On May 20, 2013, the United States Supreme Court granted cert. to hear argument on whether, in a declaratory judgment action brought by a licensee, the licensee has the burden to prove that its products do not infringe the patent, or whether the patentee must prove infringement.
Medtronic Inc. (licensee) licensed a patent from Mirowski Family Ventures LLC (patentee / licensor) relating to a device used to stop imminent heart failure. Medtronic subsequently created new products and then filed a declaratory judgment action claiming that its new products do not infringe the patent. The Federal Circuit Court of Appeals held that Medtronic bears the burden of proving that its products do not infringe Mirowski’s patent.
Medtronic has requested that the U.S. Supreme Court overturn the Federal Circuit’s ruling, which Medtronic has argued is inconsistent with the Supreme Court’s decision in MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118 (2007). In MedImmune, the Supreme Court ruled that a patent licensee that believes that its products do not infringe the patent is “not required . . . to break or terminate its . . . license agreement before seeking a declaratory judgment in federal court that the underlying patent is . . . not infringed.” According to Medtronic, the Federal Circuit’s opinion undercuts the MedImmune decision because it causes a licensee to take on the significant burden and cost of a presumption that its products infringe.
In turn, Mirowski has argued that this case is distinguishable from MedImmune because the licensing agreement at issue specifically required Medtronic to file a declaratory judgment action if a dispute arose. Mirowski believes that the Federal Circuit correctly decided that, based specifically on the contract terms between the parties, Medtronic should bear the burden of proving that it should be let out of the contract for the new products.
Earlier this month, the Federal Circuit issued its long-awaited en banc opinion on the patentability of software in CLS Bank International v. Alice Corporation Pty. Ltd., No. 2011-1301. In an ironic twist, the result is something more akin to Alice in Wonderland than the clear guidance patent practitioners were hoping for. The Federal Circuit issued a 135-page decision comprised of separate written opinions by Judges Lourie, Rader, Moore, Newman, and Linn, as well as an “Additional Reflection” by Chief Judge Rader, none of which commanded a majority. The end result was a one-paragraph per curiam opinion in which a majority of the Court determined that the particular method and computer-readable media claims were not directed to patent eligible subject matter (for different reasons) and an equally-divided Court affirmed by default the District Court’s holding that the system claims were not patent eligible.
The Claims at Issue
Alice Corp. owned four patents relating to a computerized trading platform used for conducting financial transactions in which a third party acts as an intermediary to assure the first and second parties that they will both perform. If one of the parties cannot perform, the transaction is not completed and neither side risks non-performance of the other.
The patents contained method, computer-readable media, and system claims, all of which involved software aspects.
Judge Lourie’s Opinion
Judge Lourie, joined by Judges Dyk, Prost, Reyna, and Wallach, would have held that all of the claims were not directed to patent-eligible subject matter under 35 U.S.C. § 101.
The statute contains four eligible classes of inventions:
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.
35 U.S.C. § 101. He noted that the statute is to be interpreted broadly, but is also limited by three judicially-created exceptions that are not patent eligible: laws of nature, natural phenomena, and abstract ideas.
In determining whether something is patent eligible, Judge Lourie set forth a two-step process: (1) is the claimed invention a process, machine, manufacture, or composition of matter, and, if so, (2) does it fall within one of the three judicially-created exceptions? He acknowledged that this determination is easier said than done.
To determine whether it falls within any of the exceptions, courts are to answer two more questions: (1) does the claim pose any risk of preempting an abstract idea, and, if so, (2) are there substantive limitations that narrow, confine, or otherwise tie down the claim so that it does not preempt the full abstract idea?
Turning to the claims at issue, Judge Lourie broke them down into the “gist” of the invention and what, at heart, it was trying to claim. He concluded that all of the claims were attempting to claim the abstract idea of facilitating a trade through a third-party intermediary. In his opinion, none of the additional claim language provided any meaningful limitation on the claims.
Chief Judge Rader’s OPinion
Chief Judge Rader, joined in full by Judge Moore and in part by Judges Linn and O’Malley, would have held that the system claims are patent eligible, but the method and media claims are not (Judges Linn and O’Malley would have held that all the claims are patent eligible).
Chief Judge Rader focused on the judicially-created exceptions to § 101. Courts must determine whether a claim includes meaningful limitations that restrict the claim to an application, rather than claiming an abstract idea. Claims are not meaningfully limited where it describes an abstract idea and simply adds “apply it” or if its purported limitations cover all possible ways to achieve the result.
A claim is meaningfully limited if it requires a particular machine to implement it or a particular transformation or where it adds limitations that are essential to the invention. “At bottom, where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea, the claim is patent eligible.”
Chief Judge Rader cautioned that the patent-eligibility inquiry is different and distinct from other statutory requirements, such as non-obviousness, novelty, and enablement. Whether something is obvious is irrelevant to whether it is directed to patent-eligible subject matter. He also confirmed that the standard for proving a violation of § 101 is by clear and convincing evidence.
Taking this all together, he found that the system claims were directed to patent eligible subject matter—the claims recited a machine that performed specific transactions that was not a disembodied concept. However, the method and media claims he found to claim only an abstract concept.
Judge Moore’s Opinion
Judge Moore, joined by Judges Rader, Linn, and O’Malley, wrote to express her concern that Judge Lourie’s view would signal the end of all software patents as we know them. She believed that the five judges ignored precedent and have left the Court “irreconcilably fractured.” She called for the Supreme Court to step in and resolve the issue.
