Monthly Archives: August 2011

Federal Circuit Confirms That Abstract Mental Processes Are Not Patentable — CyberSource Corp. v. Retail Decisions, Inc.

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

What constitutes patentable subject matter under 35 U.S.C. § 101 has been a topic of keen interest, especially since the Supreme Court issued its decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010) that rejected the Federal Circuit’s machine-or-transformation test. On Tuesday, the Federal Circuit further clarified what can be patented, affirming a rejection under § 101 of a claim for detecting fraud in credit card transactions over the internet. Written by Judge Dyk, the unanimous decision in CyberSource Corp. v. Retail Decisions, Inc. (Case No. 2009-1358) found that claims involving mental processes that can performed by the human mind are not patent eligible.

The Underlying Claims

Two claims were at issue in CyberSource. They both involved a method for detecting fraud in credit card transactions over the internet by looking at the customer’s IP address. The claims were very broad with no specific algorithms for identifying fraud claimed.

The first was a method claim with no linkage to any physical structures:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;

constructing a map of credit card numbers based upon the other transactions and;

utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The second was a “Beauregard claim,” which is a claim to a computer readable medium containing programing instructions regarding a particular process:

2. A computer readable medium containing program instructionsfor detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:

obtaining credit card information relating to the transactions from the consumer; and

verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,

wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,

wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;

[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

[b] constructing a map of credit card numbers based upon the other transactions; and

[c] utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Claim 3 Is an Unpatentable Abstract Mental Process

The Federal Circuit found that the method of claim 3 was nothing more than an abstract mental process. While the Supreme Court in Bilski rejected the machine-or-transformation test as the sole test of patentability under § 101, the Federal Circuit began its analysis there. It found that the claim recited no machines and did not perform any transformations. Following Bilski, it considered whether the claim was nonetheless patent eligible. It concluded that it was not because the claim recites a mental process, which is unpatentable under the Supreme Court’s decision in Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Here, all of the steps of claim 3 could be performed by the human mind using a pen and paper. The Court suggested that if claim 3 had recited a more complex algorithm that could not have been performed easily using pen and paper, the result may have been different.

Thus, claim 3’s steps can all be performed in the human mind. Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101. Methods which can be performed entirely in the human mind are unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps, but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the “basic tools of scientific and technological work” that are free to all men and reserved exclusively to none.

Claim 2 Is Also an Unpatentable Abstract Mental Process

Claim 2 required a slightly different analysis. It basically recited the same method as in claim 3, but it tied it to a computer readable medium. The question was whether tying it to this structure created a machine that was patent eligible under § 101. The Federal Circuit concluded that it was not sufficient because the underlying invention was the method, not a manufacture for storing computer-readable information. To be patent eligible, the machine “must impose meaningful limits on the claim’s scope,” so the “the incidental use of a computer to perform the mental process of claim 3 does not impose a sufficiently meaningful limit on the claim’s scope.” Thus, claim 2 (like claim 3) was not patent eligible under § 101.

The Federal Circuit Is Looking Carefully at Software/Method Claims

Inventors seeking to patent computer software or method claims should consider this decision carefully. If the claims simply recite steps that a human could perform with pen and paper, there is a real chance that the claim might not be eligible for patenting. Merely adding a limitation requiring a computer to perform the steps may not be sufficient to overcome this problem. Courts can look behind the words of the claim to determine what the underlying invention is and whether the use of a computer is meaningful. As always, careful claim drafting is very important if an inventor wants to obtain and enforce his or her patent.

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Fixing Obvious Drafting Errors During Litigation — The CBT Flint Partners, LLC v. Return Path, Inc. Decision

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

In the CBT Flint Partners, LLC v. Return Path, Inc. decision last week (No. 2010-1202, -1203), the Federal Circuit considered when a court can rewrite a claim during litigation to fix mistakes in drafting. The Court concluded that a district court has the authority to rewrite claims to correct obvious errors even if there are multiple ways to “fix” the claim, as long as all the possible solutions leave the claim with the same scope and meaning.

