Archive for the ‘Uncategorized’ Category

CLS Bank v. Alice Corp: Patentability of Software Rehearing En Banc

Sunday, October 14th, 2012

The Court of Appeals for the Federal Circuit will focus on the legal test for determining when a computer-implemented invention is an abstract idea in the forthcoming en banc rehearing of CLS Bank v. Alice Corp., (Fed. Cir. 2012).  The en banc panel will focus on two questions, as ordained by the en banc order:

  1. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?
  2. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?

 

At issue in CLS Bank are a number of patents that cover a computerized platform for eliminating settlement risk.  The majority held that the asserted claims were patent eligible when considered as a whole.  The majority opinion also applied a rule of recent origin in the Federal Circuit: Section 101 issues should only be addressed when subject matter ineligibility is “manifestly evident.”  Judge Prost wrote a strong dissent and asserted that the majority opinion ignored Prometheus and failed to use a valid test to make its determination.  The Supreme Court emphasized that abstract ideas are not patentable in Prometheus. Since software claims have been ruled to be abstract ideas in the past, the CLS Bank opinion will hopefully clarify the patentability of software inventions going forward.  It is doubtful, however, if that will be the case.

(Thanks to Kyle Helgemoe for his assistance in preparing this post.)

Akamai Technologies, Inc v. Limelight Networks, Inc.

Sunday, September 30th, 2012

In a case that no doubt closes a loop hole in enforcement of software patents, an en banc panel of the Federal Circuit has overruled BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, and made it much harder to avoid infringement by dividing the steps of a software invention among more than one party.

The court’s holding is twofold (and mirrors the twin disputes being resolved in this opinion);

Generally: All the steps of a claimed method must be performed in order to find induced infringement, but it is not necessary to prove that all the steps were committed by a single entity.

More specifically, the court held that

1. A defendant to a claim of induced patent infringement of a method claim may be held liable if the defendant has performed some of the steps of a claimed method and has induced other party or parties to commit the remaining steps; or
2. A defendant to a claim of induced patent infringement of a method claim may be held liable if a defendant induces other parties to collectively perform all the steps of a claimed method, but no single party has performed all the steps itself.

As such, the court holds that BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 is overruled. (Previously had held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement.)

Reasoning:

The majority’s holding is quite basic on its face, and as such, is potentially sweeping in nature. The en banc Court of Appeals for the Federal Circuit’s per curiam opinion holds that the scope of induced patent infringement under 35 U.S.C 271(b) and contributory patent infringement under 35 U.S.C. 271(c) are now widened in scope, so as to encompass those who aim to intentionally infringe, but have been able to distribute the parts of the infringing action so as to avoid committing direct patent infringement under 35 U.S.C. 271(a).
The court distinguishes direct and indirect infringement, and in so doing, elaborates that direct infringement would require that all the parties involved in an infringement must have an agency relationship between them (vicarious liability), but that this unity standard does not apply to indirect infringement. Instead, the court reasons that the induced infringer must be acting under the inducer’s direction or control to

“such an extent that the act of the induced party can be attributed to the inducer as a direct infringer; it is enough that the inducer causes, urges, encourages, or aids the infringing conduct and that the induced conduct is carried out.”

The court also expressly states that its decision is not predicated on the doctrine of direct infringement, and therefore it did not revisit the principles of divided infringement as it relates to direct infringement. The court then states somewhat enigmatically that

Induced infringement is in some ways narrower than direct infringement, and in some ways broader.

In order to mitigate worries that this new standard is too broad in nature, the court underscores the fact that unlike direct patent infringement, induced infringement is not a strict liability tort and it requires that the accused infringer act with knowledge that the induced acts constitute patent infringement. The majority feels this scienter requirement is sufficient to avoid unjust claims of inducement against innocent third parties.
In addition, the majority holds that

“Inducement gives rise to liability for induced patent infringement only if the inducement leads to actual infringement; there can be no indirect infringement without direct infringement.”

Reading the language of 271(a), this is not readily transparent at first glance. Still, the court highlights a contradiction in logic and common sense in the current state of the law.

“It would be a bizarre result to hold someone liable for inducing another to perform all of the steps of a method claim but to hold harmless one who goes further by actually performing some of the steps himself.”

Judge Newman, dissenting, stated that

“The majority’s theory is a spontaneous judicial creation. And it is wrong … neither the single-entity rule not the majority’s newly minted inducement-only rule is in accord with the infringement statute, or with any reasonable infringement policy.”

The second dissent, comprising four judges, took a more positivist jurisprudential angle, disagreed vigorously with the majority’s stance, finding no support in the statute, and therefore no leg to stand on in changing the nature of induced and contributory infringement. Judge Linn wrote

“The majority effectively rewrites these sections, telling us that the term “infringement was no, as was previously thought, defined by Congress in § 271(a), but instead can mean different things in different contexts”

Still, the majority’s broader and more results-oriented reasoning carried the day, thus substantially enlarging the patent protection in situations where the steps or apparatus of a claim are performed by multiple actors, and in particular, in the case of software patents. Time will tell if Congress or the Supreme Court will act to either confirm or reject this court’s reasoning and holding.

