certiorari in Global-Tech Appliances, Inc. v. SEB, S.A.

In February, the Federal Circuit affirmed a finding that the defendant induced infringement of a patent even though there was no evidence that the defendant had any knowledge of the patent.  Knowledge of the patent is generally an element of such a finding.  The court held that deliberate indifference to the whether a patent existed on a product that it had copied was sufficient to warrant the finding of infringement.

A number of bar associations and other groups filed amicus briefs supporting a petition that the entire Federal Circuit consider the case to clarify this area of the law that has been further confused by the Federal Circuit decision.  This petition was denied.

Now, it appears that the Suppreme Court has agreed to step in to rule on this area of the law.  The Court will hear the case during the current term with a decision expected by June 2011.

HT:  Hal Wegner

This morning, yet another Supreme Court session went by without a decision in Bilski v. Kappos.  With oral argument having occured on November 9, Bilski is now the oldest undecided case on the Supreme Court docket. 

Why is the Court having such a difficult time issuing an opinion in a patent case?  This is a Court that deals with First Amendment and death penalty cases that are a lot sexier than cases involving patent law.  What gives?

Justice Stevens

One theory that holds a lot of weight is that the opinion is being written by Justice Stevens who is retiring at the end of the term.  He is the only justice who has not written a majority opinion from arguments that took place in November.  Given the typical allocation of opinions, it would seem likely that he is writing the Bilski majority.

Justice Stevens wrote the majority opinion in Parker v. Flook in 1978.  In Flook, the Court reversed a lower court decision in holding a that a claim to a method for updating alarm limits in a catalytic converter was not patent eligible subject matter because the only novel feature of the invention was the use of a particular mathematical algorithm.  That case demonstrated a serious lack of understanding of patentable subject matter by conflating a § 101 argument with a §§ 102 and 103 novelty and obviousness argument.  Some have suggested that Justice Stevens may be trying to book-end his career with the opinions in Flook and Bilski.  To me, this seems to be giving patent law a great deal more weight than the Supreme Court typically does.

Other Possible Reasons for Delay

It has further been speculated that the Court is writing multiple opinions that are taking a great deal of time to review and respond to.  Perhaps there will be a great deal of concurrences and dissenting opinions.  While this is certainly possible, given the tenor of oral argument, it doesn’t seem particularly likely that the Court will be extremely fractured.

Another suggestion has been that, given the importance and gravity of the opinion to innovation and the economy, the Court is being extremely careful in the language used in the opinion.  This may certainly be true, but that doesn’t mean the opinion bodes well for patent owners and applicants.

Some are also suggesting that the Court will give an opinion prohibiting software patents.  There was certainly a great deal of discussion about patenting software at the oral argument, but, as the Federal Circuit recognized, this case does not concern software.  An opinion on patenting software in this case would be dicta in the least and an advisory opinion on the subject.

What’s Going to Happen?

The Supreme Court has two more scheduled sessions for this term:  Thursday, June 24 and Monday, June 28.  Although the Court could hold the case over until next term, this is still extremely unlikely.  We will probably get the opinion at one of the last two sessions of the Court.

I agree that it is likely that the opinion is being written by Justice Stevens.  Given his opinions in Flook, Diehr, and LabCorp., this bodes extremely poorly for the petitioner and for business method patents.  He may even be writing an extensive opinion that clearly prohibits all method patents in the fields of business and finance, possibly other methods as well, and yes, maybe even software.

Given this, chances are extremely good that Bilski is going to lose big.   The opinion is likely to be much worse than the Federal Circuit opinion.  Based on this likely outcome, why is Bilski continuing to pursue this appeal?  Does he really expect to win or is this merely for publicity purposes?

Perhaps others with business method patents should try to convince the petitioners to drop this case before the Supreme Court issues its opinion.

Each session of the Court without the opinion permits us to take a deep breath for a few more days, but it really appears that D-Day is approaching for business method patents.

For the second time in less than a year, there will be a vacancy on the U.S. Supreme Court.  Justice John Paul Stevens has announced that he will retire from the Court at the end of its current term.  Justice Stevens, who turns 90 on April 20, was appointed to the Court by President Gerald Ford in 1975. 

