Since our last update in June 2017, all the invalidation averages for decisions finding lack of subject matter eligibility have trended slightly downward in the federal courts. Specifically:

  • The overall percentage of decisions invalidating patents under § 101 since we started tracking statistics in July 2014 has fallen slightly—from 67.5% to 66.0%—year over year.
  • The 12-month and three-month average invalidation rates have likewise fallen (from 64.7% to 61.9%, and from 72.1% to 48.4%, respectively).
  • The three-month average recently hit its lowest rate—48.4%—falling below 50% for the first time.

Presumably Berkheimer and its progeny (Aatrix and Exergen)—which held that the “well-understood, routine and conventional” inquiry of Step 2B is a question of fact—have contributed to the declining rates by making courts less inclined to invalidate patents at early stages of litigation. (Of course, as subsequent cases such as Voter Verified v. Election Systems, SAP v. Investpic, and Interval Licensing v. AOL, make plain, successfully establishing the genuine issue of material fact needed for a patentee to survive early dismissal is by no means as simple as it may appear.) Of the 70 post-Berkheimer decisions through the end of June 2018, there were 25 decisions containing at least one citation to Berkheimer; 20 decisions containing at least one citation to Aatrix; and five decisions containing at least one citation to Exergen. Ironically, however, of the 25 decisions citing Berkheimer, 15 found invalidity, with only 10 finding validity, a higher invalidation rate than that of the recent cases not citing Berkheimer. Apparently courts primarily cite Berkheimer in order to acknowledge it before distinguishing it! On the Federal Circuit-watching front, Judge Moore now has the sole distinction of being part of the greatest number of Section 101 decisions (35), as well as the greatest number of pro-eligibility decisions (7). Judges Clevenger, Mayer and Schall, in contrast, have yet to join a pro-eligibility decision in any of the cases that we’ve analyzed.

If the focus on fact finding in Aatrix, Berkheimer, and Exergen from earlier this year helped provide additional clarity on the analysis of “something more,” the SAP America decision, at least to my mind, failed to clarify, and possibly further muddied, the analysis.

Reaching This Result Could Have Been Easy

First, a representative claim:

1. A method for calculating, analyzing and displaying investment data comprising the steps of:

(a) selecting a sample space, wherein the sample space includes at least one investment data sample;

(b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in a resampling process; and,

(c) generating a plot of the distribution function.

The other independent claims differ a bit from claim 1, but like claim 1 recite “resampling” of the data set and, in claim 11, doing so with a “bias parameter.” According to the patent, this resampling of investment data permits analysis that doesn’t assume a normal distribution of the data.

On a judgment on the pleadings, the district court found all claims ineligible and the Federal Circuit affirmed.

Continue Reading Two Steps Forward, One Step Back

My last post focused on definitions for the terms “well-understood,” “routine,” and “conventional”—or W-URC—from the subject matter eligibility test set forth in Mayo and further described in Alice. Those terms relate to one part of the current test only. It seems fair to consider another important term in the test, one that’s considered before even reaching the W-URC issue: Whether the claim is “directed to” patent-ineligible subject matter, e.g., a law of nature.

I was particularly reminded of the need to address this when reading last week’s Federal Circuit opinions in Vanda Pharmaceuticals v. West-Ward Pharmaceuticals. Not only did Judge Prost pen a stark dissent from Judge Lourie’s opinion for the court, but both the majority and dissenting opinions focused on this phrase over and over. The opinion of the court referenced “directed to” 17 times and the dissent used it 10 times. Further, the phrase was used either in italics or quotes five times, emphasizing the importance of the term. So it’s worthwhile to give a look to what “directed to” means.

Continue Reading Our Attention is Now Directed To: “Directed To”

The Federal Circuit has now had enough opportunity to address Mayo’s “well-understood, routine, conventional” test that we should have a good understanding of it. We don’t (or at least I don’t).

