How Does Patent Eligibility Affect Investment?

David Taylor (SMU) was interested in how patent eligibility decisions at the Supreme Court affected venture investment decisions, so he thought he would ask. He put together an ambitious survey of 14,000 investors at 3000 firms, and obtained some grant money to provide incentives. As a result, he got responses from 475 people at 422 firms. The response rate by individual is really low, but by firm it's 12% - not too bad. He performs some analysis of non-responders, and while there's a bit of an oversample on IT and on early funding, it appears to be somewhat representative.

The result is a draft on SSRN and forthcoming in Cardozo L. Rev. called Patent Eligibility and Investment. Here is the abstract:

Have the Supreme Court’s recent patent eligibility cases changed the behavior of venture capital and private equity investment firms, and if so how? This Article provides empirical data about investors’ answers to those important questions. Analyzing responses to a survey of 475 investors at firms investing in various industries and at various stages of funding, this Article explores how the Court’s recent cases have influenced these firms’ decisions to invest in companies developing technology. The survey results reveal investors’ overwhelming belief that patent eligibility is an important consideration in investment decisionmaking, and that reduced patent eligibility makes it less likely their firms will invest in companies developing technology. According to investors, however, the impact differs between industries. For example, investors predominantly indicated no impact or only slightly decreased investments in the software and Internet industry, but somewhat or strongly decreased investments in the biotechnology, medical device, and pharmaceutical industries. The data and these findings (as well as others described in the Article) provide critical insight, enabling evidence-based evaluation of competing arguments in the ongoing debate about the need for congressional intervention in the law of patent eligibility. And, in particular, they indicate reform is most crucial to ensure continued robust investment in the development of life science technologies.

The survey has some interesting results. Most interesting to me was that fewer than 40% of respondents were aware of any of the key eligibility decisions, though they may have been vaguely aware of reduced ability to patent. More on this in a minute.

There are several findings on the importance of patents, and these are consistent with the rest of the literature - that patents are important for investment decisions, but not first on the list (or second or third). Further, the survey finds that firms would invest less in areas where there are fewer patents - but this is much more pronounced for biotech and pharma than it is for IT. This, too, seems to comport with anecdotal evidence.

But I've always been skeptical of surveys that ask what people would do - stated preferences are different than revealed preferences. The best way to measure revealed preferences would be through some sort of empirical look at the numbers, for example a differences-in-differences approach before and after these cases (though having 60% of the people say they haven't heard of them would certainly affect whether the case constitutes a "shock" - a requirement of such a study).

Another way, which this survey attempts, is to ask not what investors would do but rather ask what they have done. This amounts to the most interesting part of the survey - investors who know about the key court opinions say they have moved out of biotech and pharma, and into IT. So much for Alice destroying IT investment, as some claim (though we might still see a shift in the type of projects and/or the type of protection - such as trade secrets). But more interesting to me was that there was also a similar shift among those folks who claimed not to know much about patent eligibility or think it had anything to do with their investment. In other words, even for that group who didn't actively blame the Supreme Court, they were shifting investments out of biotech and pharma and into IT.

You can, of course, come up with other explanations - perhaps biotech is just less valuable now for other reasons. But this survey is an important first step in teasing out those issues.

There are a lot more questions on the survey and some interesting answers. It's a relatively quick and useful read.

Measuring Alice's Effect on Patent Prosecution

It's a bit weird to write a blog post about something posted at another blog in order to bring attention to it, when that blog has many more readers than this blog. Nonetheless, I thought that the short essay Decoding Patentable Subject Matter by Colleen Chien (Santa Clara) and her student Jiun Ying Wu, in the Patently-O Law Journal was worth a mention. The article is also on SSRN, and the abstract is here:

The Supreme Court’s patentable subject matter jurisprudence from 2011 to 2014 has raised significant policy concerns within the patent community. Prominent groups within the IP community and academia, and commentators to the 2017 USPTO Patentable Subject Matter report have called for an overhaul of the Supreme Court’s “two-step test.” Based on an analysis of 4.4 million office actions mailed from 2008 through mid-July 2017 covering 2.2 million unique patent applications, this article uses a novel technology identification strategy and a differences-in-differences approach to document a spike in 101 rejections among select medical diagnostics and software/business method applications following the Alice and Mayo decisions. Within impacted classes of TC3600 (“36BM”), the 101 rejection rate grew from 25% to 81% in the month after the Alice decision, and has remained above 75% almost every month through the last month of available data (2/2017); among abandoned applications, the prevalence of 101 rejection subject matter rejections in the last office action was around 85%. Among medical diagnostic (“MedDx”) applications, the 101 rejection rate grew from 7% to 32% in the month after the Mayo decision and continued to climb to a high of 64% and to 78% among final office actions just prior to abandonment. In the month of the last available data (from early 2017), the prevalence of subject matter 101 rejections among all office actions in applications in this field was 52% and among office actions before abandonment, was 62%. However outside of impacted areas, the footprint of 101 remained small, appearing in under 15% of all office actions. A subsequent piece will consider additional data and implications for policy.