The Claim at Issue

The patent at issue in CBT Flint involved an e-mail spam filtering system. One of the claim limitations required a computer to detect and analyze an e-mail. The patent drafters forgot the word “and” between these words, which led to problems. The claim at issue (with the problematic term highlighted) read:

13. An apparatus for determining whether a sending party sending an electronic mail communication directed to an intended receiving party is an authorized sending party, the apparatus comprising:

a computer in communication with a network, the computer being programmed to detect analyze the electronic mail communication sent by the sending party to determine whether or not the sending party is an authorized sending party or an unauthorized sending party, and wherein authorized sending parties are parties for whom an agreement to pay an advertising fee in return for allowing an electronic mail communication sent by the sending party to be forwarded over the network to an electronic mail address associated with the in-tended receiving party has been made.

The district court determined that there were three possible ways to fix this problem—(1) remove the word “detect”; (2) remove the word “analyze”; or (3) add the word “and” between the words “detect” and “analyze.” Because it felt that it was debatable which solution should be used, it concluded it lacked the authority to rewrite the claim. Thus, it found the claim indefinite under 35 U.S.C. § 112, ¶ 2 and granted summary judgment in favor of the defendant. The Federal Circuit reversed.

Case Law History for Rewriting Claims

The Federal Circuit noted that courts have long had the power to fix obvious drafting mistakes, citing to the Supreme Court’s decision in I.T.S. Rubber Co. v. Essex Rubber Co., 272 U.S. 429, 442 (1926). The Court further noted that it held in Novo Industries L.P. v. Micro Molds Corp., 350 F.3d 1348, 1357 (Fed. Cir. 2003) that“[a] district court can correct a patent only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification and (2) the prosecution history does not suggest a different interpretation of the claims.”

The Court determined that the district court erred because the three alternative solutions it was considering were not meaningfully different when viewed from the perspective of one skilled in the art. The concepts of “detecting” and “analyzing” were implicit in the rest of the claim, even if one of these terms was explicitly deleted. Thus, the scope and meaning of the claim were the same regardless of which solution the district court could have adopted. In these situations, the district court does have the authority to fix this kind of obvious mistake.

Practice Pointers and Takeaways From This Case

While this case suggests that courts are willing to bail out patentees and fix mistakes in claims during litigation, patentees should not rely on courts fixing their problems for them. In this particular case, the Federal Circuit found that the three possible solutions were all functionally identical. That will not always be the case, and, it is far more likely it will not be the case.

Obviously, the best practice is not to make mistakes in the first place, but that is often easier said than done. Patentees should be especially vigilant about reviewing the claims during prosecution to make sure that there are no mistakes. In addition, patentees should make sure to review the final, published version from the Patent Office, as mistakes sometimes do happen in the printing process. If a mistake happens after issuance, there are mechanisms to correct a patent (e.g., a certificate of correction). Finally, if a patentee is going to sue on a patent, it is especially important to review the patent again to make sure there are no mistakes. Don’t count on the court to bail you out!

The other takeaway from this case from the defense viewpoint is that courts may be more reluctant to find claims indefinite for obvious mistakes or typographic errors. Significant errors are still likely to doom patent claims, but it is not prudent to count on minor errors sinking them, too.

The bottom line with minor mistakes is that neither side should be confident in how a court will react. It may fix them, but it may not. And how a court will act likely depends on some very specific facts.

Federal Circuit Sanctions Non-Practicing Entity for Baseless Lawsuit — Eon-Net LP v. Flagstar Bancorp

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

Non-practicing entities (NPEs) are often criticized for bringing meritless lawsuits against companies with the sole intention of forcing settlements by offering amounts far less than the cost of litigation. Even though the claims may be baseless or tenuous at best, the cost of fighting often far outweighs the settlement demands. Faced with paying a relatively small amount to assure the case goes away versus paying substantially more to defeat the claim through litigation, companies will often acquiesce to the settlement demands even if they feel that they have not infringed a valid patent.

