PATENT REFORM? A LONG WAY TO GO

On September 16, President Obama signed into law the Leahy-Smith America Invents Act, which made various amendments to the nation’s Patent Act (codified at 35 U.S.C §1-376). Ballyhooed as a patent reform measure, the America Invents Act really only touches the surface of patent reform. The fundamental challenge that the Information Age has thrown at the patent system was largely unaddressed. That challenge is where to draw the line between what is and what is not patentable.

For much of the Industrial Age, the line required a significant degree of tangibility for an “invention” to be patent-eligible. The requirement was not an explicitly written legal provision; it just flowed naturally from the primary focus of Industrial Age innovation, that focus being physical things.

Then in the latter half of the 20th Century came the Information Age. Tangibility gave way—not completely, but significantly—to bits and bytes, to different combinations of those bits and bytes, to software instructions for computers, to many “inventions” that consisted mostly of descriptions about how to do something rather than descriptions of a something itself. Indeed, in a number of cases, the descriptions, which after all were just words, were pretty much the whole “invention.”

This change in focus from the tangible to the intangible presented difficulties for a patent system that had long viewed patents as having two components: an “invention” and words describing the invention. In the intangible world of the Information Age, the words describing the invention often became the invention itself.

Section 101 of the Patent Act lists four categories of patentable objects: “any new and useful process, machine, manufacture, or composition of matter.” The process, also called the method, category is where many Information Age, intangible innovations fall on the patent spectrum. Business method patents is a non-legal term frequently applied to many patents in the process category. Another informal term often encountered is software patents. The term, which has no precise generally accepted definition, refers to innovations that consisted solely or mostly of computer instructions.

In July 2010, the U.S. Supreme Court handed down a decision, Bilski v. Kappos, that dealt with the patentability question, the question of what might fall beyond the bounds of process, machine, manufacture, or composition of matter. The “invention” involved was a method of hedging against risk in the energy market. The key claims as identified in Justice Kennedy’s opinion of the Court were 1 and 4. Claim 1 contained a series of steps describing how to hedge risk. Claim 4 put the concept articulated in claim 1 into a mathematical formula.

All nine of the Supreme Court Justices agreed that no patent should be granted for the described hedging process. The point all nine justices apparently agreed upon was that the process was abstract and therefore not patentable. But there was no single rationale that could provide much-needed guidance to the Patent Office and the patent and business communities. Four Justices—Kennedy, who wrote the opinion of the Court, Roberts, Thomas, and Alito—said as little as possible. They defined the proposed patent as an abstract concept and rejected it solely for abstractness. But they did not hold that business methods were unpatentable. They conceded that business methods presented special Information Age challenges—the opinion explicitly recognized the existence of the Information Age—but the four Justices found no general prohibition on the granting of patents for business methods.

Four other Justices—Stevens, who wrote a concurring opinion, Breyer, who joined in that opinion and also wrote another concurring opinion, Ginsburg, and Sotomayor—took a more expansive view. They would have prohibited business methods patents. Justice Scalia joined a portion of Kennedy’s opinion and a portion of Breyer’s opinion. The portions of Kennedy’s opinion and Breyer’s opinion that Scalia did not join were portions that cast degrees of doubt on patents for business methods. Interestingly, the portions of Kennedy’s opinion that Scalia did not join were also the only portions of the opinion that referred to the Information Age. Being a firm Constitutional Originalist, perhaps Justice Scalia objects to the Information Age.

The bottom line was that the Court in Bilski provided only minimal guidance on the question of where the patentability line should be drawn. The Court did condone a machine-or-transformation test for process or method patent claims: was a process tied to a particular machine or apparatus, or did the process transform a particular article into a different state or thing? But the Court emphasized that the machine-or-transformation test was not the sole test for determining patentability under §101of the Patent Act; the test was simply a useful and important clue or investigative tool.

So, the Supreme Court punted in 2010 when presented with an opportunity to clarify the bounds of patentability. Would Congress do better in the first comprehensive patent reform act in almost sixty years? Well, no.

Perhaps the most talked about provision of the America Invents Act is the change from a first-to-invent system to a first-to-file system for determining who is entitled to a patent. The United States had been alone among industrialized nations in having a first-to-invent system. By moving to a first-to-file system, the United States will, proponents hope, reduce administrative and litigation costs patent applicants and holders can incur in a first-to-invent system, and in a world of disparate systems. Adoption of the first-to-file system was accompanied by a number of conforming changes to other provisions of the Patent Act, including §102 on novelty and §103 on non-obvious subject matter. These changes, and the change to a first-to-file system in general, are of interest to patent practitioners down in the weeds of the patent world, but they have little significance to the broad question of what types of innovations should or should not be granted patent protection, protection that in essence amounts to a limited-term monopoly.

Another much discussed aspect of the America Invents Act is the broadening of post-grant reviews. A rationale for the expansion of post-grant reviews is that the complexity of technology and the large increase in the number of patent applications has resulted in the granting of many patents that on one grounds or another should not have been granted. Under the America Invents Act (section 6), post-grant reviews may be sought on any invalidity ground during the first twelve months after a patent is issued or reissued.

A narrower provision of the America Invents Act (section 18) allows post-grant review of the validity of certain business method patents. The covered patents include ones that claim a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that patents for technological inventions are not covered. Interestingly, the provision includes the admonition that amending or interpreting the categories of patent-eligible subject matter set forth in §101 of the Patent Act are not a permitted result of a post-grant review of a financial product or service patent.