This article is the first in a series of pieces appearing in Patently-O based on insights gleaned from the release of the treasure trove of open patent data starting the USPTO from 2012.

The essay is a short, easy read, and the graphs really tell you all you need to know from a differences-in-differences point of view - there was a huge spike in medical diagnostics rejections following Mayo and software & business patent rejections following Alice. We already knew this from the Bilski Blog, but this is comprehensive. Interesting to me from a legal history/political economy standpoint is the fact that software rejections were actually trending downward after Mayo but before Alice. I've always thought that was odd. The Mayo test, much as I dislike it, easily fits with abstract ideas in the same way it fits with natural phenomena. Why courts and the PTO simply did not make that leap until Alice has always been a great mystery to me.

Another important finding is that 101 apparently hasn't destroyed any other tech areas the way it has software and diagnostics. Even so, 10% to 15% rejections in other areas is a whole lot more than there used to be. Using WIPO technical classifications shows that most areas have been touched somehow.

Another takeaway is that the data used came from Google BigQuery, which is really great to see. I blogged about this some time ago and I'm glad to see it in use.

So, this was a good essay, and the authors note it is the first in a series. In that spirit, I have some comments for future expansion:

1. The authors mention the "two-step" test many times, but provide no data about the two steps. If the data is in the office action database, I'd love to see which step is the important one. My gut says we don't see a lot of step two determinations.

2. The authors address gaming the claims to avoid certain tech classes, but discount this by showing growth in the business methods class. However, the data they use is office action rejections, which is lagged--sometimes by years. I think an interesting analysis would be office action rejections by date of patent filing, both earliest priority and by the date the particular claim was added. This would show growth or decline in those classes, as well as whether the "101 problem" is limited to older patents.

3. All of the graphs start in the post-Bilski (Fed. Cir.) world. The office actions date back to 2008. I'd like to see what happened between 2008 and 2010.

4. I have no sense of scale. The essay discusses 2000 rejections per month, and it discusses in terms of rates, but I'd like to know, for example, a) what percentage of applications are in the troubled classes? b) how many applications are in the troubled classes (and others)? c) etc.? In other words, is this devastation of a few or of many?

5. Are there any subclasses in the troubled centers that have a better survival rate? The appendix shows the high rejection classes, what about the low rejection classes (if any)?

I look forward to future work on this!

USPTO Director Iancu Proposes Revised 101 Guidance

In remarks at the annual IPO meeting today, USPTO Director Andrei Iancu said "the USPTO cannot wait" for "uncertain" legislation on patentable subject matter and is "contemplating revised guidance" to help examiners apply this doctrine. Few are likely to object to his general goal of "increased clarity," but the USPTO should be sure that any new guidance is consistent with precedent from the Supreme Court and Federal Circuit.

As most readers of this blog are well aware, the Supreme Court's recent patentable-subject-matter cases—Bilski (2010), Mayo (2012), Myriad (2013), and Alice (2014)—have made it far easier to invalidate patent claims that fall under the "implicit exception" to § 101 for "laws of nature, natural phenomena, and abstract ideas." Since Alice, the Federal Circuit has held patents challenged on patentable-subject-matter grounds to be invalid in over 90% of appeals, and the court has struggled to provide clear guidance on the contours of the doctrine. Proponents of this shift call it a necessary tool in the fight against "patent trolls"; critics claim it creates needless uncertainty in patent rights and makes it too difficult to patent important innovations in areas such as medical diagnostics. In June, Rep. Thomas Massie (R-KY) introduced the Restoring America’s Leadership in Innovation Act of 2018, which would amend § 101 to largely undo these changes—following a joint proposal of the American Intellectual Property Law Association (AIPLA) and Intellectual Property Owners Association (IPO)—but Govtrack gives it a 2% chance of being enacted and Patently-O says 0%.

In the absence of legislation, can the USPTO step in? In his IPO speech today, Director Iancu decries "recent § 101 case law" for "mush[ing]" patentable subject matter with the other patentability criteria under §§ 102, 103, and 112, and he proposes new guidance for patent examiners because this mushing "must end." The problem is that the USPTO cannot overrule recent § 101 case law. It does not have rulemaking authority over substantive patent law criteria, so it must follow Federal Circuit and Supreme Court guidance on this doctrine, mushy though it might be.