On Friday, the Federal Circuit issued a decision in Eon-Net LP v. Flagstar Bancorp, (No. 09-1308) reminding defendants that there are other options for defendants facing frivolous lawsuits. The Court in a unanimous decision affirmed a district court’s decision to award over $600,000 in attorney fees and sanctions under 35 U.S.C. § 285 and Rule 11 against an NPE for filing a frivolous patent infringement lawsuit. The Federal Circuit panel consisted of Judges Lourie, Mayer, and O’Malley.

Eon-Net LP—Non-Practicing Entity

Eon-Net LP (and its related companies) are NPEs that have filed over a hundred lawsuits against a variety of different defendants. They typically offer to settle cases for $25,000–$75,000, based on the amount of the defendant’s sales, which are amounts far lower than the potential damages or the litigation costs. This is the typical non-practicing entity

35 U.S.C. § 285 and Attorney Fees in Exceptional Cases

A district court has the discretion under § 285 to award attorney fees to the prevailing party in a patent infringement lawsuit if it determines the case is “exceptional.” The Federal Circuit, while indicating that it will review these determinations, also indicated that it will not lightly disturb a court’s finding because of the court’s lengthy and personal experience with the case, the parties, and the attorneys.

The Federal Circuit mentioned a variety of actions by a losing party that can make a case exceptional—(1) litigation misconduct, (2) unprofessional behavior, (3) misconduct in getting the patent at issue, and (4) bringing an objectively baseless litigation in bad faith. The Court found that Eon-Net’s litigation misconduct and filing of a baseless infringement action in bad faith made the case exceptional.

The Eon-Net case is pretty much a checklist for what not to do in filing a lawsuit. First, Eon-Net intentionally destroyed potentially relevant documents prior to filing suit. Next, it failed to participate in the litigation process in good faith by not offering constructions for any of the disputed claim terms, lodging incomplete and misleading evidence with the court, and submitting contradictory declarations. In short, “[t]he district court also found that [Eon-Net’s principal] displayed a ‘lack of regard for the judicial system’ and that Eon-Net and [its principal] had a ‘cavalier attitude’ towards the ‘patent litigation process as a whole.’” Taken together, the Federal Circuit found this behavior unprofessional.

The Federal Circuit also affirmed the finding that Eon-Net filed a baseless lawsuit in bad faith. The written description in the patent clearly refuted Eon-Net’s need construction to find infringement, which it should have known before filing suit.

In finding that Eon-Net filed suit for an improper purpose, the Federal Circuit looked beyond the litigation before it and to Eon-Net’s history of filing what it considered to be “extortionate” lawsuits with settlement demands far lower that the litigation costs. “The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar.” On its face, the Court’s analysis brings into question the entire business model for many NPEs.

In addition, the Court was troubled by the disproportionate and asymmetric discovery costs often present in cases like these. NPEs will often have little, if any, relevant documents or personnel to depose. In contrast, defendants may have enormous amounts of potentially relevant documents and witnesses. Because discovery costs are generally borne by the producing party, an NPE can force a defendant to expend hundreds of thousands or millions of dollars during discovery—costs that it will never have to bear because of the dearth of information it has.

Finally, the Court was troubled by the fact that NPEs are rarely put at risk in these kinds of lawsuits. They do not typically sell any products, so there is no chance of a patent infringement, unfair competition, or antitrust counterclaim. The only risk is the loss of the patent itself, which is typically only one of a number of licensing revenue sources. There is no chance that they will face increased competition from a competitor if they lose.

Taken together, the Federal Circuit had no problem with the finding that Eon-Net filed a baseless lawsuit in bad faith for an improper purpose sufficient to warrant a finding that this was an exceptional case.

Rule 11 Sanctions

In addition to awarding attorney fees, the Federal Circuit also affirmed the district court’s imposition of Rule 11 sanctions because Eon-Net and its attorneys failed to perform a reasonable pre-suit investigation. While Eon-Net’s counsel did examine Flagstar’s website before filing suit, they did not perform an objective evaluation of the claim terms when assessing infringement.

