Never Mind The Gap at the Federal Circuit

CLS Bank was going to do for computer–implemented inventions what Bilski was going to do for business method patents. The Federal Circuit took the case en banc so that the entirety of the court could craft a ruling about when and under what circumstances adding a computer to an abstract method or system patent claim would suffice to render that claim patentable.

Like Bilski, the seven opinions of ten judges over 140 pages of CLS Bank have left patentees, accused infringers, patent lawyers, patent litigators, general counsel, district judges, and the Patent Office in a state of greater uncertainty, not greater certainty. Enough judges agree on the result to let that stand; but there is no majority, no clear rule, and nowhere to turn other than the Supreme Court, if the losing party has the appetite to take the fight there. The luck of the draw—as in the composition of the three–judge panel that will hear your appeal—may be your only clue to whether your appeal on the issue of patentable subject matter of computer–implemented patents is a likely winner or loser.

In a one–page memo issued on May 13, the Patent Office concluded that in light of CLS Bank it would make “no change in examination procedure for evaluating subject matter eligibility.” So it’s heads down and back to work, none the wiser for the experience of CLS Bank.

A Licensee By Any Other Name

Following up on our prior post about the hubbub - whether exaggerated or true to form – of the ITC being the latest hotspot for patent trolls, submitted for your approval is an interesting decision from the Federal Circuit, which casts a jaundiced eye on the ability of non-practicing entities to rely on licensing activities to establish domestic industry.

In short, the Federal Circuit appears to distinguish between litigation and licensing activity targeted at “financial gains” (bad) and that aimed at encouraging adoption of the licensor’s patented technology (good).

You can read the opinion here.

The Patentee Behind The Curtain

The End Anonymous Patents Act, recently introduced in Congress by Ted Deutch, has already drummed up significant support and press. The Act would require disclosure of the real party in interest of a patent upon issuance or, in cases where patents are transferred, within a short time after acquisition—providing some much needed transparency to the patent–litigation shell game, where it is often difficult to determine the man behind the curtain when it comes to patent ownership and the beneficiary of settlements in patent litigation.  Microsoft, the Consumer Electronics Association, and the Business Software Alliance have all lined up behind the legislation.

Alone, of course, the legislation will not do much to stop the problem of patent abuse…but it is a step in the right direction.

Notes on a “Scan”–dal

Step away from the scanner.

Or so says FolNer LLC and more than a dozen other shell companies, all claiming to own four patents allegedly covering the act of scanning a paper document and sending that scan by email. As reported by NBC Connecticut, a collection of LLCs with six–letter names (like FolNer) continues to target small businesses, like Southeastern Employment Services of Old Lyme, Connecticut. The LLCs are all Delaware entities associated with a company called MPHJ Technologies, to which the patents were assigned by an outfit called Project Paperless, which got them in turn from Renaissance Group. And, well, you get the picture. Hidden behind the screen of Delaware corporate law is a real party–in–interest behind this letter–writing campaign that cannot readily be identified from public records.

The pattern is familiar—indeed, so familiar we’ve discussed it before. FolNer sends a threatening letter alleging infringement of its patents, and demands that the recipient take a license that might cost upwards of $75,000. That’s a large sum of money to a small business, but not nearly as much as it would cost that company to defend any potential lawsuit to a final resolution in federal court. And businesses like Southeastern Employment Services don’t make or sell scanning technology; they’re just users with no particular connection to their scanners, software, and servers. It takes determination to stand up and fight a potentially expensive battle to defend a business tool made by someone else that has nothing to do with your core business competency. But there can be strategic value to taking a strong stand against this kind of intimidation. Not every company has Newegg’s appetite or resources for litigation; but that doesn’t mean there aren’t smart, effective, and cost–efficient defensive strategies that even small businesses can employ to resist demands like this one.

Back In The Saddle Again

We’ve mentioned Alcatel–Lucent before. We’ve certainly mentioned Newegg a time or two. And so, it is worth mentioning that Newegg has successfully battled another patent infringement claim all the way to the Federal Circuit. Alcatel had claimed its patents covered certain core elements of ecommerce functionality; Newegg (and Overstock) disagreed. The verdict, and the affirmance on appeal, sided with Newegg.

We look forward to seeing which cowboy Newegg will unhorse next.

Troll Troubles

Lisa Larrimore Ouellette, who blogs at Written Description, has written a guest post for Patently O on a panel she recently chaired at the Yale Law School on “Patent Assertion Entities: Promoting or Stifling Innovation?” A panel of academics, in–house patent counsel, and Patent Office counsel appear to have focused their attention not on bad actors (patent trolls), but bad acts (the assertion of bad patents). As their views are described by Ouellette, none of the panelists seemed to believe that patent assertion by entities created for no other purpose was the core problem with patent litigation. Rather, the problem as they saw it is the assertion of bad patents, no matter by whom. Identifying bad patents is empirically hard and culling them through court decisions appears to be impractical. The fractured Federal Circuit’s opinions in CLS Bank v. Alice confirm this last point.  

While we welcome the news of academic inquiry into the causes and consequences of patent trolling, we can’t help but wonder whether something is missing from this discussion with its focus on improving patent quality. There is a growing body of empirical evidence that patent troll litigation is on the rise, now exceeding 50% of all cases filed, and that patent trolls are increasingly suing non–technical companies (like retailers) under technical patents (relating to their websites, for example). The pattern of increased assertion against those who use, not produce, accused products or instrumentalities may suggest a class of plaintiffs who are simply indifferent to the quality of their patents, however measured. And that is quite a different kettle of fish.

Alice’s End

In a badly fractured en banc decision, the Federal Circuit in CLS Bank v. Alice Corp. affirmed the lower court’s holding that Alice’s claims to a computerized method, a computer-readable medium containing computer instructions, and a computer system that implements those instructions were not patent-eligible subject matter.

We are still in the process of reviewing the seven different opinions issued by the ten-member panel (for a total of over 130 pages), but all of the judges seem to acknowledge that the test for patent eligibility under Section 101 should be “a consistent, cohesive, and accessible approach” that provides guidance and predictability.

Unfortunately, none of them can seem to agree as to the best way to get that result.

The leading five-member opinion written by Judge Lourie provides several insights into the Court’s approach to analysis, gleaned from prior precedent:

First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery—those must remain “free to all . . . and reserved exclusively to none.” . . . [T]he animating concern is that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add “significantly more” to the basic principle, with the result that the claim covers significantly less.

Next, the cases repeatedly caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants. . . . Thus, claim drafting strategies that attempt to circumvent the basic exceptions to Section 101 using, for example, highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity should not be credited.

Finally, the cases urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing.

In dissent, Judges Linn and O’Malley offer their opinion that the competing analyses by members of the Court suffer from a similar flaw – they are “divorced from the record to which we are bound.” Specifically citing the amicus we filed on behalf of the Internet Retailers, among others, Judges Linn and O’Malley comment that they do not “discount” concerns as to the proliferation and aggressive enforcement of low quality software patents. Their disagreement lies with the fact that they believe that Congress, not the Court, is the appropriate mechanism for addressing these issues. “Congress can, and perhaps should, develop special rules for software patents.”