Abstraction, Filtration, and Comparison in Patent Law

Last April, I had the good fortune to participate in a symposium at Penn Law School. The symposium gathered a variety of IP scholars to focus on the "historic" kinship between copyright and patent law. That kinship, first identified in Sony v. Universal Pictures, supposedly shows parallels between the two legal regimes. I use scare quotes because it is unclear that the kinship is either historic or real. Even so, there are some parallels, and a collection of papers about those parallels will be published in the inaugural issue of Penn's new Law & Innovation Journal.

My article is about the use of abstraction, filtration, and comparison (a distinctly copyright notion) in patent law. I have cleverly named it Abstraction, Filtration, and Comparison in Patent Law. A draft of the article is now on SSRN. Here is the abstract:

This essay explores how copyright's doctrine of abstraction, filtration, and comparison is being used in patent law, and how that use could be improved. This test, which finds its roots in the 1930s but wasn't fully developed until the 1990s, is one that defines scope for determining infringement. The copyrighted work is abstracted into parts, from ideas at the highest level to literal expression at the lowest. Then, unprotected elements are filtered out. Finally what remains of the original work is compared to the accused work to determine if the copying was illicit.

This sounds far removed from patent law, but there is a kinship, though perhaps one that is not so historic and a bit hidden. The essence of the test is determining protectable subject matter. These same needs permeate patent law as well. This essay explores how the test is implicitly used and should be explicitly used.

With design patents, the test might apply as it does in copyright, with functional elements being filtered out during infringement. Current precedent allows for this filtering, but not clearly or consistently. With utility patents, the abstraction, filtration, and comparison happen earlier, during the test for patentable subject matter. Here, the comparison is with what is conventional or well known. The essay concludes by discussing why the application is different for design and utility patents.

I think the article is interesting and brings some useful insights into how we should think about patentable subject matter, but you'll have to be the judge.

The Quest to Patent Perpetual Motion

Those familiar with my work will know that I am a big fan of utility doctrine. I think it is underused and misunderstood. When I teach about operable utility, I use perpetual motion machines as the type of fantastic (and not in a good way) invention that will be rejected by the PTO as inoperable due to violating the laws of thermodynamics.

On my way to a conference last week, I watched a great documentary called Newman about one inventor's quest to patent a perpetual motion machine. The trailer is here, and you can stream it pretty cheaply (I assume it will come to a service at some point):

The movie is really well done, I think. The first two-thirds is a great survey of old footage, along with interviews of many people involved in the saga. The final third focuses on what became of Newman after his court case, leading to a surprising ending that colors how we should look at the first part of the movie. The two acts work really well together, and I think this movie should be of interest to anyone, and not just patent geeks.

That said, I'd like to spend a bit of time on the patent aspects, namely utility doctrine. Wikipedia has a pretty detailed entry, with links to many of the relevant documents. The federal circuit case, Newman v. Quigg, as well as the district court case, also lay out many of the facts. The claim was extremely broad:

38. A device which increases the availability of usable electrical energy or usable motion, or both, from a given mass or masses by a device causing a controlled release of, or reaction to, the gyroscopic type energy particles making up or coming from the atoms of the mass or masses, which in turn, by any properly designed system, causes an energy output greater than the energy input.

Here are some thoughts:

First, the case continues what I believe to be a central confusion in utility. The initial rejection was not based on Section 101 ("new and useful") but on Section 112 (enablement to "make and use"). This is a problematic distinction. As the Patent Board of Appeals even noted: "We do not doubt that a worker in this art with appellant's specification before him could construct a motor ... as shown in Fig. 6 of the drawing." Well, then one could make and use it, even if it failed at its essential purpose. Now, there is an argument that the claim is so broad that Newman didn't enable every device claimed (as in the Incandescent Lamp case), but that's not what the board was describing. The section 101 defense was not added until 1986, well into the district court proceeding. The district court later makes some actual 112 comments (that the description is metaphysical), but this is not the same as failing to achieve the claimed outcome. The Federal Circuit makes clear that 112 can support this type of rejection: "neither is the patent applicant relieved of the requirement of teaching how to achieve the claimed result, even if the theory of operation is not correctly explained or even understood." But this is not really enablement - it's operable utility! The 112 theory of utility is that you can't enable someone to use and invention if it's got no use. But just about every invention has some use. I write about this confusion in my article A Surprisingly Useful Requirement.