Justice Stevens is the second oldest man ever to serve as a Supreme Court justice, trailing only Justice Oliver Wendell Holmes, who was less than two months shy of his 91st birthday when he retired from the court in 1932.  Depending on the effective date of his retirement, he will be the second or third longest serving justice with a tenure of nearly 34 and a half years.  Justice William O. Douglas is the longest serving Supreme Court justice at 36 and a half years.

Impact on Intellectual Property Law

Justice Stevens wrote a number of important patent and intellectual property law opinions as a member of the Supreme Court.  Some of the highlights are listed below.

Justice Stevens authored the Court’s 6-3 1978 opinion in Parker v. Flook where the Court reversed a Court of Customs and Patent Appeals decision in holding that a claim to a method for updating alarm limits in a catalytic converter was not patent eligible subject matter because the only novel feature of the invention was the use of a particular mathematical algorithm.  The algorithm was a principle or law of nature that could not be patented.  The case has been rightly criticized for conflating the § 101 analysis with a prior art analysis under §§ 102 and 103.

Justice Stevens wrote a dissenting opinion in the Court’s 1981 6-3 opinion in Diamond v. Diehr.  In Diehr, the court held that the execution of a physical process, a method for curing rubber, controlled by running a computer program was patentable.  Justice Stevens’ dissent again seems to argue that because he did not believe the process to be novel, it does not contain patent eligible subject matter, another confusion of the issues.

He also joined Justice Breyer’s dissent in the LabCorp. case.

In other patent cases, Justice Stevens also wrote the Court’s opinion on the on-sale bar in Pfaff v. Wells in 1998.  In Pfaff, the Court clarified the standard that the invention must be “ready for patenting” before it can be barred as having been on-sale for more than a year.  He also wrote the opinion on patent misuse and anti-trust in Illinois Tool Works in 2006.  Justice Stevens dissented in Microsoft v. AT&T where the Court ruled that Microsoft was not liable for infringement under § 271(f) for shipping master disks overseas.

In the copyright arena, Justice Stevens wrote the opinion permitting time-shifting for “VTR’s” in the 1984 Sony decision.  He dissented from the Court’s opinion in Eldred v. Ashcroft where the Court permitted Congress’ extension of the copyright term.

Justice Stevens also wrote the opinion in the trademark dilution case Moseley v. Victoria’s Secret in 2003.

Professor Joe Miller of Lewis & Clark Law School has speculated that Justice Stevens may be writing the long-awaited decision in Bilski.   That does not bode well for patentees, considering his positions in Flook, Diehr, and LabCorp.

Who’s Next?

President Obama will get his second opportunity to nominate a member of the Supreme Court.  Although Justice Sotomayor has some experience with intellectual property, it is unlikely that IP will be a high priority in finding a successor.  Still, having some experience with intellectual property would make us less nervous when the Court reviews Federal Circuit decisions as it is now doing with some regularity.

The Supreme Court heard argument in Bilski v. Kappos on Monday.  The transcript is available here.  Many others have provided summaries; the following are my impressions of the argument.

Bilski’s Argument

As one would expect, the questioning seemed to be more extensive during the petitioner’s argument than during the government’s argument.  As feared, Chief Justice Roberts, and several others, had difficulty focusing on the statutory subject matter question and leaving aside whether the invention is novel and non-obvious.

CHIEF JUSTICE ROBERTS: Well, but your Claim 1 it seems to me is classic commodity hedging that has been going on for centuries. 

Justice Ginsburg asked several questions about a technological arts test.  She noted that they use such a test in Europe to exclude patenting of business methods, so maybe the US should do something similar.  The petitioner answered the question by noting the “technology” is specifically defined in the European statute to exclude business methods; such is not the case here.

Much of the petitioner’s argument focused on the fact that while industrial processes had been the most important innovations in the past, now information and electronic signals have overtaken machines as the new currency of business.  Justice Scalia asked why there weren’t patents on methods of training horses in the past when the US economy was based on horses.  Jakes answered that he didn’t know, but there may have been concerns with enforcement of such patents.

Interestingly, Justice Stevens noted an admiration for the late Federal Circuit Judge Giles Rich, who wrote the original State Street Bank opinion.  He inquired as to Judge Rich’s writings on these issues.  Jakes pointed him to that opinion and the In re Alappat opinion that noted that there is no statutory exception to patenting business methods.

