A recent decision from the Ninth Circuit in Kimble v. Marvel Enterprises Inc., No. 11-15605, highlights the problems parties can have when they enter into license agreements involving patents where the royalty payments extend beyond the life of the patents. In general, hybrid licensing agreements (those having inseparable patent and non-patent fights) are unenforceable beyond the expiration date of the patent unless either (a) there is a discounted royalty rate after the expiration date or (b) there is some clear indication that the royalty rate was not driven by leverage created by the patent rights. See Brulotte v. Thys Co., 379 U.S. 29 (1964). The rationale is that to hold otherwise would improperly extend the lifetime of the patent.
In Kimble, the inventor met with Marvel about his patented idea for a toy that children could use to mimic Spider-Man’s ability to shoot webs from his hands by shooting foam string from a glove. Kimble claimed the parties reached an oral agreement that Marvel would compensate Kimble if it used his ideas. Marvel then created a toy called the “Web Blaster” that was similar to what Kimble suggested. Marvel did not compensate Kimble, however.
Kimble sued for both patent infringement and breach of contract. The parties ultimately settled the case, with Marvel paying a lump sum to Kimble along with a perpetual 3% royalty on Marvel’s sales of these products. Eventually, the parties had a falling out regarding what products were covered by the agreement and the amounts due to Kimble.
The Court found that the agreement was a hybrid licensing agreement encompassing both patent and non-patent rights. Because there was no discount in the royalty rate post-expiration and there was no clear indication that the royalty rate was not subject to the leverage created by the patent, the post-expiration royalties were per se unenforceable.
The Ninth Circuit was not pleased to reach this result, however. It believed that the Supreme Court’s rule in Brulotte is “counterintuitive and its rationale is arguably unconvincing.” Nonetheless, it recognized that it was bound by this decision and that national uniformity on these issues is important.
The Kimble and Brulottedecisions highlight the importance of carefully considering the terms and duration of any licensing agreement that encompasses patent rights. Care must be taken to determine when any patent rights expire, what a royalty rate is based on, and how the two interact. With proper care ahead of time, problems like these can be avoided.
In an en banc decision in Robert Bosch, LLC v. Pylon Manufacturing Corp., No. 2011-1363, -1364, the Federal Circuit held that it has jurisdiction under 28 U.S.C. § 1292(c)(2) to hear an appeal of a jury’s determination of infringement even though the issues of damages and willful infringement have not been decided. Judge Prost was joined by Chief Judge Rader and Judges Newman, Lourie, and Dyk. Judges Moore and Reyna concurred with respect to an appeal where just the damages determination has not been made, but dissented with respect to appeals where the willful infringement determination has not been made. Judges O’Malley and Wallach dissented as to both.
The case had a rather unusual procedural path. In 2008, Robert Bosch sued Pylon Manufacturing for infringing its patents relating to wiper blades. Pylon moved the district court to bifurcate the issue of infringement from the issues of damages and willful infringement. The court granted the motion and stayed discovery with respect to both damages and willful infringement. The court entered partial summary judgment on some issues in favor of both parties, but found jury questions relating to some of the infringement and invalidity claims. The jury found that Pylon infringed the claims of the patents and that the patents were not invalid. The court denied Bosch’s motion for a permanent injunction. Bosch appealed, and the Federal Circuit, in an opinion written by Judge O’Malley and joined by Judge Reyna, reversed and remanded. The parties also appealed the infringement and invalidity decisions. After oral argument, the Federal Circuit, sua sponte, granted a rehearing en banc to determine whether the Court had jurisdiction to hear the appeal in the first place because the damages and willful infringement issues had not been decided.
Under 28 U.S.C. § 1292(c)(2), the Federal Circuit has jurisdiction to hear appeals “from a judgment in a civil action for patent infringement which would otherwise be appealable . . . and is final except for an accounting.” Thus, the question was whether the damages and willful infringement determinations fall within the rubric of an “accounting.”