            Akamai initially sued Limelight in the District Court of Massachusetts on June 23, 2006.  Akamai claimed that Limelight and its customers jointly infringed claims of its patent, U.S. Patent No. 6,108,703.  Limelight argued that there was no joint infringement because, according to BMC Resources, joint liability may only be found when one party “controls or directs” the activities of another party.  However, the jury returned a verdict for Akamai and awarded lost profits and royalties.  Limelight moved for JMOL of noninfringement, which was initially denied.  Upon reconsideration in light of the Muniauction decision, the district court granted the JMOL motion of noninfringement.

            Akamai appealed the JMOL decision regarding noninfringement.  The Federal Circuit panel focused on the joint infringement rule, as established in BMC and Muniauction, that “there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.”  The panel found that the relationship between Limelight and its customers was not an agency relationship and the customers were not contractually obligated to perform the “tagging” step of the asserted claim.  Therefore, the Federal Circuit panel affirmed the ruling by the district court. 

The panel also reversed the result in McKesson Tech., Inc. v. Epic Systems Corp.  In that case, McKesson initially sued Epic in the District Court for the Northern District of Georgia on December 6, 2006.  McKesson claimed that Epic induced infringement of its patent, U.S. Patent No. 6,757,898, by licensing MyChart to healthcare providers.  Epic moved for summary judgment on the issue of joint infringement because the healthcare providers did not perform the initial step of the asserted claims.  The district court originally denied this motion, relying on BMC Resources.  After claim construction and discovery, Epic renewed its motion for summary judgment on the issue of joint infringement and the court granted this motion, relying on BMC and Muniauction.  Since McKesson failed to demonstrate that a single party infringed its patent, it could not prevail on the claim of indirect infringement. 

            McKesson appealed the summary judgment determination by the district court.  The Federal Circuit panel focused on the same joint infringement rule that was mentioned in Akamai.  The panel determined that the patients using MyChart, who performed the first step of the asserted claims, were not in an agency relationship with the healthcare providers, who performed the rest of the steps.  The panel also determined that there was no contractual obligation for the patients to use MyChart. The panel stated that absent direct infringement by a single party, Epic cannot be liable for indirect infringement. Therefore, the Federal Circuit panel, in a 2-1 decision, affirmed the ruling by the district court.  This decision was made with a concurring opinion that alluded to a potential en banc review to determine if the rule relied upon is correct. 

Scott Berger and Kyle Helgemoe of William Mitchell College of Law assisted with this posting.

STRATEGY AND TACTICS: KNOWING THE DIFFERENCE IN PATENT PORTFOLIO CREATION

Monday, July 23rd, 2012

My thanks to Janal Kalis for this guest post:

The smartphone patent wars have been effective in identifying which of the players are mere strategists and which players are both strategists and tacticians. Before looking at the specific actions taken by companies in the smartphone wars, it is useful to consider the definitions of strategy and tactics. Strategy is as follows:
1. A plan of action or policy designed to achieve a major or overall aim.
2. The art of planning and directing overall military operations and movements in a war or battle.

The definition is tactics is as follows:

An action or strategy carefully planned to achieve a specific end.
The art of disposing armed forces in order of battle and of organizing operations, esp. during contact with an enemy.

Apple and Microsoft are companies that have displayed effective strategy and tactics. Google has displayed strategy but not tactics. Apple has used Google’s weakness in the patent litigation war. Microsoft has used Google’s weakness to harvest hundreds of millions of dollars from Android smartphones without substantial litigation and without making anything.
Apple’s strategy was to invent the iPhone and iPad first and to obtain patent protection on every feature possible. Apple’s strategy also included developing and protecting a structure for enabling the creation of software applications for its iPhone and iPad. Patent Power Scorecards has ranked Apple as having the most powerful patent portfolio in consumer electronics. (See http://spectrum.ieee.org/at-work/innovation/apple-has-the-most-powerful-patent-portfolio-in-consumer-electronics). Apple achieved this ranking by being the first to invent new types of consumer products, thereby displacing companies like Hitachi, Panasonei, and Sony. Apple has also created multiple thickets of patents to protect its core technologies.
Apple has displayed effective tactics by purchasing patents on inventions that it did not create. The Nortel patent portfolio purchased, with the Rockstar Consortium, has been well publicized. The purchase of image transfer patents from the Kodak portfolio is another example. Apple has taken action to understand the full landscape of its patent portfolio and to identify its strengths and weaknesses. Apple has used tactics of patent purchases to shore up weaknesses in its own portfolio and, in some instances, to offensively weaken the portfolio of others. (i.e. http://www.reuters.com/article/2012/06/19/us-kodak-apple-idUSBRE85I0X420120619)
Google has, historically, relied upon its market power and superior products, not patents, to keep its competitors at bay. It entered the smartphone market as a junior player and initially, did not appear to appreciate that it was vulnerable to multiple charges of patent infringement from Apple and others. The strategy appeared to be that if Google created a superior product and market for its Android smartphone, it would prevail, patents be damned. It did not take long for Google to realize that its weak patent portfolio rendered it vulnerable in the smartphone patent wars.
Google strategically tried to purchase the Nortel portfolio. Apple and others tactically thwarted Google’s effort. Google strategically purchased the Motorola Mobility company and patent portfolio only to find that neither have been a complete solution to its vulnerability. To date, Google does not appear to have a grasp of its patent portfolio landscape sufficient to understand where it might have tactical advantage against its competitors.
Microsoft is the frogfish of the smartphone wars. That is part of its strategy–camouflage. It looks like a software company that is not really a player of contention. Microsoft does not make smartphones. Its patent portfolio size is enormous but is not generally associated with smartphone technology. However, Microsoft entered into an agreement with Nokia to use their combined patent portfolios to extract a lot of money in the form of royalties from the smartphone players. Microsoft is now paid royalties on 70% of US Android smartphones. http://arstechnica.com/civis/viewtopic.php?f=2&t=1165164. Microsoft achieved this objective using tactics that have included targeting purchases of patent portfolios.
Both Apple and Microsoft were once in the position that Google is today with respect to their patent portfolios. There is no reason to believe that Google will not develop more nuanced strategy and tactics, over time. For more information on patent strategy in the smartphone wars, check out the following:
http://www.fosspatents.com/
http://www.iam-magazine.com/blog/Detail.aspx?g=c48f69ef-91b3-4494-813e-6fa21057969e