What Can We Learn From This Decision?

This decision is really a slap in the face to NPEs and indicates that the Federal Circuit does not take kindly to litigants filing baseless claims to extort settlements from defendants. While this decision serves as a warning to NPEs and their attorneys, it also serves as a cautionary tale for other litigants.

First, the decision emphasizes the need to conduct a proper pre-filing investigation, which should include a claim-by-claim analysis of infringement and the potential construction of any key claim terms. Depending on the nature of the allegedly infringing product, this analysis may be difficult. For example, if claim limitations are not observable from inspecting the product (such as limitations contained in source code), the attorneys will need to make educated assumptions about how the allegedly infringing product works and be ready to defend the legitimacy of those assumptions, if necessary.

Second, plaintiffs need to be aware that the obligation to preserve potentially relevant evidence begins before they file the lawsuit. Intentionally destroying documents before filing a lawsuit can have serious consequences, and if a company had a standard document destruction policy, it must determine if that policy needs to be suspended before (not after) filing suit.

Third, litigants need to take the litigation seriously and respect the process, even if it feels cumbersome or annoying at times. Flippant comments, like those made by Eon-Net’s principal, can come back to haunt a losing party. Ignoring the process or filing half-hearted papers can cause serious problems.

Finally, this case is a real indictment of the standard NPE business model of making extremely low settlement offers to entice defendants to not fight the lawsuit. Many NPEs use this business model with lawsuits of questionable merit knowing that defendants will be reluctant to fight the lawsuit given the prospective costs. This decision may serve as a wake-up call for NPEs and their attorneys to be more careful in what suits they file.  Given that Eon-Net only makes between $25,000–$75,000 per settlement, a $600,000 fee award against it likely is a substantial hit to its business. In addition, this decision will haunt Eon-Net in all future proceedings and likely lead to more awards against it if it continues to bring these kinds of meritless lawsuits.

This decision shows that fighting the fight can sometimes be worth the battle and help to deter other NPEs from coming after a company. Unfortunately, it is still likely a losing proposition for the defendants. Even in this best-case scenario, they are generally only compensated for their litigation costs, not all of the other costs of being a defendant (such as lost employee time, opportunity losses, and the damage to their image by being involved in a lawsuit). There is no windfall for defendants in these circumstances.

Federal Circuit Holds That Isolated Genes Are Patent Eligible — Association for Molecular Pathology v. Myriad Genetics

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

The patentability of genes and genetic testing remains a controversial topic, enough so that the Supreme Court granted cert in Mayo Collaborative Services v. Prometheus Laboratories to address some of these issues. (See our prior post). On Friday, the Federal Circuit issued a lengthy and fractured 105-page decision in Association for Molecular Pathology v. Myriad Genetics, Inc. (No. 10-1406) that held that claims to an isolated DNA molecules were patentable subject matter under 35 U.S.C. § 101. Judge Lourie delivered the decision of the Court, Judge Moore concurred in part, and Judge Bryson concurred and dissented in part.

Background

The patents at issue are directed a test to screen for mutations in BRCA genes that correlate with an increased risk of breast and ovarian cancer. The inventors identified markers in DNA sequences from individuals with inherited breast and ovarian cancers. This knowledge allowed Myriad to create diagnostic testing services for women.

Myriad began sending cease-and-desist letters to doctors who performed testing that it believed infringed its patents. A number of doctors and researchers then filed a declaratory judgment action against Myriad Genetics, Inc., claiming that certain claims in seven of Myriad’s patents were invalid because they contain patent-ineligible subject matter under 35 U.S.C. § 101. The district court agreed with the plaintiffs and invalidated all fifteen challenged claims. The Federal Circuit reversed as to three of the claims (in a 2–1 decision) and unanimously affirmed the district court’s decision as to the remainder.

The Claims at Issue

Myriad’s claims fell into three broad categories: (1) three composition claims, (2) a screening method claim, and (3) eleven comparing/analyzing method claims. The Federal Circuit found that the first two types were patent-eligible under § 101, but the third type was not.