Second, this leads to another key point of the case. The failed claim was primarily due to the insistence on claiming perpetual motion. Had Newman claimed a novel motor, then the claim might have survived (though there was a 102/103 rejection somewhere in the history). One of the central themes of the documentary was that Newman needed this patent to commercialize his invention, so others could not steal the idea. He could not share it until it was protected. But he could have achieved this goal with a much narrower patent that did not claim perpetual motion. That he did not attempt a narrower patent is quite revealing, and foreshadows some of the interesting revelations from the end of the documentary.

Third, the special master in the case, William Schuyler, had been Commissioner of Patents. He recommended that the Court grant the patent, finding sufficient evidence to support the claims. It is surprising that he would have issued a report finding operable utility here, putting the Patent Office in the unenviable position of attacking its former chief.

Fourth, the case is an illustration in waiver. Newman claimed that the device only worked properly when ungrounded. More important, the output was measured in complicated ways (according to his own witnesses). Yet, Newman failed to indicate how measurement should be done when it counted: "Dr. Hebner [of National Bureau of Standards] then asked Newman directly where he intended that the power output be measured. His attorney advised Newman not to answer, and Newman and his coterie departed without further comment." The court finds a similar waiver with respect to whether the device should have been grounded, an apparently key requirement. These two waivers allowed the courts to credit the testing over Newman's later objections that the testing was improperly handled.

I'm sure I had briefly read Newman v. Quigg at some point in the past, and the case is cited as the seminal "no perpetual motion machine" case. Even so, I'm glad I watched the documentary to get a better picture of the times and hooplah that went with this, as well as what became of the man who claimed to defy the laws of thermodynamics.

How Difficult is it to Judge Patentable Subject Matter?

I've long argued that the Supreme Court's patentable subject matter jurisprudence is inherently uncertain, and that it is therefore nearly impossible to determine what is patentable. But this is only theory (a well grounded one, I think, but still). A clever law student has now put the question to the test. Jason Reinecke (Stanford 3L) got IRB approval and conducted a survey in which he asked patent practitioners about whether patents would withstand a subject matter challenge. A draft is on SSRN, and the abstract is here:

In four cases handed down between 2010 and 2014, the Supreme Court articulated a new two-step patent eligibility test that drastically reduced the scope of patent protection for software inventions. Scholars have described the test as “impossible to administer in a coherent, consistent way,” “a foggy standard,” “too philosophical and policy based to be administrable,” a “crisis of confusion,” “rife with indeterminacy,” and one that “forces lower courts to engage in mental gymnastics.”

This Article provides the first empirical test of these assertions. In particular, 231 patent attorneys predicted how courts would rule on the subject matter eligibility of litigated software patent claims, and the results were compared with the actual district court rulings. Among other findings, the results suggest that while the test is certainly not a beacon of absolute clarity, it is also not as amorphous as many commentators have suggested.

This was an ambitious study, and getting 231 participants is commendable. As discussed below, the results are interesting, and there's a lot of great results to takeaway from it. Though I think the takeaways depend on your goals for the system, no matter what your priors, this is a useful survey.

What happened in patent law in the past year?

Last Thursday I gave a 25-min recap patent law update to judges and practitioners at the Northern District Practice Program Patent Law Symposium, and I thought blog readers might be interested in my recap of highlights from the past year:

Patent Case Filings and Procedure: Venue, PTAB, and Stays

Lex Machina reports that there were 4057 cases filed in 2017, down 10% from the 4529 in 2016. The biggest procedural change was to venue. As I have explained, in its May 2017 decision in TC Heartland, the Supreme Court held that for purposes of the patent venue statute, a corporation only "resides" in its state of incorporation. The Federal Circuit has since held that this was a change in law, so the venue defense was not "available" under FRCP 12(g)(2), allowing district courts in pending cases to consider venue arguments that were not previously raised by defendants. And the Federal Circuit has offered guidance on the other possibility for proper venue—"where the defendant has committed acts of infringement and has a regular and established place of business"—saying that this requires (1) a fixed, physical presence that (2) is regular and established (not transient) and that (3) is a place of the defendant (not merely of an employee).

TC Heartland is likely responsible for the decline in cases filed in E.D. Tex. and the uptick in districts like D. Del. and N.D. Cal., though in neither of the latter have filings reached pre-2015 levels:

Gugliuzza & Lemley on Rule 36 Patentable-Subject-Matter Decisions

Paul Gugliuzza (BU) and Mark Lemley (Stanford) have posted Can a Court Change the Law by Saying Nothing? on the Federal Circuit's many affirmances without opinion in patentable subject matter cases. They note a remarkable discrepancy: "Although the court has issued over fifty Rule 36 affirmances finding the asserted patent to be invalid, it has not issued a single Rule 36 affirmance when finding in favor of a patentee. Rather, it has written an opinion in every one of those cases. As a result, the Federal Circuit’s precedential opinions provide an inaccurate picture of how disputes over patentable subject matter are actually resolved."

