recent patent legislation and court decisions in the united states: impact on validity of patents...

International In-house Counsel Journal

Vol. 8, No. 31, Spring 2015, 1

International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online

Recent Patent Legislation and Court Decisions in the United States:

Impact on Validity of Patents and on Obtaining, Licensing, and

Enforcing Patents

RODNEY SPARKS

Senior Biotechnology Patent Counsel, University of Virginia Licensing & Ventures

Group, USA

CHRISTOPHER D. PASCHALL

Licensing Manager, University of Virginia Licensing & Ventures Group, USA

SEAN PARK

Law Clinic Student, University of Virginia Licensing & Ventures Group, USA

Abstract

The United States (US) Congress passed the America Invents Act (AIA) in 2011,

enacting the broadest changes in US patent law in over six decades. The US Supreme

Court has also been unusually active in recent years with decisions relating to patent law

and patent litigation. The AIA and Supreme Court decisions include changing to a

modified first inventor to file patent application system, new proceedings for challenging

existing patents at the US patent office, more and stricter rules for patent litigation,

changing the types of invention that are eligible for patent protection, narrowing the

scope of eligibility for others, changing how inducement of infringement is evaluated,

making it easier to force losers to pay for attorney costs, and changing the standards for

indefiniteness of patent claims. The full impact of the new legislation and case law has

not been determined, creating uncertainty and a reluctance on the part of some investors

and companies to invest in technology or to go forward with licensing, mergers, or

acquisitions where technology is the primary or major source of value in the transaction.

Key words

America Invents Act (AIA or Act), United States (US), US Supreme Court (Supreme

Court), US Patent and Trademark Office (PTO), intellectual property rights, patents,

patent infringement, patent litigation, US Court of Appeals for the Federal Circuit

(CAFC; also referred to as the Federal Circuit), PTO Patent Trial and Appeal Board

(PTAB), United States Code (USC)

Introduction

The ability to obtain patents and protect inventions has changed drastically in the United

States (US) in the last few years. The changes are the result of new legislation, recent US

Supreme Court (Court) and federal court patent decisions, and the US Patent and

Trademark Office's (PTO) changes in examination practice in response to the America

Invents Act (AIA) and court decisions.

The AIA was signed into law on September 16, 2011. This new legislation enacted the

greatest number of changes in US patent law since the early 1950s. The AIA includes,

inter alia, change to a modified first inventor to file patent application system, new

proceedings for challenging existing patents at the PTO, more and stricter rules for patent

2 Rodney Sparks, Christopher Paschall and Sean Park

litigation, and changes to the types of invention that are even eligible for patent

protection.

The Supreme Court has been extremely active as well, issuing decisions narrowing the

scope of some types of patents, excluding some types of inventions from being

patentable, changing how inducement of infringement is evaluated when a patent has

multiple steps in a process and more than one party is involved in the infringing act,

making it easier to force the loser in litigation to pay for attorney costs, and changing the

standards for indefiniteness of patent claims.

One impact of the AIA has been extensive utilization of the new proceedings to challenge

patents at the PTO, and challengers have had high success rates in invalidating all or

some of the claims of the challenged patents. Concomitantly, there has been a dramatic

decrease in patent infringement lawsuits. Additionally, many patents, perhaps thousands,

are no longer valid. Because of uncertainty in whether some patents are still valid or are

susceptible to attack, and whether new patent drafting strategies can overcome some of

the changes in the law, there is a greater reluctance on the part of some investors and

companies to invest in technology or to go forward with licensing, mergers, or

acquisitions where technology is the primary or major source of value.

The following sections provide more details about the AIA and recent court decisions, a

summary of some of the criticisms, a summary of the impact to date, and some

suggestions or practice tips for dealing with these changes.

America Invents Act

The Leahy-Smith America Invents Act (AIA) implemented a number of changes to

patent law in the US. Major areas addressed by the AIA include: implementation of a

first-inventor-to-file system for defining who has the rights, as between independent

inventors, to new inventions filed in the PTO; enhanced PTO review of granted and

issued patents; statutory subject matter; and modification of the litigation laws related to

patents. The AIA also addressed issues related to procedural/jurisdictional issues during

litigation, and a number of administrative changes regarding PTO funding and fees.