In analyzing the history of the statute and the understanding of the term “accounting,” the Court determined that an accounting was “a proceeding that includes the determination of both profits and damages.” The Court further noted that historically such accountings were made by special masters, but that this limitation no longer applied, especially after the merger of law and equity occurred in the courts.
With respect to willful infringement, the Court found that historically the issue of enhancement of damages was determined as part of an accounting. Thus, the Court found that it had jurisdiction to hear appeals when the issues of both damages and willful infringement remain outstanding. The Court then returned the case to the panel to decide the appeal on its merits.
The dissent reached a different conclusion, finding that the historical precedent made clear that the term accounting in the statute did not apply to either the damage or willful infringement determinations. Judge O’Malley noted that “[i]n all other circuits and all other types of cases, the finality requirement plainly applies to outstanding damages determinations.” She cautioned that there was no justification for treating patent cases any differently.
Today, the United States Supreme Court in a 5-3 decision authored by Justice Breyer in Federal Trade Commission v. Actavis, Inc., No. 12-416, held that reverse payments by a patent holder to an accused infringer to settle a patent infringement lawsuit may implicate antitrust concerns and may be actionable. The Court declined to find that such payments are either per se actionable or immune from the antitrust laws. Instead, such payments must be analyzed under a “rule of reason” approach.
The case arose out of a “paragraph IV” patent infringement lawsuit brought by a pharmaceutical manufacture (Solvay Pharmaceuticals) against a generic manufacturer (Actavis). Solvay filed a New Drug Application in 1999 for a brand-name drug called AndroGel that is used in testosterone replacement therapy. In 2003, Solvay obtained a patent covering the drug, which was disclosed to the FDA. Later in 2003, Actavis filed an Abbreviated New Drug Application for a generic equivalent to AndroGel, and asserted, under paragraph IV of the Hatch-Waxman Act, that it did not infringe Solvay’s patent because the patent was invalid and it did not infringe. Solvay promptly filed suit alleging infringement under 35 U.S.C. § 271(e)(2)(A).
In 2006, the parties settled the litigation. Actavis agreed to not bring its generic drug to market until 2015 (which was 65 months prior to the expiration of Solvay’s patent) and to promote AndroGel to urologists. In return, Solvay agreed to pay Actavis $19–$30 million annually for nine years. Solvay reached similar agreements with other generic manufacturers.
The Federal Trade Commission found that the settlements were designed primarily to limit competition in the marketplace. In essence, Solvay was simply paying the generic manufacturers to stay out of the marketplace, which would have the side effect of increasing prices for consumers. The FTC then brought an antitrust lawsuit against the drug manufacturers.
The District Court found that the FTC’s allegations did not state a claim under the antitrust laws and dismissed the case. The Eleventh Circuit affirmed. They held that absent an allegation of sham litigation, it was not an antitrust violation to reach these kinds of settlements when the restrictions expired prior to the expiration of the patent in question.
Justice Breyer, writing for the majority, disagreed with the Eleventh Circuit’s blanket rule based on the expiration date of the patent. Instead, the Court held that courts must use a “rule of reason” approach and consider the purpose behind the settlement before they can determine whether the settlements run afoul of the antitrust laws.
In reaching this conclusion, the Court considered that the patent may, in fact, not be valid, and there is a strong public interest in removing invalid patents that is frustrated if these kinds of settlements are allowed. The Court also considered the unusual nature of these settlements—where a patent holder pays substantial amounts to the accused infringer. This was not a case where the two parties met in the middle on a settlement figure or where the accused infringer had more valuable counterclaims. Finally, the legislative history behind the Hatch-Waxman Act suggested that Congress was not attempting to justify settlements like these.
The Court also considered the countervailing interest of encouraging settlements and allowing parties to reach mutually-agreeable resolutions. Despite that important interest, the Court was not willing to create blanket immunity for these kinds of settlements. It was concerned that these settlements have a very real potential to hinder competition.