Of course, this finding alone does not prove that the Federal Circuit's Rule 36 practice is changing substantive law. The real question isn't how many cases fall on each side of the line, but where that line is. As the authors note, the skewed use of opinions might simply be responding to the demand from patent applicants, litigants, judges, and patent examiners for examples of inventions that remain eligible post-Alice. And the set of cases reaching a Federal Circuit disposition tells us little about cases that settle or aren't appealed or in which subject-matter issues aren't raised. But their data certainly show that patentees have done worse at the Federal Circuit than it appears from counting opinions.

Perhaps most troublingly, Gugliuzza and Lemley find some suggestive evidence that Federal Circuit judges' substantive preferences on patent eligibility are affecting their choice of whether to use Rule 36: Judges who are more likely to find patents valid against § 101 challenges are also more likely to cast invalidity votes via Rule 36. When both active and senior judges are included, this correlation is significant at the five-percent level. The judges on either extreme are Judge Newman (most likely to favor validity, and most likely to cast invalidity votes via Rule 36) and Chief Judge Prost (among least likely to favor validity, and least likely to cast invalidity vote via Rule 36), who also happen to be the two judges who are most likely to preside on the panels they sit. Daniel Hemel and Kyle Rozema recently posted an article on the importance of the assignment power across the 13 federal circuits; this may be one concrete example of that power in practice.

Gugliuzza and Lemley do not call for precedential opinions in all cases, but they do argue for more transparency, such as using short, nonprecedential opinions to at least list the arguments raised by the appellant. For lawyers without the time and money to find the dockets and briefs of Rule 36 cases, this practice would certainly provide a richer picture of how the Federal Circuit disposes of subject-matter issues.

Burk: Is Dolly patentable subject matter in light of Alice?

Dan Burk's work should already be familiar to those who follow patentable subject matter debates (see, e.g., here, here, and here). In a new essay, Dolly and Alice, he questions whether the Federal Circuit's May 2014 In re Roslin decision—holding clones such as Dolly to not be patentable subject matter—should have come out differently under the Supreme Court's June 2014 decision in Alice v. CLS Bank. Short answer: yes.

Burk does not have kind words for either the Federal Circuit or the Supreme Court, and he reiterates his prior criticism of developments like the gDNA/cDNA distinction in Myriad. His analysis of how Roslin should be analyzed under Alice begins on p. 11 of the current draft:

[E]ven assuming that the cloned sheep failed the first prong of the Alice test, the analysis would then move to the second prong to look for an "inventive concept" that takes the claimed invention beyond an attempt to merely capture the prohibited category of subject matter identified in the first step. . . . The Roslin patent claims surely entail such an inventive concept in the method of creating the sheep. The claims recite "clones," which the specification discloses were produced by a novel method that is universally acknowledged to have been a highly significant and difficult advance in reproductive technology—an "inventive concept" if there ever was one . . . [which] was not achieved via conventional, routine, or readily available techniques . . . .

But while Burk thinks Roslin might have benefited from the Alice framework, he also contends that this exercise demonstrates the confusion Alice creates across a range of doctrines, and particularly for product by process claims. He concludes by drawing an interesting parallel to the old Durden problem of how the novelty of a starting material affects the patentability of a process, and he expresses skepticism that there is any coherent way out; rather, he thinks Alice "leaves unsettled questions that will haunt us for years to come."

Nothing is Patentable

I signed onto two amicus briefs last week, both related to the tightening noose of patentable subject matter. Those familiar with my article Everything is Patentable will know that I generally favor looser subject matter restrictions in favor of stronger patentability restrictions. That ship sailed, however; apparently we can't get our "stronger patentability restrictions" ducks in a row, and so we use subject matter as a coarse filter. It may surprise some to hear that I can generally live with that as a policy matter; for the most part, rejected patents have been terrible patents.

But, now that these weaker patents are falling like dominoes, I wonder whether subject matter rhetoric can stop itself. This has always been my concern more than any other: the notion of unpatentable subjects is fine, but actually defining a rule (or even a standard) that can be applied consistently is impossible.