Proponents of the AIA had the general objectives of improving quality of patents granted

by the PTO, international harmonization of patent laws, early determination of patent

rights, reducing patent litigation costs and risks of “alleged infringers”, and increasing

jobs. Opinions vary widely as to whether the AIA will achieve the stated goals, whether

all groups will fare the same, and whether some of the changes were needed.

First to File

This change to patent law was one of the most controversial and moves away from a

system that awards a patent to the “first-to-invent” to a system that awards a patent to the

inventor who is the first to file a patent application, albeit with some exceptions. Under

the “first-to-invent” system, if two inventors filed patent applications claiming the same

invention, the PTO would conduct an interference proceeding to determine who the first

inventor was. Under the new first inventor to file system, the patent will be awarded to

the inventor with the earliest filing date, with certain exceptions.

There are exceptions to this new first to file rule, including one for the inventor to file a

patent application to be filed within one year of their public disclosure. However, the

first inventor to file has the presumptive rights in the patent. The second applicant can

overcome this presumption in two ways, which are discussed below in "Derivation

Proceedings".

Recent Patent Legislation and Court Decisions in the United States 3

Third-Party Challenges/Inter Partes Disputes

The AIA established procedures for someone other than the patent owner or applicant to

challenge the validity of a granted patent by petitioning the new Patent Trial and Appeal

Board (PTAB) of the PTO. These changes are intended to allow third parties to

challenge the validity of granted patents without incurring the high cost of federal court

litigation. It should be noted that Ex Parte Reexamination and Reissue are still available.

Inter Partes Review (IPR)

IPR review is a trial proceeding conducted by the PTAB to review the patentability of

one or more claims in a patent, but only based on prior art consisting of patents or printed

publications. IPR begins with a third party filing a petition after the later of either: (1)

nine months after the grant of the patent or issuance of a reissue patent; or (2) if a post

grant review is instituted, the termination of the post grant review. The patent owner may

file a preliminary response to the petition. An IPR may be instituted upon a showing that

there is a reasonable likelihood that the petitioner would prevail with respect to at least

one claim challenged. If the proceeding is instituted and not dismissed, a final

determination by the PTAB will be issued within 1 year.

Close to 3,000 petitions have been filed since the law was enacted. Although cheaper

than litigation, this procedure costs at least $250,000 on average and, unlike litigation, the

petitioner does not need standing to initiate the proceeding. One fear raised when the law

was proposed was that large companies may arbitrarily attack patents of small companies

or universities who have little or no money to defend a patent. That has come to fruition

with so-called PTAB "crashers", who are in fact from a variety of backgrounds, including

financiers/investment firms, patent defense firms, patent monetization companies, and

public interest groups. What they have in common is that each has filed one or more

inter partes review petitions despite having no risk of being charged with infringement of

the subject patent(s). To date, PTAB crashers have accounted for 47 inter partes review

petitions. For example, financiers such as hedge fund managers have begun attacking

pharmaceutical patents in what appears to be an effort to, inter alia, make money based

on the use of "shorting strategies" when the value of a company decreases.

Post Grant Review (PGR)

PGR is a new trial proceeding conducted at PTAB to review the patentability of one or

more claims in a patent on one or more grounds, including lack of novelty, obviousness,

indefiniteness, and ineligible subject matter. It is similar to an opposition proceeding in

Europe. PGR begins with a third party filing a petition on or prior to the date that is nine

months after the grant of the patent or issuance of a reissue patent. The patent owner may

file a preliminary response to the petition. A PGR may be instituted upon a showing that

it is more likely than not that at least one claim challenged is unpatentable. If the

proceeding is instituted and not dismissed, a final determination by the PTAB will be

issued within one year. The PGR procedure generally applies to patents issuing from

applications subject to first-inventor-to-file provisions of the AIA, therefore, only a few

patents have been eligible for challenge and it is too soon to speculate about its

effectiveness.

Derivation Proceeding

This replaces Interferences and is designed to settle certain inventorship disputes;

however, the law has rather severe time constraints and requires the alleged first inventor

to be proactive and to monitor the activities of others. A derivation proceeding is

conducted at the PTAB to determine whether (i) an inventor named in an earlier

application derived the claimed invention from an inventor named in the petitioner’s

application, and (ii) the earlier application claiming such invention was filed without


authorization. An applicant subject to the first-inventor-to-file provisions may file a

petition to institute a derivation proceeding only within one year of the first publication of

a claim to an invention that is the same or substantially the same as the earlier

application’s claim to the invention. If the deadline is missed, other civil actions are

available.

