The Supreme Court’s Part in Patent Reform, Post-AIA

Originally appeared in InsideCounsel on January 5, 2015.

—By Peter Root and Nisha Agarwal

The goal of patent law is to provide incentives for innovation and dissemination of scientific and technical information to the public domain. The generally held view is that society needs patents to motivate technological advances. However, this view is tempered by another generally held view that the patent “monopoly” can have anticompetitive effects. Congress and the Supreme Court have attempted through the years to strike a balance between competition and patent law, sometimes loosening patent standards and procedures and sometimes tightening them.

Congress in recent years has exhibited an intent to suppress what it perceived as improvidently granted patents and unwarranted market power. The Leahy-Smith America Invents Act (AIA), enacted on Sept. 16, 2011, promulgated the most significant changes to patent law in almost 60 years. Among other things, the AIA created a new trial-like proceeding , called inter partes review, before a newly established tribunal within the USPTO, the Patent Trial and Appeal Board. In the two years since its implementation, approximately 66 percent of cumulative claims have been invalidated and 13 percent have been cancelled by the patent owner.

Against the backdrop of AIA, the Supreme Court also appears to be striking a new balance between patent law and competition. In 2014, the Supreme Court decided several cases continuing a trend towards tougher standards for patentees, including decisions that addressed, respectively, patent eligibility under 35 U.S.C. 101, the “definiteness” requirements under 35 U.S.C. 112, ¶ 2, and standards for fee recovery from a losing party.

Patent-Eligible Subject Matter

In the 1980s and 1990s, the scope of patent-eligible subject matter expanded. Through two landmark decisions in 1980, for instance, the Supreme Court held that both man-made, living organisms and computer software constitute patent-eligible subject matter under Section 101.

The Supreme Court’s decision in CLS Bank v. Alice (June 19, 2014) was a much anticipated Section 101 case, especially in light of the its recent decisions in Myriad and Mayo, which were generally viewed as unfriendly to patents. The Court held that the two-step Mayo framework applies to software patent eligibility determinations. It found that the “claims at issue are drawn to the abstract idea of intermediated settlement” and that “merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”

Rejecting the petitioner’s position that an abstract idea should be limited to a “principle apart from any human action,” the Court instead expanded the notion of “abstract idea” to include methods of “organizing human activity,” at least if they constitute a fundamental economic practice “long prevalent in commerce.” The Court further stated that the mere “introduction of a computer into the claims” does not change the analysis. Explaining its 1981 decision in Diamond v. Diehr, the Court stated that “the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer.” In contrast, the Court found that the claims in Alice did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” The Court’s decision in Alice has had immediate and far-reaching effect. In 16 of 21 district court cases challenging patent eligibility, courts haves invalidated patents for failing to satisfy the new Alice standard.

Patent “Definiteness”

A patent must be precise enough to afford clear notice of what is claimed, which is referred to as the “definiteness” requirement. For years, the Federal Circuit employed an expansive standard, holding that a claim passes muster so long as it is not “insolubly ambiguous” and thus “amenable to construction.” On June 4, 2014, in Nautilus Inc. v. Biosig Instruments Inc., the Supreme Court rejected the Federal Circuit’s standard and announced a new, narrower “reasonable certainty” standard for definiteness determinations. The Court explained that the Federal Circuit standard “lack[s] the precision § 112, ¶ 2 demands.” The Nautilus decision has not had the immediate effect that some commentators predicted (the vast majority of claim terms continue to be found sufficiently definite), but this decision is yet another in the recent trend calling for heightened scrutiny of patents.

Attorney’s Fees and Fee Shifting

The statutory provision entitling a prevailing party to recover its attorneys’ fees from the losing party in “exceptional cases” has long been on the books, but district courts have rarely applied the provision. Recently, the Supreme Court has provided a more expansive interpretation of fee recovery provisions. For example, in Octane (April 2014),the Supreme Court held that “an exceptional case” within the meaning of the Patent Act’s fee-shifting provision “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position, considering both the governing law and the facts of the case, or the unreasonable manner in which the case was litigated.” The Court rejected the heightened requirements for fee-shifting that the Federal Circuit had articulated in Brooks Furniture, including rejection of the heightened “clear and convincing” standard of proof. The Supreme Court instead held that awarding fees is within the district court discretion. In Highmark, decided on the same day, the Supreme Court explained that district court decisions on fee-shifting in patent cases are subject to appellate review for “abuse of discretion” only, displacing the de novo review that had been the standard. These fee-shifting cases clearly provide for more expansive authority to the district courts, and effectively urge them to more liberally award fees in cases where the patent or infringement claims, or both, are weak.

Practical Takeaways for Potential Defendants

Since the Supreme Court’s decision in Alice, the overall patent litigation docket has seen a 30 percent drop in case filings, a remarkable turnaround from the exponential growth in years past. Although correlations do not confirm a causation, it appears that patentees are treading more carefully in asserting patents, especially software patents, against alleged infringers. Similarly, inside counsel that may potentially be defendants in such cases should carefully evaluate both 101 and 112 arguments on a claim-by-claim basis. As to applicants, they would benefit from providing multiple claim sets containing different detail levels and detailed technical specifications to safeguard against a variety of potential Section 101 and 112 attacks.

Conclusion

Congress and the Supreme Court appear to be on a purposeful path of tightening standards and procedures for obtaining and asserting patents. Will this trend continue in 2015? Some aspects that may get scrutinized include written description (as loosely described inventions are problematic on many fronts, not the least of which is lack of clear notice), claim construction (as claim scope more in line with what is described is more likely to give what the inventor truly possesses), and the raging debate over what, if anything, to do about “troll” litigation.

 » Read the full article on InsideCounsel (subscription required).

Reprinted with permission from the January 2015 edition of the InsideCounsel© 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.