This leads us to the amicus briefs. The first is in Sequenom, where the inventors discovered that a) fetal DNA might be in maternal blood, and b) the way you find it is to amplify paternal fetal DNA in the blood. The problem is that the discovery is "natural" and people already knew how to amplify DNA. As Dennis Crouch notes, this seems like a straightforward application of Mayo - a non-inventive application of the natural phenomenon. Kevin Noonan and Adam Mossoff were counsel of record on the brief.

But here's the thing: it's all in the way you abstract it. Every solution is non-inventive once you know the natural processes behind it. This argument is at the heart of a short essay I am publishing in the Florida L. Rev. Forum called Nothing is Patentable. In that essay, I show that many of our greatest inventions are actually rather simple applications of a natural phenomenon or abstract idea. As such, they would be unpatentable today, even though many of them survived subject matter challenges in their own day.

Returning to Sequenom, there were other ways to parse the natural phenomenon. For example, it is natural that there is fetal DNA in the mother's blood, but finding it by seeking out only the paternal DNA is a non-conventional application of that phenomenon. No one else was doing that. Or, it is natural that there is fetal DNA in the mother, but finding it within the blood is a non-conventional application of that phenomenon. After all, no one had been doing it before, and no one had thought to do it before. Either of these two views is different than the types of application in Mayo v. Prometheus, which simply involved giving a drug and then measuring the level of the drug in the system (something you would expect to find after giving the drug). In Mayo, the court commented on the bitter divide over what to do about diagnostics, and punted for another day. That day has come.


The second amicus brief is in Intellectual Ventures v. Symantec; Jay Kesan filed this brief. In the Symantec case, the district court ruled that unique hashes to identify files were like license plates, and therefore conventional. Further, it noted that the unique ids could be created by pencil and paper, given enough time. It distinguished virus signatures (an example in PTO guidance of something that is patentable) by saying that file ids were not really computer based, while virus signatures were. I mention this case in my Nothing is Patentable essay as well.

I have less to say about this ruling, but I think it is wrong on both counts. First, unique file id hashes are much more like virus signatures than they are like license plates. There is a rich computer science literature area in this field - solving problems by identifying files through codes associated with their content. Of course, computer science folks will say this is not patentable because it's just math. That's a different debate; but it is surely not the same thing as attaching a license plate to a car. Second, this notion that people can do it with a pencil and paper has got to go. As the brief points out, with enough people and enough time, you can simulate a microprocessor. But that can't be how we judge whether a microprocessor can be patented, can it?

These two cases show the pendulum swinging - and hard - toward a very restrictive view of patentability. Taken seriously and aggressively applied, they stand for the proposition that many of the fruits of current R&D are outside the patent system -- even though their historical analogues were patentable. Perhaps I'm being a pessimist; I sure hope so.

Rachel Sachs & Becky Eisenberg on Incentives for Diagnostic Tests

I highly recommend two recently posted articles on declining innovation incentives for diagnostic tests, particularly due to changes in patentable subject matter doctrine. In Innovation Law and Policy: Preserving the Future of Personalized Medicine, Rachel Sachs (Petrie-Flom Fellow at Harvard Law) examines the intersection of IP with FDA regulation and health law, joining a growing body of scholarship that seeks to contextualize IP in a broader economic context. Here is the abstract:

Personalized medicine is the future of health care, and as such incentives for innovation in personalized technologies have rightly received attention from judges, policymakers, and legal scholars. Yet their attention too often focuses on only one area of law, to the exclusion of other areas that may have an equal or greater effect on real-world conditions. And because patent law, FDA regulation, and health law work together to affect incentives for innovation, they must be considered jointly. This Article will examine these systems together in the area of diagnostic tests, an aspect of personalized medicine which has seen recent developments in all three systems. Over the last five years, the FDA, Congress, Federal Circuit, and Supreme Court have dealt three separate blows to incentives for innovation in diagnostic tests: they have made it more expensive to develop diagnostics, made it more difficult to obtain and enforce patents on them, and reduced the amount innovators can expect to recoup in the market. Each of these changes may have had a marginal effect on its own, but when considered together, the system has likely gone too far in disincentivizing desperately needed innovation in diagnostic technologies. Fortunately, just as each legal system has contributed to the problem, each system can also be used to solve it. This Article suggests specific legal interventions that can be used to restore an appropriate balance in incentives to innovate in diagnostic technologies.

Diagnostics Need Not Apply is a new essay by Rebecca Eisenberg (UMich Law) that was nicely summed up by Nicholson Price: "let's just admit it - diagnostic tests are unpatentable."

Diagnostic testing helps caregivers and patients understand a patient’s condition, predict future outcomes, select appropriate treatments, and determine whether treatment is working. Improvements in diagnostic testing are essential to bring about the long-heralded promise of personalized medicine. Yet it seems increasingly clear that most important advances in this type of medical technology lie outside the boundaries of patent-eligible subject matter.