The composition claims were for two “isolated” human genes (BRCA1 and BRCA2) that are free-standing portions of a larger, native DNA molecule and synthetic complementary DNA molecule (cDNA). In essence, these isolated genes are sections of DNA that has been cleaved from a naturally-occurring DNA molecule. Myriad isolated the portions of the naturally-occurring DNA molecule that correlated with the cancer and patented it.

The screening method claim recites the steps of growing host cells transformed with an altered BCRA gene in the presence of a potential cancer therapeutic, determining the growth rate of these cells, and comparing the growth rate of the host cells. The comparing/analyzing method claims, on the other hand, simply call for comparing samples from a tumor of the isolated genes from a patient with a non-tumor sample.

The Court Finds the Composition Claims Are Patentable Subject Matter

Before making its determination, the Court traced the state of the law regarding § 101 by looking at the Supreme Court’s decisions in Diamond v. Chakrabarty, 447 U.S. 303 (1980) and Funk Borthers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948). These decisions involved whether man-made, living microorganisms are patentable under § 101.

Ultimately, the Federal Circuit concluded that § 101 requires that a composition’s identity must be “markedly different” in comparison with what exists in nature for the composition to be patent-eligible:

The distinction, therefore, between a product of nature and a human-made invention for purposes of § 101 turns on a change in the claimed composition’s identity compared with what exists in nature. Specifically, the Supreme Court has drawn a line between compositions that, even if combined or altered in a manner not found in nature, have similar characteristics as in nature, and compositions that human intervention has given “markedly different,” or “distinctive,” characteristics.

Judge Lourie found that Myriad’s composition claim satisfied this test because the isolated genes, while they could be found inside a naturally-occurring DNA molecule, had distinct chemical identities and natures different from the DNA molecule once they were removed. The isolated genes are not the same molecules as exist in the body, and the creation of these isolated genes requires human intervention. He rejected the argument that the isolated genes are merely purified forms of a natural material.

Judge Moore, in her concurrence, reached the same result. She found that a fragment of a DNA sequence has different properties and different physical characteristics than the parent DNA from which it is obtained. In addition, the cDNA gene is entirely different than the naturally-occurring DNA molecule because introns are removed and it contains the opposite (complementary) sequence of RNA. The exact cDNA gene is not found in nature, so it is easily patent-eligible.

In his dissent, Judge Bryson sharply disagreed with respect to the non-cDNA composition claims. He would have held that any gene that is found in nature, even if found within a larger DNA molecule, is unpatentable. Judge Bryson analogized these genes to minerals discovered in the earth. Simply extracted a naturally-found mineral is not patentable, so simply extracting a naturally-found gene from DNA should not be patentable.

The Method Claims

The decisions with respect to the method claims were much easier for the Court, and the Judges unanimously agreed. The comparing/analyzing claims were not patent eligible because they amounted to nothing more than the mental steps of comparing two genes. There was no transformation involved, so they were not patent eligible. The screening method claim, on the other hand, had a number of transformations central to the purposes of the claimed process. Thus, it was patent eligible.

Standing to Bring the Action

A significant part of the decision also addressed whether any of the plaintiffs had standing to bring the claim under the Declaratory Judgment Act. All three Judges agreed that at least one of the doctors did have standing. For those interested in standing issues and what is sufficient under the Declaratory Judgment Act, this decision is an interesting read.

The Takeaways

The Federal Circuit seems to have a different test for genetic materials than other compositions. All three Judges agreed that extracting a naturally-found mineral or element from a rock would not be eligible for patent protection. Under the majorities’ holding, however, extracting genetic material from a naturally-occurring DNA molecule is eligible for patent protection (assuming the other requirements of the Patent Act can be met). The decision maintains a long history of allowing patents in the field of genetics.

It will be interesting to see if this case is addressed en banc or whether the Supreme Court will weigh in on these issues in its upcoming case in Mayo Collaborative Services. Given the sharp dissent in this case, and the importance of these types of patents, it is unlikely that we have seen the last of these decisions.