The Court will also quick to note that it would not hold such reverse payment settlements as per se violations. It recognized that some reverse payments may be justified because they save litigation costs, allow for increased distribution of the drug, or will help develop new markets. In the end, the relevant question for antitrust purposes is why did the parties enter the agreement? “If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.”
The Court then remanded the case back for further proceedings. Justices Breyer wrote the opinion of the Court and was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan. Chief Roberts dissented and was joined by Justices Scalia and Thomas. Justice Alito took no part in the decision.
Today, the United States Supreme Court unanimously ruled in Association for Molecular Pathology v. Myriad Genetics, Inc.,No. 12-398, that a naturally-occurring DNA segment (or gene) is not patent eligible even if it has been isolated from a genome (reversing the Federal Circuit). The Court also ruled that cDNA (complementary DNA) is patent eligible because it is not naturally occurring (affirming the Federal Circuit). Justice Thomas wrote the opinion for the unanimous Court, and Justice Scalia wrote a short concurrence. We have been following this case for some time (see here, here, and here).
The Court began by restating its position that laws of nature, natural phenomena, and abstract ideas are not patentable subject matter under 35 U.S.C. § 101. The question for the Court was whether Myriad’s patents claimed any new and useful composition of matter.
To answer this question, the Court looked at what Myriad claimed. With respect to the DNA claims, Myriad claimed the DNA segment it found in nature, and it did not change or alter any of the genetic information in that segment. Because it claimed something naturally found in nature, it was not patent eligible subject matter.
With respect to the cDNA claims, the Court reached a different result. The cDNA is not found in nature, but is created in the laboratory. This key difference meant that it was patent eligible subject matter. The Court did not address whether these claims met the other requirements of the patent statute, such as §§ 102, 103, and 112.
The Court was also very clear on what it was not deciding in this case. There were no method claims at issue, such as an innovative method for manipulating genes. Similarly, there were no claims directed to how this new knowledge might be applied to achieve some useful result. The Court suggested (without holding) that those types of claims would be patent eligible. Finally, it noted that the claims were not directed to naturally occurring genetic code that had been altered to create some new and not natural DNA. The Court refused to suggest how it might address claims like those.
In the end, the Court stated that “[w]e merely hold that genes and the information they encode are not patent eligible under § 101 simply because they have been isolated from the surrounding genetic material.”
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.
On April 18, 2013, the Federal Circuit issued another decision in which it analyzed the interplay between the standard form patent complaint in Form 18 of the Federal Rules of Civil Procedure and the Supreme Court’s decisions in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). Form 18 suggests that a plaintiff can satisfy the pleading standards for alleging direct patent infringement with relatively minimal allegations. The Federal Circuit determined that the Supreme Court’s decisions in Twombly and Iqbal did not pre-empt the appropriateness of Form 18. This decision follows a prior one (R+L Carriers, Inc. v. DriverTech LLC, (In re Bill of Lading Transmission & Processing System Patent Litigation), 681 F.3d 1323 (Fed. Cir. 2012)), in which the Federal Circuit considered the same question (and ruled in the same way).
The Federal Circuit noted that Form 18 requires that a plaintiff make:
(1) an allegation of jurisdiction; (2) a statement that the plaintiff owns the patent; (3) a statement that defendant has been infringing the patent ‘by making, selling, and using [the device] embodying the patent’; (4) a statement that the plaintiff has given the defendant notice of its infringement; and (5) a demand for an injunction and damages.
The Federal Circuit further noted that “Federal Rule of Civil Procedure 84 states that ‘the forms in the Appendix suffice under these rules and illustrate the simplicity and brevity that these rules contemplate’” and that the Advisory Committee Notes “make clear that a proper use of a form contained in the Appendix of Forms effectively immunizes a claimant from attack regarding the sufficiency of the pleading.”
The question the Court next considered was whether Twombly and Iqbal pre-empted Form 18 and Rule 84. It determined that “as we made clear in R+L Carriers, to the extent any conflict exists between Twombly (and its progeny) and the Forms regarding pleadings requirements, the Forms control.”
