United States: Intellectual Property Quarterly Newsletter - Spring 2011- Part 2

MACHINE OR TRANSFORMATION: NOW THAT THE SUPREME COURT HAS SPOKEN, HAS THE MOMENTUM SWUNG IN FAVOR OF ELIGIBILITY?

By Marc J. Pernick

For many years, a serious Section 101 attack in response to an assertion of patent infringement was a rarity. That changed dramatically on October 30, 2008, with the Federal Circuit's en banc Bilski decision and its adoption of the "machine-or-transformation" (MoT) test as the definitive test for patent eligibility of method claims.

At least until mid-2010, the defense had teeth. The strict application of the Federal Circuit's MoT test led to the invalidation of several patents in district court (and to the rejection of scores of applications in the PTO). But then the Supreme Court stepped in. On June 28, 2010, the Supreme Court held that the CAFC's interpretation of Section 101 had been unduly narrow, and that the MoT test was not the sole test for patent eligibility.

The Supreme Court stated that, while the MoT test "is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101," the Patent Act must not be read so narrowly, especially in the "Information Age." Bilski v. Kappos, 130 S. Ct. 3218, 3227 (2010). Based on its precedents, the Court held that there are only "three specific exceptions to § 101's broad patent-eligibility principles: 'laws of nature, physical phenomena, and abstract ideas.'" Bilski, 130 S. Ct. at 3225. Methods that do not claim these types of subject matter are eligible for patenting.

After Bilski: We are now beginning to see the impact of the Supreme Court's decision. There have been two significant post-Bilski Federal Circuit decisions, and both are more patent-friendly than the en banc Bilski majority opinion from 2008. Both upheld method claims on summary judgment.

In early December 2010, the CAFC decided Research Corp. Techs. v. Microsoft Corp., (December 8, 2010) ("RCT"). The claims at issue in RCT were directed to methods for digital image "halftoning." Halftoning is a technology that allows computer monitors and printers to display images that seem to include a wide spectrum of colors, even though the devices only have a limited number of primary colors at their disposal. The district court had held on summary judgment that the asserted claims were invalid under Section 101.

The Federal Circuit saw it differently. On appeal, the CAFC heeded the Supreme Court's instructions. The court did not address the MoT test at all; it instead went back to basic principles. "The Supreme Court has articulated only three exceptions to the Patent Act's broad patent-eligibility principles: 'laws of nature, physical phenomena, and abstract ideas...'" (Slip Op. at 13.)

The court then focused on whether the claims were so abstract that they should be ineligible for patenting under Supreme Court precedent. In doing so, the CAFC employed a tone that stood in sharp contrast to the en banc Bilski majority opinion.

The RCT panel emphasized that "[t]he section 101 patent-eligibility inquiry is only a threshold test" that "should not become a substitute for a patentability analysis related to prior art, adequate disclosure, or the other conditions and requirements of Title 35." (Id.) The court referred to Section 101 as a "coarse eligibility filter," and stated that a patent claiming eligible subject matter "may nonetheless be invalid [because its claims are] indefinite... [or because its] written description does not enable a person of ordinary skill in the art to replicate the process." (Id. at 14.)

The court declined to provide any "rigid formula or definition" by which to measure "abstractness." It underscored, however, "that this disqualifying characteristic should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and the statutory context that directs primary attention on the patentability criteria of the rest of the Patent Act." (Id. (emphasis added).) Under that standard, the CAFC found that the halftoning method claims before it easily passed muster. They were not nearly so "manifestly abstract" as to be patent ineligible.

The CAFC applied Bilski in a very different setting less than two weeks later. In Prometheus Laboratories, Inc. v. Mayo Collaborative Services, No. 2008-1403 (December 17, 2010), the claims related to methods of optimizing the efficacy of the treatment of gastrointestinal disorders by a process of: (i) administering a drug to a patient, (ii) determining the level of a metabolite of the drug in the patient, and (iii) comparing the level of the metabolite to threshold values to determine whether an adjustment was needed.