She would have held that the system claims are directed to patent-eligible subject matter, as they include limitations relating to hardware and software, and were not limited to abstract ideas.
Judge Newman’s Opinion
Judge Newman, writing for herself, believed that the Court was overanalyzing the requirements of § 101. She stated that the inquiry should be simple and straightforward—does the invention fall within one of the four types of inventions allowed? If so, the patent-eligibility analysis ends and the other requirements for patentability kick in to determine whether a patent should be granted.
She also wrote to explicitly confirm that study and experimental use is not patent infringement. She was concerned that too many commentators were wrongly stating that patents would prevent individuals from conducting research or evaluating patented inventions.
Experimental use—such as experiments to (1) improve or build on patented subject matter, (2) compare patented subject matter with alternatives, (3) understand its mechanism, and (4) find new applications or modifications—is not infringement, regardless of whether it is for scientific knowledge or commercial potential.
Judge Linn’s Opinion
Judge Linn, joined by Judge O’Malley, would have found all of the claims to be directed to patent-eligible subject matter.
First Judge Linn was concerned that no claim construction was ever done in this case. The parties did agree that all of the claims required a computer to implement them. Having created this explicit tie to a machine, the claims were not directed to an abstract idea. He had grave concerns that the Court was rewriting the claims and ignoring limitations in order to distill down some essence of the claim, which he believed was improper.
Chief Judge Rader’s “Additional Reflections”
Chief Judge Rader also wrote some official “additional reflections,” which is highly unusual. He reflected on how the positions of the Judges have changed over the last 25 years, even though § 101 has not changed at all in that time period. He also reflected on the chaos of this opinion before concluding that “When all else fails, consult the statute!”
COnclusions—What to Make of All of This?
As a practical matter, this decision provides no precedential value. No rationale was able garner a majority of the Court. What it does signal is that the Federal Circuit cannot, at this, decide what to do with software patents. Five of the Judges (Lourie, Dyk, Prost, Reyna, and Wallach) appear hostile to software patents, while the other five (Rader, Moore, Linn, O’Malley, and Newman) are more receptive. Truly, one’s panel draw could be outcome determinative on appeals involving software patents.
Given the chaos, one could reasonably expect that the Supreme Court will have to step in and provide some clarity. Although, given its track record, even if it does grant cert on this case, it still might not provide clear guidance.
For some other, interesting views on this decision, see our friends at IPWatchdog (here, here, here, and here) and Patently-O (here).
In Bowman v. Monsanto Co., the U.S. Supreme Court held that the patent exhaustion doctrine did not permit a farmer to reproduce patented seeds them through planting and harvesting.
Monsanto invented and patented a genetic modification that enables soybean plants to survive the application of many herbicides, including Monsanto’s Roundup. Thus, farmers using these seeds can use certain herbicides to kill weeds without damaging their crops. The seeds are known as “Roundup Ready” seed.
Monsanto requires growers who purchase the seed to sign a special licensing agreement that permits the grower to plant the purchased seeds in one, and only one, season. The growers are prohibited from saving any of the harvested soybeans for replanting or giving them to anyone else for that purpose. Consequently, a grower must buy seeds from Monsanto each season.
Bowman, an Indiana farmer, purchased the patented seeds each year for his first crop of the season, and in accordance with the license agreement, he used all of that seed for planting. He then sold his entire crop to a grain elevator. However, Bowman also planted a second crop of each season. Because he believed late-season planting was risky, he did not want to pay the premium price for the Roundup Ready seeds. He therefore went to a grain elevator, and purchased “commodity soybeans” intended for human or animal consumption and planted them. Most of these commodity soybeans were grown from the Roundup Ready seeds. When Bowman applied a herbicide, most of the new plants survived the treatment and produced a new crop of soybeans with the Roundup Ready trait. Bowman saved the seed from that crop to plant his second crop the following year. Bowman did this for eight growing seasons. Monsanto found out and sued Bowman for patent infringement.
Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans because they were the subject of a prior authorized sale from the grain elevator. The Supreme Court rejected Bowman’s argument. The court reasoned that the patent exhaustion doctrine, which provides that the initial authorized sale of a patented item terminates all patent rights in them, does not permit a buyer to make new copies of the patented item. A second creation of the patented item calls the patent “monopoly” in play for a second time. Here, Bowman was reproducing Monsanto’s patented invention, and the court held that the exhaustion doctrine did not protect him. To hold otherwise, the Supreme Court explained, would result in Monsanto having a patent with little benefit because farmers could buy the seed only once and reproduce it.
Bowman tried to argue that seeds were special in that they were naturally self-replicating and that it was the soybean, not Bowman himself, that made the replicas of Roundup Ready seeds. The court was not convinced by this “blame-the-bean” defense because Bowman was not a passive observer of his soybeans’ multiplication, having devised a novel way to replicate seeds from the soybeans.
The Supreme Court stressed that its holding was limited to addressing the specific situation before it, rather than other self-replicating products in the market. The court recognized “that such inventions are becoming ever more prevalent, complex, and diverse. In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be a necessary but incidental step in using the item for another purpose . . . . We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”
Thus, the Supreme Court did not use the Monsanto case as an opportunity to give any kind of broad guidance on the patent exhaustion defense as it applies to self-replicating products. This guidance will have to await another day.