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.