The CAFC had already considered these claims in 2009, and held that they satisfied the MoT test. But, when it decided Bilski, the Supreme Court remanded Prometheus so that the Federal Circuit could reconsider the case. On remand, the CAFC asked "whether Prometheus's asserted claims are drawn to a natural phenomenon, the patenting of which would entirely preempt its use..., or whether the claims are drawn only to a particular application of that phenomenon..." (Slip Op. at 12-13.)

The court concluded that the claims did not preempt the use of any natural phenomenon, and that they were therefore patent eligible. According to the Federal Circuit, although the claims related to "naturally occurring correlations between metabolite levels and efficacy or toxicity," "the claims recite specific treatment steps, not just the correlations themselves." As such, the claims were directed to "a patent-eligible application of [these] naturally occurring correlations." (Id. at 15.) The CAFC pointed out that the claims "involve a particular application of the natural correlations: the treatment of a specific disease by administering specific drugs and measuring specific metabolites." (Id. (emphasis added).) Given that particularity, "the claims do not preempt all uses of the natural correlations; they [instead] utilize them in a series of specific steps." (Id.)

The CAFC went on to also consider whether the claims met the MoT test. The court reaffirmed that they did.

The Federal Circuit explained that the claims involve a transformation "of the human body and of its components following the administration of a specific class of drugs and the various chemical and physical changes of the drugs' metabolites that enable their concentrations to be determined." (Id. at 16.) The court emphasized that "methods of treatment... are always transformative when one of a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition." (Id. at 17.) Broad language like that bodes well for life sciences entities seeking patents on methods of treatment.

Additionally, the Federal Circuit held that the claims at issue that did not have an "administering" step––and that only required "determining" the level of certain metabolites in a subject––also contained a transformation that made them patent eligible. (Id. at 18-19.) The court reasoned that "[d]etermining the levels of 6-TG or 6-MMP in a subject necessarily involves a transformation [because] [s]ome form of manipulation... is necessary to extract the metabolites from a bodily sample and determine their concentration." (Id.)

What Do the New Cases Signal? Although they are only the first decisions post- Bilski, RCT and Prometheus offer signs of optimism for those who favor broad patent eligibility. Do these precedents signal that we have returned to a climate in which Section 101 attacks are not nearly as potent as obviousness, anticipation, enablement, and written description? Maybe. But it is too early to tell.

For one thing, we probably should not read too much into the relatively lenient standard applied in RCT. The three-judge panel in that case included Chief Judge Rader and Judge Newman, both of whom dissented from the en banc decision in Bilski. The views expressed in RCT and Prometheus thus may not be representative of the entire Federal Circuit or even a majority of the current judges.

One thing we do know is that there is a relative dearth of precedent––especially modern precedent––in this area of the law. A host of procedural and substantive questions remain open.

When are claims too "abstract?"

One substantive question in need of clarification concerns how to assess whether a claim is too "abstract" to get past the "coarse eligibility filter" of Section 101. Absent more clarity on this issue, it will be difficult to determine the eligibility of patents that are close to the Section 101 line.

Indeed, in the wake of Bilski, many complained that the Supreme Court's decision did not provide enough guidance as to when a patent impermissibly sought to claim "laws of nature, physical phenomena, [or] abstract ideas." Some likened the Court's formulation to Justice Potter Stewart's famous dictum from Jacobellis v. Ohio, 378 U.S. 184 (1964), about how to recognize obscenity: "I know it when I see it."

After RCT and Prometheus, it is natural to ask whether the CAFC has now provided meaningful guidance. The answer is, "not that much."

As explained above, the CAFC in RCT declined to provide a definition of "abstract, beyond the recognition that this disqualifying characteristic should exhibit itself ... manifestly[.]" (Slip Op. at 14.) While this tells us that the "abstractness" that violates Section 101 should jump out at us, it is not a standard that lends itself to ready application.

A closer read of RCT, however, does suggest something about how the CAFC views this issue. The court stressed that "[t]he invention presents functional and palpable applications in the field of computer technology," and that those applications "address 'a need in the art for a method of and apparatus for the halftone rendering of gray scale images in which a digital data processor is utilized in a simple and precise manner to accomplish the halftone rendering.'" (Id. at 15.) The CAFC went out of its way to "note[ ] that inventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act." (Id. at 15.)