Are Software Patents Different or are Programmers Different?: Breaking the Deadlock

Wednesday, April 25th, 2012

For decades, more than three to be more precise (e.g. see http://www.dei.unipd.it/~pettarin/fsfs2/fsfs2.xhtml), the anti-software patent zealots have been declaring the uselessness of patents on machine-implemented processes, or predicting the end of the software industry as we know it.  First, the battle cry was “software patents are useless because software technology evolves too fast for patents to be of use.” But that criticism was soon proved to be false, as a great number of pioneering inventions lasted longer or nearly as long as the 20 year patent term.   When the viability of patent protection for programmed computers became evident, the mantra became “software patents will destroy software innovation.”  That mantra obviously proved wrong again!   Interestingly, some of the most intensive patenting efforts have been undertaken in the mobile computing/smart phone market, where patent protection is now being aggressively used by various innovative companies to fend off unfair copying by imitators or outright intellectual property thieves.  Again, far from destroying the smart phone market, the smart phone market continues to grow rapidly, in no small part due to the ability of innovative companies to obtain a fair return on investment in the ground-breaking R&D that has helped fuel that market’s growth.

So one is left to wonder, why do certain elements of the software industry continue to insist that patents on programmed devices such as smart phones, tablet computers or personal computers in general should not be entitled to patent protection simply because they operate in accordance with a sequence of computer instructions instead of being hard-wired?

Recently, it occurred to me that there is indeed a difference, but it is not a difference in the nature of software vs. other technologies, a differentiation that does not stand up to unbiased scrutiny, particularly now that virtually all electronic devices are in large part programmable on one level or another, but rather in the nature of the relationship of inventor to manufacturer.  More particularly, in most industries inventors are largely separated or insulated from the management of intellectual property rights – i.e., the typical inventor is told what he or she is permitted to copy or imitate, follows those rules, and generally needs to worry no further concerning the risk of his or her company being sued for misappropriation of another party’s IP.

On the other hand, computer programmers see themselves in a different way:  almost all of them see themselves as actual or at least potential manufacturing entities (even if only as a hobby), exposed directly to the responsibilities and risks of a complex system for protecting innovation from being unfairly copied.  However, the risk and complexity of the patent system is a cost of doing business beyond the means of the typical programmer.  The barrier of the patent system thus becomes personal to a great many software developers, who see it as an infringement on their personal rights, as opposed to a business challenge or opportunity.  Again, these business challenges rarely are taken personally by inventors in other disciplines — they almost universally work for the entities that manufacture products and manage the attendant IP rights.

While in the main it is rare for a mom and pop software manufacturer to face ruinous patent threats, as I have pointed out in a prior posting, perhaps the answer to the perpetual software patent debate lies not in trying to reduce intellectual property protection in an age where intellectual property forms a larger and larger part of our nation’s wealth (not to mention playing right into the hands of unscrupulous competitors in copycat countries that are licking their chops at the possibility to clone iPhones, iPads and more), but rather in addressing what is probably the real cause of most software patent consternation by volume – programmers who take patent infringement risk personally.  For example, Section 35 U.S.C. 287 (c) of the US patent law provides a limited exemption to surgeons who may infringe a US patent in the course of treating a patient.  Perhaps a similarly styled exemption could relieve micro-entity software programmers or companies from liability for producing infringing computer programs until they are given fair notice detailing the basis for infringement, and a reasonable period of time to design around the patent or challenge it in a reexamination proceeding.  Of course there would be many loopholes to consider that may make this approach difficult to enact, but I think perhaps this proposal may get the hopelessly deadlocked software patent debate off dead-center and create a win-win situation for all parties.

 

 

Two Bites at the Apple? – Apple to Defend App Developers in Infringement Suit

Wednesday, April 18th, 2012

A special thanks to Daniel Parrish for the following post:

Last week, an Eastern District of Texas judge granted in part Apple’s motion to intervene in Lodsys’s patent infringement suit against eleven application-developing entities.  Lodsys filed the suit in late May 2011 (amended July 2011) and Apple filed its motion to intervene only nine days later.  After ten months, the court granted Apple permissive intervention: “Apple is permitted to intervene in this suit, but such intervention is limited to the issues of patent exhaustion and licensing.”

The summary in the public record states:

“SEALED MEMORANDUM OPINION and ORDER – Apple has satisfied each of the four requirements for intervention as a matter of right under Rule 24(a)(2). The Court finds that permissive intervention is also appropriate under Rule 24(b). To avoid any potential prejudice to Lodsys rights under the License Agreement such intervention shall be and is hereby limited to the issues of license and patent exhaustion. Apples Motion to Intervene is GRANTED-IN-PART to the extent and as specified herein. Motions terminated: [4] MOTION to Intervene filed by Apple, Inc.. Signed by Judge Rodney Gilstrap on 4/12/12. (ehs, ) Modified on 4/12/2012 (ch, ).”