To begin with, the Federal Circuit cases don’t seem to differentiate among these terms. The cases also universally connect the three terms with “and” rather than “or,” but curiously most of the cases don’t seem to actually require all three to be explicitly met for a determination of ineligibility. See, e.g., Content Extraction, where the Federal Circuit noted only that the patent owner had conceded one function as being “routine.” Finally, there seems to be real disagreement about the extent to which these terms address facts as opposed to legal standards. In this post, I’m not going to comprehensively analyze all these issues, but instead will focus primarily on what these common terms mean.

Continue Reading How Well-Understood is the Meaning of “Well-Understood”?

With counterpoint by Gregory Hopewell

In reading post-Mayo/Alice decisions, some seem more comfortable than others. I’ve been having a tough time getting my head and heart around a recent decision from Judge Leonard Stark of the District of Delaware.  The case is American Axle & Manufacturing v. Neapco Holdings and Neapco Drivelines.  From the party names alone, this does not appear to be a likely candidate for Section 101 invalidity.

The claims that the court found representative for Section 101 analysis confirm that we’re not talking about social media applications or financial methods here, but instead “a method for manufacturing a shaft assembly of a driveline system.”  Classic auto industry innovation dispute between two Detroit area companies, with a bonus that the judge also hails from Detroit.  Spoiler Alert: To my surprise, the first sentence of the opinion’s discussion section said, “As explained below, the Court has determined that the Asserted Claims are not directed to patentable subject matter.”

Continue Reading Good Vibrations, Bad Vibrations: American Axle v. Neapco Ruling

In my own prosecution practice I’ve noted a recent uptick in the allowance rate of many examiners in the 36XX art units, with several examiners that had hitherto never allowed a single case allowing multiple cases during calendar year 2017.  This piqued my interest, and I decided to conduct a more robust statistical evaluation to see whether my personal experience would bear out more generally.

Signs of Recovery

My evaluation computed the aggregate allowance-to-abandonment ratio in each of the 36XX art units in calendar years 2013 through 2017.  As expected, the allowance-to-abandonment ratio plunged precipitously in calendar year 2015—the first year that the effects of Alice truly began to be felt—and continued to decline in 2016.  However, the ratio begins to increase again in 2017, with a year-over-year ratio change of 1.62 (a 62% increase) across all the 36XX art units, following a ratio change of 0.9 (a modest decline) the year before.  Perhaps more tellingly, the art units entitled “Data Processing: Financial, Business Practice, Management, or Cost/Price Determination”—traditionally the hardest-hit by Alice—experienced a mean ratio change of 2.68 (a significant increase) from 2016 to 2017, after a ratio change of 0.67 (a moderate decline) the prior year.  The hard-hit 2680s and 2690s experienced even greater recoveries.

Continue Reading Thawing in the 3600s? An Updated Look at Allowance Rates Post Alice

Do you remember obviousness before KSR v. Teleflex? To invalidate, the rule went, one must find an express rationale for combining references (a teaching, suggestion or motivation). The KSR ruling reminded us that the TSM test was too rigid—the proper analysis should more flexibly evaluate obviousness with the skilled artisan in mind, without rigid requirements for these rationales in the references themselves.

If we knew how to more flexibly identify rationales for obviousness post-KSR, it was not clear how to more flexibly apply patent eligibility without the machine or transformation test after Bilski and Alice. A machine, apparently, was now just a clue. But identifying how to apply the more general principles from Alice and Bilski was not as easy to apply as a flexible obviousness test. The recent Core Wireless decision may show us a more useful theme for applying a more general approach to obviousness.

Continue Reading Seeing a Forest, Not Just Trees: Core Wireless v. LG

I was reminded of this question, often posed by my dad to remind me not to become a slave to statistics, by two dramatic things that happened last week. On the one hand, at the IAM 2017 Patent Law and Policy conference in Washington DC, investors spoke about waning interest in the U.S. market given the increasing frequency of patent invalidations. On the other hand, the Nasdaq composite index (consisting of 86% U.S. companies) hit record closing and intraday highs. Whom are we to believe: those who say weak patent coverage is threatening our economy or those who say that patents are not, in fact, necessary for economic strength?