The clarity of this conclusion has been obscured by ambiguity in the recent decisions of the Supreme Court concerning patent eligibility. Since its 2010 decision in Bilski v. Kappos, the Court has followed a discipline of limiting judicial exclusions from the statutory categories of patentable subject matter to a finite list repeatedly articulated in the Court’s own prior decisions for “laws of nature, physical phenomena, and abstract ideas,” while declining to embrace other judicial exclusions that were never expressed in Supreme Court opinions. The result has been a series of decisions that, while upending a quarter century of lower court decisions and administrative practice, purport to be a straightforward application of ordinary principles of stare decisis. As the implications of these decisions are worked out, the Court’s robust understanding of the exclusions for laws of nature and abstract ideas seems to leave little room for patent protection for diagnostics.

This essay reviews recent decisions on patent-eligibility from the Supreme Court and the Federal Circuit to demonstrate the obstacles to patenting diagnostic methods under emerging law. Although the courts have used different analytical approaches in recent cases, the bottom line is consistent: diagnostic applications are not patent eligible. I then consider what the absence of patents might mean for the future of innovation in diagnostic testing.

As I have written, I think changes to patentable subject matter doctrine are an important problem for medical innovation, and that policymakers should think seriously about whether additional non-patent innovation incentives are needed in this area.

GW Law Review Symposium on Patentable Subject Matter

The George Washington Law Review has published its symposium on "Cracking the Code: Ongoing § 101 Patentability Concerns in Biotechnology and Computer Software." Here are the five contributions:

Paul R. Michel, The Supreme Court Saps Patent Certainty. Former Federal Circuit Chief Judge Michel argues that courts "have only made things worse." The Supreme Court doesn't understand patent law or science, but the biggest problem is that the courts "don't focus enough on the systemic effect." Justice Breyer's assertion that § 103 is insufficient is "just stated as an oracular truth." The "only way forward that is feasible . . . is the Federal Circuit," which can "limit and clarify some of the broader statements" in recent Supreme Court cases. The § 101 exceptions were created "out of the air" and "they're not very good categories" because "it's not clear what's in and what's out," they overlap, and they are "subjective" and "indeterminate." Some might not trust the Federal Circuit after the "train wreck" of CLS Bank, "but it's the least worst alternative." "[T]he most important people of all that the patent system is designed to motivate . . . are the people who make investment decisions" like venture capitalists, and what they want is certainty, which we don't have now with § 101. The Federal Circuit has "had to fix Supreme Court problems" at least twice before, after eBay and KSR, and it can do it again.

Guest Post on Dan Burk's "Curious Incident of the Supreme Court in Myriad Genetics"

This is a guest post by Vikram Iyengar, a J.D. student at Stanford Law School. He thanks Prof. Mark Lemley for introducing him to Patent Law, and Prof. Hank Greely for his guidance with this research topic.

Tun-Jen Chiang on Patentable Subject Matter

Patent law is usually justified on utilitarian grounds. To be sure, significant contrary views have appeared in recent scholarship. For example, Professor Robert Merges’ work provides a partly Lockean account of intellectual property. The dominant view, nonetheless, is that the rules of patent law serve consequentialist goals of inducing invention, commercialization, and disclosure. In support of this view, scholars often cite the moribund state of the “moral utility” doctrine and the Constitution itself, which empowers Congress to enact laws that would “promote the Progress of Science and Useful Arts.” Professor Tun-Jen Chiang’s forthcoming article, “Competing Visions of Patentable Subject Matter,” challenges this account as a descriptive matter insofar as it relates to the judicially recognized exclusions from patentability.

Patentable Subject Matter and Non-Patent Innovation Incentives

I just posted my symposium essay from U.C. Irvine's Meaning of Myriad Conference: Patentable Subject Matter and Non-Patent Innovation Incentives. Here is the abstract—comments welcome!

In four patentable subject matter cases in the past five Terms, the Supreme Court has reaffirmed the judicially created prohibitions on patenting “abstract ideas” and “nature,” but the boundaries of these exceptions remain highly contested. The dominant justification for these limitations is utilitarian: courts create exemptions in areas where patents are more likely to thwart innovation than to promote it. The resulting debates thus focus on whether patents are needed to provide adequate innovation incentives in disputed fields such as software or genetic research, or whether private incentives such as reputational gains, first-mover advantages, or competitive pressures are sufficient. These debates frequently overlook a significant fact: the absence of patents does not imply that there would be only private incentives. Rather, federal and state governments facilitate financial transfers to researchers through a host of mechanisms—including tax incentives, direct grants and contracts, prizes, and regulatory exclusivity—which already provide substantial research support in the fields where patents are the most controversial.