Transitional Program for Covered Business Methods Patents

The transitional program for covered business method patents (TPCBM) is a new trial

proceeding conducted at the Board to review the patentability of one or more claims in a

covered business method patent. TPCBM proceedings employ the standards and

procedures of a post grant review, with certain exceptions. For example, for first to

invent patents only a subset of prior art is available to support the petition. Further, a

person may not file a petition for a TPCBM proceeding unless the person or the person’s

real party in interest or privy has been sued for infringement of the patent or charged with

infringement under the patent. The program will sunset for new TPCBM petitions on

September 16, 2020.

Third Party Submission of Prior Art for Patent Application

Although a mechanism already existed for third parties to cite references in the file of a

pending application, the AIA added new provisions. The AIA provides a mechanism for

third parties to submit patents, published patent applications, or other printed publications

of potential relevance to the examination of a pending patent application with a concise

explanation of their relevance. Such submissions may be made by (1) the later of (i) six

months after the date of publication or (ii) the date of a first Office action on the merits

rejecting any claims, or (2) before the date of a notice of allowance, if earlier.

Supplemental Examination

The AIA added a method to correct mistakes in an issued patent and to possibly avoid

inequitable conduct issues. The main effect of supplemental examination will be that a

patent cannot be held unenforceable (invalid) on the basis of information presented

during a supplemental examination. Unlike patent owner-initiated ex parte re-

examination, supplemental examination is not limited to patents and printed publications.

A request for supplemental examination must be filed by the patent owner, and must

request that the PTO consider, reconsider, or correct information believed to be relevant

to the patent. The standard for granting the request is whether one or more items of

information raises a substantial new question of patentability (SNQ), which requires a

showing that a reasonable examiner would consider the item of information important in

determining the patentability of the claims.

Prioritized Examination

Prioritized examination allows applicants to request a more speedy examination upon

payment of an extra fee of $4,800. When an applicant opts in to prioritized examination,

the application is accorded special status during prosecution. The goal is to provide a

final disposition within twelve months. A maximum of 10,000 requests will be granted

per fiscal year. Prioritized examination is part of an effort to provide patent applicants

greater control over the timing of examination of their applications. Specific rules and

deadlines apply, and failure to comply results in loss of the fee and return of the

application to normal examination.

Patent Marking and False Marking

The AIA includes a provision allowing “virtual marking” of a patented item. Such

marking can be implemented by displaying an Internet address where the patented item is


identified along with any patent numbers that cover the patented item. The AIA also

eliminated any liability associated with virtual marking related to patents that are expired.

It has been suggested that the AIA cures a plague of false marking litigation that began

following a Federal Circuit decision that a fine of up to $500 for marking products with

expired or inapplicable patent numbers applied on a “per article” basis. The AIA

eliminates qui tam provisions in the false marking sections of the law that had allowed

anyone to sue to recover the penalties. Those provisions had led to things such as

lawyers or companies actively reviewing products in stores looking for products marked

with expired patent numbers to identify potential defendants. The AIA prohibits anyone

other than the US from suing for penalties associated with false marking. In addition, the

changes allow a company that has suffered a competitive injury due to false marking to

file a civil action for recovery of damages associated with the false marking.

Business Methods and Tax Strategies

The AIA mandates that strategies for reducing, avoiding, or deferring tax liability are

now un-patentable subject matter. With regard to business methods, accused infringers

are permitted to defend against an asserted patent under certain conditions if they can

prove that they personally used the subject matter of the asserted patent at least one year

before the filing of the patent or the date on which the subject matter of the patent was

effectively publicly disclosed by the patentee, whichever is earlier. The use must have

been in the US and must have been an internal commercial use, an actual arm’s length

sale, or an arm’s length commercial transfer of the end-result of the commercial use.

Now, prior commercial users of a patented business method can avoid liability for

infringing a patent on a business method that was filed after their commercial

implementation of the business method.

Best Mode

US patent law differs from that of many other countries by requiring the inventor to

disclose in the application the “best mode” of practicing the invention. Although the AIA

retains this requirement, it eliminates the failure to disclose the best mode of an invention

as “a basis on which any claim of a patent may be cancelled or held invalid or otherwise

unenforceable”. The best mode defense in litigation was the subject of considerable

criticism because the test was subjective and the defense could significantly increase the

cost of already-expensive patent litigation by requiring additional document production,

depositions, and other proceedings.