Or is there a third possibility—that other factors overwhelm the economic importance of patents so we can’t really give too much weight to the statistics?

The speakers at the IAM conference cited PTAB invalidation rates and post-Alice hostility to 21st century technologies as reasons that they are looking more kindly on, for example, European, Chinese, and Canadian portfolio elements. Uncertainty regarding PTO examination norms and PTAB decisions, as well as apparently inconsistent panels of the Federal Circuit, have reportedly made it more difficult to value U.S. patent assets than those of other jurisdictions. The fact that the Supreme Court in the Oil States case is considering whether PTAB review of issued patents is even constitutional gives yet more pause.

Continue Reading Did You Hear About the Statistician Who Drowned in a Lake With an Average Depth of Two Feet?

This third article in the “Surviving Alice” series[1] examines how the USPTO’s Patent Trial and Appeal Board has responded to the U.S. Supreme Court’s June 2014 Alice decision[2].  It also shows how applicants can use the PTAB’s recent decisions to substantially increase their chances of success before the board.  We look at appeals coming out of the USPTO’s business method work groups 3620, 3680 and 3690. Applicants have had a difficult time getting business method patents allowed since Alice.  The Alice decision firmly established the two part “Alice/Mayo test” as the standard for determining whether a patent’s claims were statutory under 35 U.S.C. 101.  The two steps in the Alice/Mayo test are:

  1. “Determine whether the claims at issue are directed to a patent-ineligible concept” [3](e.g. abstract idea or fundamental economic practice); and
  2. If the claims are directed to a patent–ineligible concept then “search for an ‘inventive concept’-i.e., an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself. “[4] (e.g. an improvement to another technology)

The business method work groups[5] at the USPTO implemented the Alice/Mayo test right after the Alice decision.  Allowances in some work groups (e.g. 3690 finance) plunged by a factor of 10 within a month of the decision.  Even three years later, there is still over a 90% chance that an office action on a business method patent application will have a 101 rejection[6].  In response to these repeated § 101 rejections by the examiners, many applicants have appealed their rejections to the PTAB.  We are just now seeing these appeals being decided by the board, and overall the results have not been good for applicants.  Only about 20% of the 101 rejections are being reversed.  Nonetheless, we are gaining a significant and rapidly growing body of PTAB decisions which we can learn from.  These decisions[7] are discussed below. Continue Reading Surviving Alice with an Appeal

After Alice, the USPTO’s various guidance memoranda included references to non-precedential Federal Circuit decisions, particularly Smartgene, Cyberfone, and Planet Bingo, as examples of patent-ineligible subject matter.  Naturally, examiners cited these decisions in support of their Section 101 rejections.  Smartgene was the most frequently cited because the USPTO glossed it simply as “comparing new and stored information and using rules to identify options,” a characterization that allowed examiners to apply the case to just about any computer-implemented method.  I and others expressed our concerns to the USPTO about the examiners’ reliance on Smartgene and other non-precedential cases in comments  on the Interim and subsequent guidance memos. Full disclosure: I was counsel to ABL, the patentee in Smartgene. On November 2, 2016, the Office issued the “McRO” memo, explaining how examiners should interpret the Federal Circuit’s decision in McRO v. Bandai.  The memo ended with an instruction that examiners should limit their reliance on non-precedential cases:

Non-precedential decisions:  Finally, given the large and ever-increasing number of  precedential decisions, examiners should avoid relying upon or citing non-precedential  decisions (e.g., SmartGene, Cyberfone) unless the facts of the application under examination uniquely match the facts at issue in the non-precedential decision.  The updated chart of court decisions available on the USPTO’ s SME Webpage indicates whether a decision is precedential or non­ precedential.

The guidance seemed clear:  unless the application before the examiner “uniquely matched” the facts of a non-precedential decision, the decision should not be relied upon–there was an “ever-increasing” number of precedential cases that could be used instead. Continue Reading Examiner Citations of Smartgene, Cyberfone Drop After McRo Memo