Paying attention to non-patent incentives could prevent courts from being misled by the concern that a lack of patents for a certain type of invention would remove all incentives for nonobvious and valuable research in that field. Non-patent innovation incentives could also help ease the tension between utilitarian and moral considerations in the current patentable subject matter debates: if many people find patents on certain inventions (such as “human genes”) morally objectionable, utilitarian goals can still be served by using other transfer mechanisms to substitute for the incentive provided by patents. Indeed, non-patent incentives may be more effective than patents in contested areas, where inventors who share moral objections find little incentive in patents, and those who do not still find the patent incentive to be dulled by the persistent uncertainty that has plagued patentable subject matter doctrine in recent years. Wider appreciation of the range of innovation incentives would help bring patentable subject matter discussions in line with the realities of scientific research, and might even make this doctrinal morass more tractable.

IP Watch Recap of Meaning of Myriad Conference

Last Friday I presented my latest essay, Patentable Subject Matter and Non-Patent Innovation Incentives, at UC Irvine's Meaning of Myriad Conference, which included a terrific line-up of speakers. Brittany Ngo, a 3L at UC Irvine, nicely recapped the conference for IP Watch: Experts Look At The Meaning Of Myriad Case, One Year Later. Her article is paywalled, but it is published under the CC BY-NC-ND license, so I am redistributing the article here (with attribution, for noncommercial use, and without modification).

More Software Patent Commentary

Software patents are a hot topic these days! Three weeks ago, I posted about Lemley's proposal to fix software patents with functional claiming, and last week I summarized various "software patent solutions" offered by patent scholars at Santa Clara's upcoming conference. Tim Lee wrote for Ars Technica and Forbes about the Federal Circuit's responsibility for the "recent explosion of patent litigation in the software industry," prompting rebuttals from Gene Quinn at IP Watchdog. Then the New York Times ran a front-page article (and NPR had a related interview) describing how "the marketplace for new ideas has been corrupted by software patents used as destructive weapons," prompting another response from Quinn, in which he argued that this "arms race" is exactly what the patent system is meant to encourage.

More on Lemley and Software Patents

Tan Mau Wu's post yesterday on Mark Lemley's Software Patents and the Return of Functional Claiming questions whether restricting software claims to disclosed implementations will really make a difference. Recent posts by Simon Phipps at InfoWorld and by Mike Masnick at Techdirt have suggested that it would, calling Lemley's proposal "[t]he software patent solution" that will "[f]ix[] software patents."

Allison, Tiller, Zyontz, & Bligh: Patent Litigation and the Internet

Following State Street Bank and now Bilski, certain Internet business methods remain “patentable subject matter” under Section 101. Given the continued rise of the Internet and its increased role in nearly everyone’s everyday lives, it would be interesting to have a better understanding of how such Internet patents fare in litigation—especially in relation to ordinary patents that bear no relation to the Internet. Recently, a group of researchers, including John Allison of the University of Texas, Emerson Tiller of Northwestern, Samantha Zyontz of George Mason, and Tristan Bligh, published a piece in the Stanford Technology Law Review that continues this worthwhile empirical inquiry. The piece analyzed well over one thousand Internet patents, as well as several thousand non-Internet patents (NIPs).

Titled Patent Litigation and the Internet, their piece raises many intriguing empirical points. The piece generated evidence that Internet patents are far more likely to be litigated than NIPs, suggesting that Internet patent-holders may perceive their patents to have more value than the owners of NIPs perceive their patents. In absolute terms, over 10% of Internet patents were litigated, while only 1.36% of NIPs were litigated.

Jonathan Masur: The Ever Expanding Patent System

Could the commonly cited flaws of the patent system be caused by the underlying relationship of its two main players, the PTO and the Federal Circuit? The patent system has come under attack in recent years in light of the growing number of invalid or weak patents and an ever-expanding definition of what can be patented. Critics have blamed this expansion (or “patent inflation”) on a number of factors including lack of funding, capture by private interests, and lack of expertise. In Patent Inflation, Jonathan Masur, a professor at the University of Chicago Law School, suggests this phenomenon may have a more fundamental source—the institutional relationship between the PTO and the Federal Circuit.

In his thought-provoking article, Masur suggests that the administrative nature of patent law creates institutional pressure to expand the boundaries of patentability. He arrives at this novel theory by combining a few simple, yet profound, observations into a model that predicts patent expansion.