This suggests that the key may lie in whether method claims have true applications that are observable or tangible—not theoretical. Claims that address "a need," rather than being academic, may also have an edge. All in all, the Federal Circuit's post-Bilski approach to "abstractness" may lie in the extent to which a claim has practical applications––especially in technologies that have some degree of maturity.⁶³ Patent owners and applicants facing Section 101 challenges should consider focusing on these themes.

Can plaintiffs avoid summary judgment and get their case to a jury?

On the procedural side, one unresolved question concerns the interplay between patentable subject matter and summary judgment.

The ability for a defendant to knock a case out on summary judgment can have a dramatic impact on litigation costs, and the speed to resolution. In terms of outcome, who decides an issue—the judge on summary judgment, or the jury at trial—can also make a big difference.

There is no doubt that the ultimate decision of whether a claim is directed to patentable subject matter is a question of law for the judge. But there is some uncertainty about whether there might be factual questions underlying this determination that require resolution by a jury.

For example, in Arrhythmia Research Tech., Inc. v. Corazonix Corp., 958 F.2d 1053, 1056 (Fed. Cir. 1992), the CAFC reversed a grant of summary judgment of invalidity, and held that claims were directed to patentable subject matter. The court stated that "[w]hether a claim is directed to statutory subject matter is a question of law." But the CAFC also said that "determination of this question may require findings of underlying facts specific to the particular subject matter and its mode of claiming..." Ultimately, the panel held that, "in this case, there were no disputed facts material to the issue." It therefore disposed of the Section 101 issue as a matter of law.

Likewise, in State Street, 149 F.3d 1368, 1370 (Fed. Cir. 1998), the Federal Circuit reversed a summary judgment of invalidity, and held that the claims before it were patent eligible. But, as part of its analysis, the court noted that "[t]he following facts pertinent to the statutory subject matter issue are either undisputed or represent the version alleged by the nonmovant" Id.

These statements hint that there could be factual disputes on a Section 101 attack that would preclude summary judgment. Presumably, these underlying questions of fact would have to be resolved by the jury, and, only then, after the jury made its findings, could the judge decide the ultimate legal question of patent eligibility. See also In re Comiskey, 554 F.3d 967, 975 (Fed. Cir. 2009) ("there may be cases in which the legal question as to patentable subject matter may turn on subsidiary factual issues").

This approach would not be unheard of. For example, this is generally how obviousness is treated by courts. Even though obviousness is ultimately a question of law, there are underlying factual issues subsumed within it. When those are in dispute, summary judgment is inappropriate.

But the more recent Section 101 cases are not trending this way. In RCT and Prometheus, the Federal Circuit outright reversed district court grants of summary judgment of invalidity. And, the CAFC did not vacate these decisions and remand. Instead, it held as a substantive matter that the claims were patent eligible.

And the CAFC in both cases did not say anything to suggest there could be underlying factual issues that had any ability to render summary judgment inappropriate. There was no acknowledgement that factual disputes might, under different circumstances, require denying summary judgment. In RCT, the court simply said, "[t]his court... reviews questions about patent-eligible subject matter under 35 U.S.C. § 101 without deference." (Slip Op. at 11-12.) In Prometheus, the CAFC again just stated that "[w]hether a patent claim is directed to statutory subject matter is a question of law that we review de novo." (Slip Op. at 11.)

But plaintiff patent owners who want to avoid summary judgment ought to consider whether Arrhythmia, State Street, and Comiskey still mandate that district courts deny motions for summary judgment if there are genuine factual disputes about patent eligibility. Potential issues that can theoretically be "disputed" abound. For example, plaintiffs trying to avoid summary judgment could develop evidence about the state of the art in which the claims operate, and whether there are other solutions that exist in the field to solve the same problem. Further, as discussed above, a patent owner might garner evidence concerning the extent to which its inventions solve practical problems in the field. On all of these issues, expert testimony, prior art, and other evidence about the relevant industry might be probative. These are all clearly areas in which there could be factual disputes.

Footnotes continued

63. In that regard, RCT is more reminiscent of the CAFC's State Street test (whether a claim produces a "useful, concrete, and tangible result") than it is of the Bilski MoT standard.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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