Apple’s interest in this suit extends beyond gratuitous defense of its application (app) developers.  Apple has an economic interest, having already paid licensing fees to Lodsys for rights to the disputed patents.  Apple asserts that the licensed rights cover developers who create apps which are sold and distributed from Apple’s App Store.  The developer typically retains 70% of the app’s revenue, while Apple takes 30% for payment processing, hosting services, and content management.  Apple contends that its rights extend to developers, giving them the freedom to create applications using Apple’s licensed technology without worrying about claims of patent infringement.  Thus, a judgment in favor of Lodsys would give them “two bites at the ‘Apple’” by generating licensing revenue from Apple and infringement damages from Apple’s app developers.

This is the essence of patent exhaustion theory, upon which Judge Rodney allowed Apple to intervene in this suit.  Patent exhaustion means that an initial sale of a patented invention severs the patent owner’s rights to that item.  More complex issues arise with respect to licensing.  A typical example is an upstream supplier licensing a patent such that downstream firms do not have to.  This is efficient from both cost and administrative perspectives, but much depends on the language of the license itself.  Here, Apple is the “upstream supplier” and the developers are the “downstream firms” that Apple claims to cover.

Apple hopes to succeed in this litigation, as much of its success can be attributed to the “There’s An App For That” culture it fosters.  In February 2008, Apple released a software developer’s kit (SDK), opening its iOS operating system for third party app development.  Recent figures from Apple illustrate how successful this strategy has been.  To date, over 25 billion apps have been downloaded, from the currently available 650,000 apps by 150,000 active developers.  This enables Apple to distribute not only apps that nearly every user downloads (e.g. Facebook, Skype, etc.) but also apps that are narrowly tailored to few users (e.g. app for users of the Hennepin County Library).  It does so by lowering some of the technical barriers to entry, namely by allowing developers to “copy and paste” certain software objects from Apple into the app itself.  For example, if an iPhone app requires a user to type on a keyboard, the app developer is not required to write the code for a keyboard.  Rather, the developer can simply “paste” Apple’s keyboard-object into the app.  This not only simplifies app development, but increases uniformity across app interfaces.

This is the essence of the Lodsys dispute.  Some of these software objects are supposedly patented by Lodsys and licensed to Apple, for example the “App Store” button in the Labyrinth app illustrated in Apples motion to intervene.  Lodsys contends that only Apple (and not third-party developers) is covered by the license.  Apple disagrees, asserting that its licensed rights protect third-party developers from suits like this one.

Although the outcome of this dispute likely depends on the exact terms of the licensing agreement, some industry watchers believe that a Lodsys triumph this would be a major blow to app developers.  Albeit a distinct possibility, Apple would most likely renegotiate its licensing agreement with Lodsys.  App developers and Apple have a symbiotic relationship wherein each depends on the other for mutual financial gain.  Apple is in a much stronger position to negotiate licensing agreements than an individual developer.  If Apple allowed Lodsys (or other similarly situated companies) to obtain judgments against developers, this could limit the very innovation that contributed to Apple’s success.  Apple is too smart to kill the goose laying the golden eggs and will most likely continue to defend its app developers.

MICROSOFT’S PURCHASE OF 800 AOL PATENTS AND PATENT APPLICATIONS LOCKS UP THE NETSCAPE PATENTS FOR MICROSOFT

Thursday, April 12th, 2012

Yesterday, news broke that Microsoft purchased 800 AOL patents and pending applications for $1.056 billion and also obtained a non-exclusive license to the remaining AOL patents.  This amounts to $1.2 million per patent, which is a new high point among recent patent sales.  The Motorola and Nortel sales amounted to $700,00 to $750,000 per patent.

This move by Microsoft occurred about a month after AOL hired Evercore Partners to help it find a suitable buyer for its patent portfolio.  It is interesting that the initial valuation for the patents, made in February by activist investor, Starboard Value LP, was $1 billion.

Several patent analytics companies have publicly opined on the value of the AOL patent portfolio. M-Cam’s review of the AOL patent portfolio concluded that 71% of AOL’s US patents have “potential commercial impairment.” http://www.m-cam.com/sites/www.m-cam.com/files/20120329%20-%20AOL_0.pdf . M-Cam put a valuation of $290 million on the AOL patent portfolio.  M-Cam determined that 76% of the AOL patent portfolio will be in effect for at least another ten years.  Four of the patents were reissued.  Twenty percent of the AOL patents were originally issued to other entities, in particular, Netscape Communications.

The M-Cam report identified that the technology space surrounding the AOL US patents is dominated by patents owned by IBM, Microsoft, AT&T, Sony, Sun Microsystems, and Cisco, respectively.  These companies have substantial numbers of patents that have pre-1991 patent intersections to AOL patents.  The term “patent intersections” relates to technology and citation relationships identified by M-Cam analytics.  M-Cam ranked Google as number eleven on this list. Google has no patents with early patent intersections in this area but has over 11,000 patents with AOL intersections that are post- 1991.  M-Cam concluded that companies with pre-1991 patent intersections “could have leverage over AOL” as they hold patents with similar claims that predate AOL.  M-Cam concluded that companies such as Google, Yahoo!, Digimarc and JP Morgan Chase could be licensing targets because of the high incidence of citation to AOL patents.   .