Justice Breyer gave a rather lengthy diatribe on his take of the patent system.  He sees two positive and two negative results of patents.  The positive results are that by granting a monopoly, the patentee will produce more, and that the patentee must disclose the invention.  The negatives are that the patent results in monopoly pricing and that requiring others to get permission from the patentee to practice an invention slows or destroys further advances in the field.

Finally, at the conclusion of the petitioner’s argument, Justices Sotomayor and Scalia had a lengthy discussion with Jakes regarding the patentability of patents relating to Morse Code and telegraphy.

PTO’s Argument

Perhaps surprisingly, the PTO is seeking a narrow ruling in this case.  The PTO argued that they did not want the Supreme Court to use this case for a rule that all business methods, all software, all diagnostic methods are unpatentable.  Several of the justices seemed surprised by this position, they seemed to hope the PTO would go farther in its position.

Chief Justice Roberts demonstrated that he doesn’t fully understand computers or computer-implemented methods.  He seems to think that an interactive website where parties are matched together for a common transaction is no more than looking in the yellow pages.  Similarly, a computer programmed with new software to perform new functions is no more than using a calculator to perform the functions.

Finally, Justices Stevens, Kennedy, and Breyer tried to get the PTO to agree that the State Street Bank case should come out differently under the machine-or-transformation test.  They didn’t understand the PTO’s position that State Street did not involve a process, but instead involved a machine, a programmed computer.  These justices do not understand how a programmed computer can be a new machine; they believe that because a computer is old that only the novel process could make it patentable.  The PTO did not take this position.

Conclusion

It’s hard to make a prediction about how the case will come out based on the argument.  Some of the justices clearly espouse a view that patentability of these types of methods should be further limited, perhaps even limiting software patents.  On the other hand, there was also some discussion that the some justices do not want to foreclose patentability of future processes that are not yet known.  Thus, a narrower decision may be warranted.

A decision should be forthcoming in the spring of 2010, and in any event by the end of the current term in June.

This afternoon, the Supreme Court will hear arguments in Bilski v. Kappos which focuses on statutory subject matter and the patenting of business methods, software, and other similar inventions.  The Federal Circuit ruled that methods do not contain patentable subject matter unless they include a machine or there is a physical transformation involved.  It is hard to overestimate the importance of this case to the fields of business methods, software, diagnostic methods, and other inventions that do not include a tangible machine.

How do we predict what the outcome of the case will be at the Supreme Court?  And what is this case really about?

Briefs

Unfortunately, Bilski’s briefs are not overly helpful or persuasive for convincing the Court of Bilski’s position.  The opening brief quickly glosses over the statutory language of § 101 and instead argues that the Federal Circuit’s new test conflicts with the Supreme Court’s decisions in Gottschalk and Flook.  The brief then spends a great deal of time on the prior user defense of § 273.  The petitioner argues that Congress must have embraced business methods since this defense only applies to “methods of doing business.”

Next, Bilski argues that the Federal Circuit’s new test disrupts the expectations of thousands of patent-holders by effectively invalidating their patents based on the new test.  If change is needed, Congress should act, not the courts.  Bilski makes several other arguments that try to deal with so-called “silly” or “trivial” patents.  Finally, Bilski deals with the difficult issue of convincing the Court that its patent application is patentable.

In its brief, the PTO argues for a return to the “technological arts” test that was rejected by the Federal Circuit:  patentable suject matter should be limited to industrial and technological processes.  The PTO looks a bit at the history of “processes” under § 101 in reaching this conclusion.  The PTO then addresses several other tests that the Federal Circuit rejected and argues that all of them impose meaningful limits on patentable subject matter, including the Federal Circuit’s machine-or-transformation test.

In its reply brief, Bilski spends a great deal of time arguing that thousands of patents and patent applications are being invalidated under the guise of Bilski, by the Federal Circuit, district courts, and the PTO.

The Justices

We know that Justice Breyer was the author of and Justice Stevens joined the LabCorp. dissent that ridiculed the patents covering processes for diagnosing diseases at issue in that case.  The dissent specifically noted that the Federal Circuit’s “useful, concrete, or tangible result” test articulated in State Street Bank and overturned in Bilski was never reviewed by the Supreme Court and was contrary to Supreme Court precedent.  Thus, it seems unlikely Justices Breyer and Stevens would reverse the Federal Circuit’s decision in this case.