In addressing the sufficiency of the complaint, the Court noted that it is generally not necessary for a plaintiff to identify the precise product being infringed, especially in instances where that information is within the control of the defendant and not publicly available.
Having said that, the Court then back-tracked somewhat about the detail required to meet the pleading standards, indicating that the bare allegations required in Form 18 might not be sufficient, depending on the complexity of the case and what would be required to give a defendant sufficient notice of the claims being brought against it.
A complaint containing just enough information to satisfy a governing form may well be sufficient under Twombly and Iqbal. R+L Carriers, 681 F.3d at 1334 n.6. “Resolution of that question will depend upon the level of specificity required by the particular form, the element of the cause of action as to which the facts plead are allegedly inadequate, and the phrasing of the complaint being challenged.” Id. (citing Twombly, 550 U.S. at 564 n.10 (noting that forms governing claims for negligence require sufficient detail to permit a defendant to “know what to answer”)). And we think it clear that an implausible claim for patent infringement rightly should be dismissed.
Form 18 in no way relaxes the clear principle of Rule 8, that a potential infringer be placed on notice of what activity or device is being accused of infringement.
Moreover, the Court cautioned that mere compliance with Form 18 may not be sufficient to meet the ethical requirements for filing a patent infringement action—plaintiffs must still conduct the required due diligence under Rule 11.
Satisfaction of Form 18 does not guarantee compliance with Rule 11 of the Federal Rules of Civil Procedure. That a complaint alleges a plausible claim for patent infringement on its face and satisfies Form 18 does not immunize a plaintiff who fails to identify easily ascertainable evidence of noninfringement through appropriate pre-suit investigation.
It appears that the Federal Circuit felt constrained by the Rules of Civil Procedure and the pre-Twombly/Iqbal forms. Had Form 18 not existed, the Federal Circuit may have decided differently. That being said, until Form 18 is changed, litigants must consider the appropriateness of pleadings in the context of Form 18, and not just the Twombly and Iqbal standards. Providing sufficient particularity to provide notice to the accused infringer of the patents raised and the acts of alleged infringement is still the ultimate touchstone.
Yesterday, the United States Supreme Court heard oral argument on a key patent issue—are human genes patentable subject matter? In the Association for Molecular Pathology v. Myriad Genetics, Inc., (No. 12-398), the Supreme Court granted certiorari to decide this issue, which will have a profound impact on the medical research and pharmaceutical industries. (For a complete list of the issues presented, see here). This post follows up on our earlier post discussing the Court’s decision to grant cert.
In this case, Myriad Genetics identified and isolated a human gene that could be used to help predict a patient’s genetic predisposition to breast and ovarian cancers. Myriad then obtained a patent on, among other things, cDNA molecules associated with the relevant genes, as well as the use of the molecule to probe a patient’s DNA and to prime the production of the patient’s DNA in the laboratory. (The parties’ briefs explaining the details of the patented claims can be found here). Myriad then created a test that could be used on patients to help assess whether they were more likely to be predisposed to certain kinds of breast and ovarian cancers.
After creating the tests and obtaining the patent, Myriad sent letters to various researchers, informing them of the patent rights and requesting that they refrain from infringing. As a result, numerous researchers ceased working in this area. A number of researchers and institutions filed a declaratory judgment action, seeking a determination, among other things, that the patents were invalid.
The Federal Circuit, in a split decision with each Judge writing separately, held that human genes are patentable subject matter. The Association filed a writ of certiorari challenging this decision, which the Supreme Court granted. Oral arguments were held on April 15, 2013, and a transcript can be found here.
While it is always difficult to predict how the Supreme Court will rule, there are some aspects that appeared to concern the Court more than others. First, the Justices probed the parties for where and how lines should be drawn about what is a product of nature that should not be patented and what is the result of human intervention. This is the heart of the question presented and what they were struggling to define. Ultimately, the Court seemed more inclined to uphold the patent claims associated with the cDNA, as they involved more human intervention, but we will have to wait to see what they actually do.