Expanded Prior User Rights Defense, But Expanded University Exception

The AIA has expanded the prior user rights defense to patent infringement from just

business method claims to all claims of any patent and exempts a defendant from

infringement if the defendant commercially used the subject matter in the US at least one

year prior to the effective filing date of the claimed invention or the date on which the

claimed invention was disclosed in a manner that qualified for the inventor’s exception

from prior art under the laws of novelty. However, the prior use defense does not apply

if the asserted patent was owned by a university or under an obligation to be assigned to a

university. However, the university exception does not apply if reduction to practice of

the invention could not have been undertaken using federal funds (i.e., embryonic stem

cell research).

Limited Joinder

Joinder of defendants has been severely limited and was done in an effort to curb

perceived abuses by patent trolls (non-practicing entities) and to make it difficult for non-

practicing entities to include multiple defendants in one litigation. However, Federal

courts still have discretion under Federal Rules to join parties for efficiency.


Other Key Provisions of the AIA

The AIA encompasses many new sections and not all are covered here. Other key

provisions include:

a. expressly prohibits the issuance of any patents with claims directed to or

encompassing a human organism;

b. allows assignees to apply for patents without an oath from the inventor(s).

c. creates a “micro entity” status that allows individuals, universities, and start-

up entities to receive a 75% discount on PTO fees;

d. codifies current case law that the failure of an accused infringer to obtain an

opinion of counsel does not support an inference of willful infringement; and

e. provides more liberalized use of Joint Research Agreements between

collaborating entities to help overcome certain prior art rejections.

For more information on the AIA sections summarized here, or for sections not

mentioned, seek the advice of a patent attorney or patent litigator.

These laws are not static and new legislation has been proposed by the US Congress each

year since the AIA was passed. Currently, bills are being considered to more directly

impact patent litigation and the activity of so-called patent trolls (more accurately named

non-practicing entities), including formulating rules for "patent demand letters" sent by a

patent owner to a potential licensee or infringer. Because the recent legislation and case

law have not had ample time to exert their full effects and that patent litigation was down

by 40% last year, many patent practitioners, patent litigators, and owners of intellectual

property question whether additional patent reform by Congress is necessary.

United States Supreme Court and Recent Patent Cases

Reviewed below are recent Supreme Court decisions on various patent issues. The

Supreme Court has almost taken on an "activist" role in hearing more patent cases

relative to the last few decades.

This new trend began with KSR v. Teleflex (KSR Int'l. Co. v. Teleflex Inc., 127 S.Ct. 1727

(2007)), where the Court invalidated the Federal Circuit’s teaching, suggestion, or

motivation test for obviousness inquiries. The Court held obviousness is a question of

law to be decided based on factual finding. The Court focused on a totality of

circumstances approach with an emphasis on “secondary considerations.” KSR continues

to be an influential decision and is one of the most cited patent cases of all time.

Litigants should attempt to use all available tools to prove obviousness or non-

obviousness and focus on case law ofspecific fields of invention.

Similarly, the Court overruled the Federal Circuit’s test for indefiniteness and required a

totality of circumstances approach in Nautilus v. Biosig (Nautilus, Inc. v. Biosig

Instruments, Inc., 134 S.Ct. 2120 (2014)). Again, the Court criticized the Federal

Circuit’s narrow test, which found claims indefinite when they are “not amenable to

construction” or “insolubly ambiguous.” The Supreme Court instead stated patent claims

are indefinite, if in light of the specification and prosecution history, they fail to inform,

with reasonable certainty, those skilled in the art about the scope of the invention. As a

result, patent claim construction for indefiniteness will usually involve testimonies from

persons having ordinary skill in the arts.

The Court has also heard cases on induced infringement under 35 USC § 271(b). For

example, in Limelight v. Akamai (Limelight Networks, Inc. v. Akamai Technologies 134

S. Ct. 2111 (2014)) it reversed the Federal Circuit and held induced infringement requires

direct infringement by a single party. Additionally, in an earlier case the Court held that


induced infringement requires the infringer to have knowledge of patent infringement.

For the method patent at issue in Limelight, direct infringement required a single party

that performs every step of a claimed method or exercises control or direction over those

who do. The Court strongly emphasized that even if all of the steps are infringed by

different parties, there is no direct or indirect infringement without a single responsible

party. Here, the Court refused to import tort and criminal law principles where indirect

liability can exist even if there is no single liable person and the new standard requires

knowledge of patent infringement and direct infringement by a single party.