A second analytics group, MDB Capital Group, an investment bank in Santa Monica, CA, put a value as great as $1 billion on the patent portfolio in an article published by Bloomberg on March 24:  http://www.bloomberg.com/news/2012-03-23/aol-said-to-hire-evercore-to-find-buyer-for-800-patent-portfolio.html . A co-founder of MDB opined, “More than likely the buyer on this would be someone like Google or Microsoft (MSFT),”

The approach of these two companies shows the importance of context in patent valuation.  MDB started its analysis by considering likely buyers and what the patent portfolio would mean to them, as well as the “heat” of the market.  M-Cam, on the other hand, looked at the details of patents within the AOL portfolio and made its determination based upon the quality of patents within the portfolio.  Both approaches have merit.  The MDB approach is based upon business factors such as expectations regarding markets, and, “heat”, that is, a knowledge of desires to covet by particular company managements.  The M-Cam approach provides an objective analysis of a patent portfolio once the game is played, a particular company wins, and the “heat” cools.

With this move, Microsoft has increased its arsenal of basic internet infrastructure patents and may be in a better position to compete with Google.  Time will tell whether the AOL patents purchased are worth the price.

 

This post contributed by Janal Kalis.

McKesson and Akami: Clarification of Legal Standards for Joint Infringement Expected Soon

Wednesday, April 11th, 2012

Overview

The Court of Appeals for the Federal Circuit will focus on the legal standard for joint infringement in the forthcoming McKesson and Akami opinions.  Because of software’s inexorable transition from computer-readable media to network and internet distribution, these opinions significantly affect joint infringement for software inventions.

McKesson Technologies Inc. v. Epic Systems Corp., (Fed. Cir. 2011) focuses on two questions, as ordained by the en banc order:

1. If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement?

2. Does the nature of the relationship between the relevant actors—e.g., service provider/user; doctor/patient—affect the question of direct or indirect infringement liability?

Akamai Technologies, Inc. v. Limelight Networks, Inc., (Fed. Cir. 2011) paraphrased McKesson’s questions in its single en banc order question:

1. If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?

Akami

At issue in Akamai is Akamai’s Patent No. 6108703 (“’703”), which uses the term “tagging” to describe prepending a URL, as suggested by Limelight’s brief: “www.provider.com/…/story.gif” may become “ghost1467.com/www.provider.com/…/story.gif”.  Limelight infringes every step but one of ‘703 by hosting the content and providing an alternate server name to its customers; the customers perform the final step by prepending the server name onto the URL.

Arguing for Akamai, Mr. Dunner’s oral argument proposed three tests:

“One test is direction or control, not ‘and control,’ ‘or control.’  The second test is concert of action.  The third test is knowingly combining steps with another.  So there are three separate tests, and in each case, there has to be knowledge of what is happening.”

Arguing for Limelight, Mr. Panner cited § 271’s sharp distinction between § 271(a)’s establishment of patent infringement as a strict liability tort, and that knowledge of infringement is required for indirect infringement under § 271(b) or § 271(c).

Judge Newman was clearly uncomfortable with this strict reading of § 271 to Limelight’s admitted desire for the customer to perform the final step.  Judge Lourie also indicated discomfort with this outcome.  However, this is exactly the arm’s length transaction contemplated by Judge Rader in BMC: “This court acknowledges that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement.”  (498 F.3d at 1381.)  Indeed, that Limelight intended the result and that this portion of Limelight’s website seems to have no substantial noninfringing use (to borrow language from § 271(c)) seems to imply some degree of inequity.

McKesson

At issue in McKesson is McKesson Patent No. 6,757,898 (“‘898”), which covers a method of communication between a patient and a healthcare provider.  Defendant Epic’s software “MyChart” infringes every step of the method claim except for the first step: “initiating a communication by one of the plurality of users to the provider for information . . . .”

Mr. Joseffer restated the BMC “direction-or-control” test McKesson advanced in its brief.  He was immediately peppered with questions about his assertion that McKesson can prevail under either § 271 (a) or (b) (where § 271 (b) inducement generally requires direct infringement under § 271 (a)), but he clarified that the direction-or-control test broadens legal attribution to cover either (a) or (b).

Judge Dyk inquired about whether this method patent could be enforceable if it had been written entirely from the perspective of the doctor.  Mr. Joseffer replied that such a patent could be circumvented if the doctor asked someone in IT to perform at least one step, and explained that requiring a claim construction solution would expand multi-step method claims to an unworkable number of party subcombinations, and that no such construction could be expected to anticipate every possible scenario.

Arguing for Epic, Mr. Moore held to the Supreme Court’s decision in Aro (previously cited against Mr. Joseffer by Judge Moore), which requires performing all steps of a method patent to satisfy § 271 (a) infringement.  Mr. Moore went on to explain that § 271 (b) and (c) were created to encompass negligent or intentional acts by secondary or tertiary parties, and that statutory construction interprets their separation to preclude multiple party inducement under (a).

Judge Moore asked, “Then why would you ever file for inducement if, in your theory, the direct infringer would be the same person as the inducer because he is, in the common-law sense, making them act as his agent.  271 (b) would be superfluous in your statutory interpretation because it would be entirely encapsulated under 271 (a).”  Subsequent questioning, alas, did not clear up this apparent contradiction before the end of Mr. Moore’s time.