Second, the Court questioned whether striking these kinds of patents would eliminate the incentives for inventors to invest the time and money in developing these kinds of tests and treatments. There was some concern that eliminating these kinds of patents could hinder innovation. On the other hand, counsel for the Association argued that allowing these kinds of patents actually creates a disincentive, as many researchers and companies will not invest any time and money for fear of being sued (which is what happened here).
The transcript of the oral argument makes for a fascinating read. What will be more interesting is reading the ruling. We expect a decision sometime later this summer.
For more analysis on the oral arguments, see here.
On March 15, 2013, the Federal Circuit issued an order in Lighting Ballast Control LLC v. Philips Electronics North America Corp, Case No. 2012-1014, -1015, stating that an en banc panel of the Court will consider whether and to what extent it should afford any deference to a district court’s patent claim construction. The Federal Circuit is determining whether it will overrule its prior decision in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998).
The Supreme Court, in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), determined that claim construction is a matter of law exclusively for the courts, and is not a factual matter for juries (although it did recognize that claim construction is somewhat of a “mongrel,” having aspects that are both legal and factual). In Cybor, the Federal Circuit considered what the implication of that finding would be on how it, as an appellate court, would review a trial court’s construction of the claims in a patent. It concluded that because claim construction is a matter of law, it would review a district court’s construction of the terms in a patent de novo, meaning without any deference to the lower court’s conclusion. This has been the state of the law for some time now.
The implications of the Cybor decision are significant to patent holders and those accused of infringement. As a practical matter, parties to a lawsuit have come to view a district court’s claim construction as a somewhat intermediate position. After all, if the Federal Circuit will give no deference to the district court’s conclusions, there is a significant possibility that those conclusions could be reversed on appeal. Fair or not, the perception of the Federal Circuit among some practitioners is that a trial court’s claim construction only has a 50/50 chance of being affirmed on appeal. (For some interesting studies of Federal Circuit reversal rates, seehere, here, and here). Many have complained that this uncertainty discourages settlement, because the “losing” side on the claim construction issue often feels that it will be “vindicated” on appeal.
On the other hand, by having the Federal Circuit have the “final say” on claim construction, it promotes more consistency and, hopefully, better results, as the Federal Circuit is often far more familiar with claim construction issues than many district courts and they (and their clerks) are often better versed in the technologies described in these patents.
Patent holders are also fearful that if claim construction is not reviewed de novo, an unfavorable claim construction by a district court may be very difficult to overcome and could affect how a particular term is construed in other patents held by the patentee. If the Federal Circuit has the final say, a patentee has more options. For instance, it can appeal to the Federal Circuit a get a fresh look at the issue, or it can settle the case with a realistic hope that the Federal Circuit in a later case would not be particularly beholden to how a district court in a previous case construed a claim term.
Thus, this case will be particularly important for parties in patent litigation. It will be very interesting to listen to the oral argument in the Lighting Ballast case and see what the Federal Circuit ultimately decides. This may, in the end, be another issue that the Supreme Court will decide to weigh in on.
Contact our Pittsburgh Intellectual Property, Cyber and Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP and Litigation Sections Chair Henry M. Sneath at 412-288-4013 or email@example.com. While focusing first on health care and prevention issues for family, friends and employees, we are also beginning to examine the overall Covid Law related issues in business litigation, contract force majeure, trusts and estates litigation and insurance coverage issues that will naturally follow the economic disruption of the Covid-19 pandemic.
Some posts herein are from the HH-Law resources of PSMN® and PSMNLaw®. Business Litigation. Pittsburgh Strong® and DTSALaw®, PSMN® and PSMNLaw® are federally registered trademarks of HH-Law. See Firm Website at: https://www.hh-law.com/Professionals/Henry-Sneath.shtml