In eBay v. MercExchange, the Supreme Court ruled that injunctions should not issue as a matter of course when patent infringement is found, but instead the rules of equity should apply to such situations, just as in other areas of the law.  Several exchanges between the attorneys in that case and the justices may be enlightening to Bilski.  MercExchange claimed that the “Buy It Now” feature on eBay infringed its patents.  First, Chief Justice Roberts seemed to mock the invention during oral arguments.

CHIEF JUSTICE ROBERTS: Mr. Waxman, you mentioned, in — in responding to the suggestion that we’re dealing with a troll, you described — what exactly is the invention here?

MR. WAXMAN: The — the invention is a — it’s — it’s not a business method. It doesn’t claim methods. It claims a system, an apparatus for an electric market for the sale of goods via a network.

CHIEF JUSTICE ROBERTS: Electric. I mean, it’s not like he invented the, you know, internal combustion engine or anything. It’s very vague, I think, and this is one of the considerations the district court mentioned.  

WAXMAN: Look,  I’m not a software developer and I have reason to believe that neither is Your Honor, and I — I can’t — explain specifically what this claims. It’s laid out very carefully in –

CHIEF JUSTICE ROBERTS: I may not be a software developer, but as I read the invention, it’s displaying pictures of your wares on a computer network and, you know, picking which ones you want and buying them. I — I might have been able to do that.

(Laughter in the court.)

MR. WAXMAN: Well — I’ll say respectfully that that is not a fair characterization of the innovation here, the actual innovation.

eBay’s attorney referred to patentees’ success rates in the Eastern District of Texas.  Justice Scalia addressed this issue.

JUSTICE SCALIA: You know, I mean, that’s — that’s a problem with Marshall, Texas, not with the patent law. I mean, maybe — maybe we should remedy that problem.

MR. PHILLIPS: Well, I hope you do.

JUSTICE SCALIA: But I don’t think we should write — write our patent law because we have some renegade jurisdictions.

Chief Justice Roberts also took issue with the fact that the Federal Circuit has often ignored binding Supreme Court precedent.  Earlier this year, in Carlsbad Tech., Inc. v. HIF Bio, Inc., he had the following exchange during oral argument.

MR. RHODES: I can’t suggest what the Court might finally decide other than to say that — that, again, the circuit courts of appeal have uniformly applied this. They seem to be –

CHIEF JUSTICE ROBERTS: Well, they don’t have a choice, right? They can’t say, I don’t like the Supreme Court rule so I’m not going to apply it, other than the Federal Circuit.

(Laughter in the court.)

Justice Kennedy wrote a concurring opinion in eBay that was joined by Justices Breyer and Stevens.  In the concurrence, he took serious issue with patent holding companies that do not produce a product.

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… For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. 

During oral argument in Microsoft v. AT&T, Justices Breyer and Stevens questioned whether the Supreme Court had ever ruled that software is patentable, despite the Federal Circuit’s precedent that it is.

Justices Ginsburg, Thomas, and Alito have less of a track record to go on as to how they might rule on the case.  Justice Thomas rarely speaks during oral argument and Justices Ginsburg and Alito haven’t expressed strong opinions on the issues at stake.

The IP bar seems to believe that Justice Sotomayor will take a pro-IP stance on issues before the Court given her background in IP litigation.  This also seems less than certain however.

Conclusion

I am not overly optimistic that the Supreme Court will take us back to the pre-Bilski regime.  The way for Bilski to win this case is to argue to the conservative wing of the Court–Justices Scalia, Kennedy, Thomas, and Alito, and Chief Justice Roberts–that the case is really about statutory interpretation.  They simply need to look at the language of § 101 that permits patent for “any new and useful process, machine, manufacture, or composition of matter.”  There is no reference in the statute to machines or transformations and if any change is to be made, it should come from Congress, not the courts.  The other provisions of the Patent Act and a robust examination should keep silly patents from being issued.

If they instead turn this into a policy argument, or worse yet a patent law argument, they are going to have difficulty convincing the justices that patentees who have inventions that they don’t understand or that they don’t feel warrant protection should get patents.  The Court may not grasp the importance of the case.

Stay tuned . . .

I hope to provide an update after the argument.  I will be traveling Tuesday and Wednesday, so the update may not come until later this week.