The only direct narrowing of patentability under the American Invents Act concerns tax strategies. A small subset of business method patents, tax strategy patents are, as the moniker suggests, patents on tax strategies, or more accurately, on ways to avoid or reduce taxes.

Protecting tax strategies through the patent laws had aroused enough politically powerfully opposition that Congress was willing to curtail the practice. But Congress was apparently leery of opening a can of worms, which would have been the case if it began tinkering with the categories of patent-eligible subject matter in §101 of the Patent Act: processes, machines, manufactures, and compositions of matter. Consequently, Congress took the approach of saying that any future tax strategy patent applications would be deemed insufficient to differentiate them from prior art. In other words, future tax strategies would not be considered novel or non-obvious inventions warranting patent protection.

So Congress has joined the Supreme Court in punting on the fundamental question that the Information Age poses for an Industrial Age patent system: as predominately intangible innovations proliferate and become the mainstay of economic activity, where is the line to be drawn between what is patentable and what is not patentable? For the time being, drawing that line will be the province of, principally, two entities: the Patent Office and the Court of Appeals for the Federal Circuit, which is the federal appeals court that deals with patent matters at the appellate level.

The Patent Office itself does not speak with one voice. Policies and guidance are issued at a centralized level, but patent examiners can be all over the board in interpreting the policies and guidance, particularly in the fuzzy field of business method patents. The internal Patent Office appeals body—the Board of Patent Appeals and Interferences, which the America Invents Act renamed the Patent Trial and Appeal Board—attempts to bring a modicum of consistency to examiner decisions, but the effort is never-ending and only partly successful.

Thus for those seeking patent protection for innovations with a significant degree of intangibleness, the years ahead will likely be a time of considerable uncertainty. The principal beneficiaries of the uncertainty? The patent bar, of course.

CNN-TEA PARTY PRESIDENTIAL DEBATE: THOUGHTS ABOUT

) When did CNN foreswear substance for entertainment?

) The National Anthem!?

) OK then, why not an F-16 flyover?

) And scantily clad cheerleaders?

) Was CNN making a case for being the Monday night football provider?

) Michele Bachmann’s children number 3, 5, 7, or what?

) If CNN allies with the Tea Party to sponsor a Republican Presidential debate, would it also join forces with the Democratic Party to sponsor a Republican Presidential debate?

) Texas Ranger Recon Unit: can it operate nationwide, maybe even in Afghanistan?

) Which is an indication of greater idealism: cheering for the uninsured thirty-year old dying because of no medical care, or cheering, as in the last debate, about Texas executing two hundred plus people during the Rick Perry years?

) Do those who support individual retirement accounts based on stock market investments recall that the stock market tanked recently?

) If old people’s benefits are not going to be tampered with and reforms will make things right for young people, does that mean those in their forties are in deep do-do?

) Who keeps returning Ron Paul to the U.S. Congress?

) For that matter, where did these Tea Partiers come from?

) Is pretty much anything treasonous?

) Newt Gingrich, Rick Santorum, Herman Cain: somebody is paying you guys to embarrass yourselves, right?

) And Wolf, it’s been a long slow decline from those heady days in 1991 when you were a young stud dodging incoming Scuds in Saudi Arabia, hasn’t it?

ONE MONTH WORK, NINE MONTHS VACATION?

The Congressional Budget Office issued a sobering budget and economic report on August 24. Among other predictions, the CBO estimated that unemployment would remain above 8 percent until 2014. That’s more than two full years away. A major reason for the pessimistic forecast is that the CBO anticipates only modest economic growth.

And why is economic growth only expected to be modest? Republicans will tell you that too much taxation and too many regulations are the problem. Democrats will tell you that not enough government stimulus is the problem. Some economists will tell you that a financial crisis caused by too much debt—such as the current one—does not permit a quick rebound. The economic system has to go through a painful period of deleveraging; that is, debt reduction. Carmen M. Reinhart and Kenneth S. Rogoff are two such economists (This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009).

The too-much-debt economists are probably in the ballpark. But their explanation might not be the whole story. A few months ago, Barack Obama his own self stumbled onto a fundamental problem. He noted that using an ATM meant you were not interacting with a real live bank teller. In other words, ATMs have substantially reduced the number of tellers need in the world.

Of course, the President’s observation was greeted with derision by his adversaries, and even many of his supporters snickered. But he did touch upon a serious obstacle to a full-employment economy: the rapidly changing nature of work. Over the centuries, technological change has in turn produced changes in the nature of work. Existing jobs and occupations have disappeared or been degraded. New jobs and occupations have evolved. The process has rarely been smooth. Change is messy.

The onset of the Information Age, brought about by the computer, has continued—indeed accelerated—this disruptive evolutionary process. The relative, and in some cases absolute, numbers of bank tellers, secretaries, administrative assistants, production line workers, and many other similar types of employees have contracted. New jobs and occupations are emerging, but slowly. In fact, national economies may be entering an environment in which full employment is not achievable. Put another way, the problem might not just be the lack of jobs but the lack of need for a fully employed workforce.

If, say, 100 workers and managers can, with computers and computerized machinery, produce enough food, clothes, housing, other necessities, and leisure goods for 1,000, 10,000, even 100,000 people, what then? Well, you respond, those thousand or whatever need money to buy the food, clothes, housing, other necessities, and leisure goods, so they have to work. But all the necessary work is being done. Is massive income redistribution the answer? Is rotating the 100 necessary worker and manager positions through the 1,000 total supported people the answer? Work a month and get nine off? Are we ready for that future?