Conclusion

The Federal Circuit did not seem eager to adopt Akamai’s knowledge test, nor did they seem satisfied by McKesson’s argument that all patents must have a remedy.  The Judges may not find explicit support in § 271 or previous method patent cases, but seem to be open to expanding the direction-or-control test to avoid circumvention of method patents.  Though the oral arguments provided some insight the concerns of Judges Linn, Prost, Moore, Dyk, Bryson, and Newman, we are left to extrapolate the proclivities of the quieter Judges Lourie, O’Malley, Reyna, and silent Chief Judge Rader.

The outcome will have a significant effect on authoring method claims, especially as applied to software patents.  As such, we eagerly anticipate the decision, expected later this spring.

 

What, if anything, does Mayo v. Prometheus mean for Software Patents?

Wednesday, April 4th, 2012

Recently, the Supreme Court decided Mayo Collaborative Services (“Mayo”) v. Prometheus Laboratories, Inc. (“Prometheus”). Although it does not involve software patents, the decision clarifies the proper place of the Machine-or-Transformation test in section 101 analysis, discusses abstract principles of nature, and rejects a recent suggestion by the Federal Circuit to invalidate a claim under Section 101 only after it first passes muster under Sections 102, 103 and 112.

At issue here are two patents—U. S. Patent No. 6,355,623 (’623 patent) and U. S. Patent No. 6,680,302(’302 patent)—which, cover “processes that help doctors who use thiopurine drugs to treat patients with autoimmune diseases determine whether a given dosage level is too low or too high.” Id. at 3. Mayo Collaborative Servs. v. Prometheus Labs., Inc., No. 10–1150, slip op. at 5 (Mar. 20, 2012). “The claims purport to apply natural laws describing the relationships between the concentration in the blood of certain thiopurine metabolites and the likelihood that the drug dosage will be ineffective or induce harmful side-effects.” Id. at 3.

Claim 1 of the ’623 Patent is illustrative:
A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:
(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and
(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,
wherein the level of 6-thioguanine less than about 230 pmol per 8×108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and
wherein the level of 6-thioguanine greater than about 400 pmol per 8×108 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.
’623 patent, col. 20, ll. 10–20, 2 App. 16.

Prometheus “is the sole and exclusive licensee of the ’623 and ’302 patents.” Id. at 6. “It sells diagnostic tests that embody the processes the patents describe.” Id. This dispute arose when Mayo stopped using the Prometheus test and “announced that it intended to begin using and selling its own test.” Id. The District Court found for Mayo, noting that although its test did infringe Prometheus’s patents, the patents were invalid as they claimed natural laws. Id. at 6–7. On Appeal, the Court of Appeals for the Federal Circuit reversed, noting that the invention met the machine-or-transformation test because the steps in the claims “involve the transformation of the human body or of blood taken from the body.” Id. at 7.

Upon review, the Supreme Court rejected the Federal Circuit’s analysis and held that the patents were invalid. Id. at 24. On the one hand, this decision can be read quite narrowly. The Court does say it is not persuaded that there is a relevant transformation here and, accordingly, the machine-or-transformation test fails. Id. at 19. There is, however, a lot more to this decision than a mere disagreement as to how the machine-or-transformation test applies to Prometheus’s claimed invention. The Court also says that “the ‘machine-or-transformation’ test is an ‘important and useful clue’ to patentability,” but it does not “trump[] the ‘law of nature’ exclusion.” The Court further explained, “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.” Id.at 2. The question then becomes “whether the claimed processes have transformed these unpatentable natural laws into patent eligible applications of those laws.” Id. at 3.

Ultimately, we are left with little guidance from the Court. It is quite clear that analysis under Section 101 is here to stay. It also clear that the machine-or-transformation is now a useful clue rather than a test. But a new test was not provided. Only time will tell how the courts, the USPTO, and practitioners apply this decision.

Machine-or-Transformation is not always enough.
With a bit of sleight of hand, the Court cites Bilski v. Kappos for the proposition that the machine-or-transformation test “is not a definitive test of patent eligibility, but only an important and useful clue.” Id. at 7. It is helpful to look back at Bilski to spot the sleight of hand. “This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” Bilski v. Kappos, 130 S. Ct. 3218, 3227 (2010). Bilski never said that the machine-or-transformation was insufficient to determine whether a process was patent-eligible. Instead, it said that there might also be other ways to identify a patent-eligible process. After Mayo, the machine-or-transformation test is not really a test at all. Rather, it is, as the Court says, a useful clue.

The transformation branch of the machine-or-transformation test now seems less than dispositive. This suggests that software patents should, when possible, include claims that tie the invention to a machine. Claims that are tied to a machine are often more difficult to draft broadly than a process claim, so include both. More importantly, claims directed to software inventions should be described, as much as possible, in terms of actual electronic circuits that are programmed to carry out a series of electronic operations. The more detail provided at the electronic circuit level, the better.

Applying an abstract principal of nature is not enough.
It has long been understood that a principle of nature cannot be patented. See Mayo, at 1. The Court also explains that “to transform an unpatentable law of nature into a patent-eligible application of such a law, one must do more than simply state the law of nature while adding the words ‘apply it.’” Id. at 3. To cover patent-eligible subject matter, the claim must contain an “‘inventive concept,’ sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself.” Id. This again suggests that narrow claims are more likely to withstand judicial scrutiny. At times, the Court discusses algorithms in the same breath as principles of nature – as though algorithms are all laws of nature floating in the ether awaiting discovery. Claims tied to a machine do not ensure that the “invention” therein recited is patent-eligible, but could improve the odds that the claimed invention will be viewed as a Seciton 101 compliant “machine.”