Several recent cases have focused on "patentable subject matter", where the Court has

elaborated on prior judicial exceptions to what is patentable, encompassing areas such as

abstract ideas, laws of nature, natural phenomena, and natural products. The first was

Bilski v. Kappos (561 US 593 (2010)). In Bilski, the Court affirmed that Bilski’s risk-

management method was not the type of innovation that may be patented, and overturned

the Federal Circuit "machine or transformation" test, which required that a patentable

process either be tied to a machine or apparatus or involved a transformation of a

particular article into a different state or thing. However, the Court did assert that

"business methods" are not categorically excluded from the scope of the statute

describing patentable subject matter.

In 2012 and 2013, the Supreme Court handed down two important biotechnology

decisions, Mayo v. Prometheus (Mayo Collaborative Services v. Prometheus

Laboratories, Inc., 132 S. Ct. 1289 (2012)) and AMP v. Myriad (Association for

Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013)), regarding patent

subject matter eligibility. Each case limited the scope of certain claims previously

believed patentable, and created uncertainties for biotechnology, medical diagnostic, and

pharmaceutical industries about their current patent portfolio and potential patents.

In Mayo, the Court held that the claimed process in the case is not patent eligible subject

matter. The patent involved methods for determining the proper dosage of thiopurine

drugs, which are used for treating both gastrointestinal and non-gastrointestinal

autoimmune diseases. The method sought to optimize therapeutic efficacy while

reducing toxic side effects. The claims generally recited steps of: (a) administering

thiopurine drug to a subject; determining the level of drug and (b) determining the levels

of the drug or the drug’s metabolites in red blood cells in the subject. If the measured

metabolite levels in the patients were outside the pre-determined range, an increase or

decrease of the level of drug to be administered was needed to minimize toxicity and

maximize treatment efficacy. The Court found that claims reciting methods for detecting

a correlation between a metabolite and the likelihood of responding to a drug, without

“more,” are not patentable eligible, because they merely describe a law of nature. The

Court reasoned that the steps recited in the claimed method add nothing specific to the

laws of nature other than what is well understood, routine, conventional activity,

previously engaged in by those in the field. It should be noted that similar claims still

seem to be patent eligible in other countries.

In 2013, the Supreme Court issued another opinion, Association for Molecular Pathology

v. Myriad, further limiting the scope of patent subject matter eligibility. Myriad’s patent

was directed to naturally occurring mutations in BRCA genes, the detection of which

predicted the likelihood of getting breast cancer. The disputed claims were for isolated

DNA sequences encoding the BRCA1 protein, corresponding isolated cDNA, and

isolated DNA fragments that map to a gene encoding the BRCA1 protein. The Federal

Circuit had twice found Myriad’s claims patentable (first on appeal from the district court

and second on remand from the Supreme Court). Nevertheless, the Court held that a

naturally occurring DNA is a product of nature and not patent eligible merely because it


has been isolated. The Court also decided that cDNA is patent eligible because it is a

synthetic nucleotide different from the sequence occurring in nature.

While the Myriad decision speaks only to patents involving DNA, the same principle can

potentially be applied to other biological material as well, such as proteins and chemicals,

and the PTO has addressed those materials in the new guidelines discussed herein. It has

created some uncertainties in the biotechnology and pharmaceutical industries. However,

it should be noted that similar claims still seem to be patent eligible in other countries.

In Alice v. CLS Bank (Alice Corp. Pty. v. CLS Bank Int'l, 134 S. Ct. at 2354 (2014)) the

Court addressed the issue of what kind of software patents should be patent eligible. The

claims at issue in Alice covered a method for mitigating risk in a transaction between two

parties by setting a computer to serve as a third-party intermediary. Specifically, the

patent claimed “(1) a method for exchanging financial obligations, (2) a computer system

configured to carry out the method for exchanging obligations, and (3) a computer-

readable medium containing program code for performing the method of exchanging

obligations.” Prior to being heard at the Court, at the Federal Circuit en banc panel had

issued seven different opinions, with no one opinion supported by a majority.