Section 101 is not going away.
The Court also weighed in on the ongoing debate in the Federal Circuit on the judicial morass of section 101, which we have discussed previously. In rejecting a proposal offered by the United States as Amicus Curiae, the Court said that relying on Sections 102, 103, and 112 in place of Section 101 would be inconsistent with prior case law. Id. at 20–22. Further, this approach would “creat[e] significantly greater legal uncertainty.” Id. at 21. The Court did acknowledge that there at times may be overlap between Section 101 analysis and the other sections of the patent act. Id. But it also noted that the other sections are unequipped to deal with laws of nature. Id. It seems that Section 101 analysis and uncertainty is here to stay.

Avoiding the “Judicial Morass” of Section 101 in MySpace, Inc. v. GraphOn Corp.

Sunday, March 18th, 2012

The judges of the U.S. Court of Appeals for the Federal Circuit are again bickering among themselves about when Section 101 (patent eligible subject matter) should be considered.  In MySpace, Inc. v. GraphOn Corp., Judge Plager steered the court clear of “the murky morass that is § 101 jurisprudence.”  No. 2011-1149, slip op. at 17 (Fed. Cir. Mar. 2, 2012).  The court instead disposed of the patents-in-suit under 35 U.S.C. 102 (novelty) and 35 U.S.C. 103 (obviousness).  Much like the patents at issue in Eolas, the patents-in-suit here encompass technology that is widely used by many popular Internet sites.  And, also like Eolas, this case was disposed of without reaching the Section 101 issue.

MySpace, Inc. and craigslist, Inc. (collectively, the “Plaintiffs”) each filed declaratory judgment suits, which were consolidated, that certain patents (the “Patents”) owned by GraphOn Corporation (“GraphOn”) were invalid and, accordingly, not infringed by Plaintiffs.  Id. at 2.  These patents “relate[] to the ability to create, modify, and store database records over a computer network.”  Id. at 3; see also MySpace, Inc. v. GraphOn Corp., 756 F. Supp. 2d 1218 (N.D. Cal. 2010); U.S. Patent 6,324,538 (July 7, 1998); U.S. Patent 6,850,940 (Sept. 14, 2001); U.S. Patent 7,028,034 (May 11, 2004); U.S. Patent 7,269,591(May 11, 2004).  Each of the Patents claims “priority to a parent application, filed on December 14, 1995, and subsequently issued as U.S. Patent No. 5,778,367.”   MySpace at 5; see also U.S. Patent No. 5,778,367 (Dec. 14, 1995).  The idea of allowing a user to create records in a database via website certainly seems obvious and commonplace in 2012.  Bear in mind, however, that in 1995 manually curated web indexes were a common mechanism for finding information on the web.  The inventors of the Patents set out to address problems relating to typos and mischaracterization of sites in those indexes.  See MySpace at 5.  The invention described in the Patents allows users to “create a database entry with their own text and graphics and then choose or create searchable categories that best matched the information.”  Id.

Unfortunately for GraphOn, the Mother of all Bulletin Boards (“MBB”), which “was first made available for public use in November 1993[,] . . . provided the ability to have online Internet catalogues that could grow through user input without the need for intervention by a webmaster or administrator.”  Id. The MBB stored all of its entries in a hierarchical file system.  Id. Accordingly, the novelty and obviousness of the Patents must be considered in light of the MBB.

Since each of the claims in the Patents include the term database, if that term is constructed to include hierarchical file systems then those claims would as a matter-of-law be invalidated “as either anticipated under 35 U.S.C. § 102 or obvious under § 103.”  Id. at 7.  GraphOn argued that the term database is limited to relational databases.  Id. A relational database “separates the stored data into multiple relations or ‘tables’ and connects them through the use of identification . . . fields.”  Id. at 4.   If database covers only relational databases, however, summary judgment would be inappropriate because “there would be a genuine issue of disputed fact on the question of invalidity.”  Id. at 7.

After de novo review, the court affirmed the construction of database as “a collection of data with a given structure that can be stored and retrieved.”  Id. In reaching this conclusion, the court noted that the “Background of the Invention” section of the Patents mentioned “databases of various kinds,” which suggested a non-limiting interpretation was appropriate.  Id. at 8.  It also noted that the preferred embodiment discussed a “tree structure,” which it concluded was “more consistent with the organizational structure of a hierarchical database rather than a relational database.”  Id. In light of this construction of database, the court affirmed the district court’s grant of summary judgment of invalidity. Id. at 12.

The court’s disposition of the case without considering patent eligibility under Section 101 elicited a fiery separate opinion from Judge Mayer.  It argues that “the subject matter eligibility requirements contained in 35 U.S.C. § 101 is an ‘antecedent question’ that must be addressed before this court can consider whether particular claims are invalid as obvious or anticipated.”  MySpace, slip op. at 1–2 (Mayer, J., dissenting).  But it also apparently agreed that the Patents are invalid, calling the scope of the Patents staggering.  Id. at 3.

The court defended its avoidance of the Section 101, noting that the Section 101 issue was not “raised by the parties or decided by the trial court.”  MySpace at 13.  It also referred to Section 101 as “the patent law analogy to the Bill of Rights of the Constitution” and explained that “[t]he Supreme Court has wisely adopted a policy of not deciding cases on broad constitutional grounds when they can be decided on narrower, typically statutorily limited, grounds.”  Id. at 18–19.   And much like addressing Constitutional issues, “every time [Section 101] is presented as a defense . . . each case requires the search for a universal truth.”  In essence, the court chose not to contribute another Section 101opinion in “the face of what has become a plethora of opinions” in the Section 101 jurisprudence.  Id. at 13.

This back-and-forth between judges is reminiscent of Dealertrack, Inc. v. Huber.  In that decision, Judge Plager wrote a separate opinion that argued that “as a matter of efficient judicial process” litigants and courts should consider the “conditions of patentability” in Sections 102, 103, 112, and 251 before “foray[ing] into the jurisprudential morass of § 101.”  Dealertrack, Inc. v. Huber, Nos. 2009-1566, 2009-1588, slip op. at 2 ( Fed. Cir. Jan. 20, 2012) (Plager, J., concurring-in-part and dissenting-in-part).

Here, unlike in DealerTrack, Judge Plager is in the majority.  Although seeming to reach opposite procedural conclusions, these decisions are consistent because both address the issue that was appealed.  On appeal in DealerTrack, was a summary judgment motion of invalidity as patent ineligible subject matter.  DealerTrack at 5–6.  Here, a “summary judgment that all of the claims were invalid as anticipated or obvious” was appealed.  MySpace at 6.

One is left to wonder whether Judge Plager’s approach (avoid, if possible, the murky morass of Section 101), Judge Mayer’s approach (Section 101 is an “antecedent question”), or the court’s flexible approach (address the issue that has been raised on appeal) will be applied in future decisions.  There is certainly wisdom in avoiding the tough questions (i.e., Section 101 interpretation) until they are presented squarely.  Here, however, it was easy to avoid Section 101 because it was not the issue being appealed.  There will be future cases where the Section 101 issue cannot be avoided as easily.  If a factual question must be answered before a judgment may be reached under Sections 102 and 103, a party may seek summary judgment under Section 101 to avoid the time and expense of trial.  Under Dealertrack, the court would certainly consider the Section 101 issue.  It remains to be seen whether this decision will change that.

[Brian Wallenfelt contributed to this posting.]

After Bilski: Another business method patent overturned

Wednesday, March 14th, 2012

A special thanks to Daniel Parrish for the following post:

The Federal Circuit recently rejected a patent held by American Master Lease LLC for methods of creating an investment structure to take advantage of an IRS tax-deferment exemption.  Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012).  The court ruled that the investment structure’s ties to the physical world such as deeds, contracts and real property, like the commodities and money in Bilski v. Kappos, did not transform the abstract method into a patentable process.  130 S.Ct. 3218.  Furthermore, the court ruled that adding a limitation requiring the use of a computer did not “play a significant part in permitting the claimed method to be performed,” citing the recent Dealertrack decision, recently reviewed in this blogDealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012).

For those following business method patents, being comfortable with some uncertainty regarding statutory subject matter is a prerequisite, yet the Supreme Court provided some insight in 2010, when we learned three things in Bilski:

[1] the test for whether a business method is statutory subject matter is not solely the “machine or transformation” test, wherein the method is either tied to a particular machine or transforms a particular article into a different state or thing.  This test is a “useful clue” in determining patentability.

[2] business methods are indeed statutory subject matter.  This is clear because 35 U.S.C. § 273(b)(1) provides a prior user defense for “method[s] of doing or conducting business.”  As a matter of statutory interpretation, declaring all business methods unpatentable would render the above provision useless.  Thus, there must be some category of business methods that are patentable.

[3] Methods of hedging risk of price changes in the energy commodities market are not patentable under 35 U.S.C. § 101, even when a specific mathematical formula has physical ties to the real world.

If some business methods that fail the “machine or transformation” test are still patentable, what is the correct test to apply?   The US Supreme Court has yet to provide this test, but a look at history may provide some insight.  The Fort Properties decision summarizes the seminal Supreme Court precedents drawing the line between patent eligible processes and abstract ideas.  These are graphically represented below:

Bilski v. Kappos, 130 S.Ct. 3218; Diamond v. Diehr, 450 U.S. 175 (1981); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972).

The Fort Properties decision also outlines recent Federal Circuit decisions on patents involving methods and computer limitations.  These are graphically represented below:

Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012); Dealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012); Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323, 1328 (Fed. Cir. 2011); Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1369 (Fed. Cir. 2011).

Although it is always difficult to predict what, if any, specific test the Supreme Court may enact, we can make a few generalizations.  Inventions in existing statutory categories that incorporate non-statutory subject matter as part of the invention are likely to still be patentable.  As business method patents are relatively new, we do not yet have “classic” business method patent categories.  We do know that business method patents must do more than recite a computer limitation.  A business method with ties to the “real world” must be significant to the invention, not merely using a computer to generate deedshares or to execute a calculation.  The more that the claimed invention requires a computer (as opposed to incidentally using a computer) the more likely it will qualify as statutory subject matter.

Further speculation is, well, just that.  Future cases may clarify matters or add to the uncertainty.  Here’s hoping for a more concrete statutory test for business method patents!