Understandably, the decision was appealed to the Court. The Court utilized the analysis

from Mayo, where a process encompassing an abstract idea or law of nature must prove

to be more than the unpatentable feature and additional aspects must transform the nature

of the claim into something that is eligible. In Alice, the Court emphasized the need to

distinguish between patents that claim the building blocks of human ingenuity and those

that integrate the building blocks into something more. However, the Court did not

define “something more” and provided no future guidance. The Court determined that

the claims at issue were directed to the patent-ineligible concept of intermediate

settlement, an abstract idea. It identified intermediate settlement as a fundamental

economic practice long prevalent in our system of commerce and concluded that the

claims failed to transform the abstract idea into a patentable invention. It found the

computer/third-party intermediary to be a generic computer implementation lacking a

sufficient inventive concept. Thus, the claims simply instructed the practitioner to apply

the abstract idea and went no further. The Court ultimately affirmed the Federal Circuit’s

ruling.

The Court recently addressed fee shifting from one party to another during litigation,

where it typically only occurs in exceptional circumstances. It rejected the Federal

Circuit’s rigid requirement for fee shifting in Octane Fitness v. Icon (Octane Fitness,

LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 1749 (2014)). The previous Federal Circuit

standard permitted a defendant to obtain fees only when it could show inequitable

conduct in obtaining the patent, litigation-related misconduct of an independently

sanctionable magnitude, or that the suit was filed in subjective bad faith and objectively

baseless manner. The Court held that an exceptional case is one that stands out from

others with respect to the substantive strength of a party's litigating position (considering

both the governing law and the facts of the case) or the unreasonable manner in which the

case was litigated. The Court further specified that district courts may determine whether

a case is exceptional on a case-by-case basis exercising their discretion and considering

the totality of the circumstances.

Overall, the Supreme Court cases have rejected the Federal Circuit’s streamlined tests

and opted for totality of circumstances approaches that are consistent with non-patent

case law. It also delineated many areas where the Federal Circuit must give high

deference to district court judges. As a result, district court litigation has become more

important, and possibly more expensive. Unfortunately, in the various rulings narrowing

the scope of patentability, the Court provided no distinct guidance as to what is


patentable and some uncertainty still remains for those seeking patents or who have

similar issued patents.

The United States Patent and Trademark Office's (PTO) Response to the New Laws

and Court Decisions

The PTO examines patent applications and allows or rejects them, but must modify

procedures and guidelines when laws are changed. The guidelines are based on their

interpretations of the law. Each time new legislation is passed or the Supreme Court

renders a decision regarding patentability, they must react and try to examine pending

applications in light of the new law. Needless to say, the PTO has had its hands full the

last few years.

For example, responding to Mayo v. Prometheus, the PTO released a memorandum,

“2012 Interim Procedure for Subject Matter Eligibility Analysis of Process Claims

Involving Laws of Nature,” and set forth an examination procedure for method claims.

The memorandum set forth a three-step test.

On March 4, 2014, the PTO issued a “procedure” for examining subject matter eligibility

and included reference to both the Mayo and Myriad Supreme Court decisions. The

guidelines were actually quite long and were subject to much criticism, including that

they were ambiguous, onerous, and went well beyond the holdings of the Court.

Soon after the Supreme Court's decision in Alice, the PTO issued more subject matter

eligibility preliminary guidelines for its examiners instructing them to follow the Mayo

framework. These new guidelines address some of the issues of the previous guidelines,

including: eliminating the 12 step analysis; providing more examples of eligible and

ineligible claims than the first interim guidelines; stressing viewing the claim as a whole

for judicial exception review rather than element by element; nature-based products are

now singled out differently than other exceptions (causing concern to some companies

that isolate such products); the term “directed to”, as to being directed to a natural

phenomenon or law of nature, is now more expansive; but it still contains the terms

“significantly more” and “significantly different”, which is broader compared to rulings

of the courts.

The new guidelines are an improvement, but may still be too vague with respect to

examination of certain inventions and too onerous with respect to others. The new

guidelines concentrate on a two-part test put forward by the Court in Mayo and as

reiterated in Alice.

These decisions have had a powerful practical effect. After the Alice decision, the PTO

reviewed a group of applications likely to be affected and began withdrawing

applications from allowance. For example, in the time period immediately post-Alice to

August 15, 2014 the PTO withdrew 830 applications from allowance. The context of this

number is more greatly appreciated in view of statistics indicating that the percentage of

un-patentable subject matter rejections of pending applications was 78% during a two-

week study in July, compared to 24% during two weeks in January 2014. Analysis of

withdrawn cases revealed the diversity of industries affected by the decision, including

transportation, retail, health care, communications, and financial services.

The PTO has continued to tweak the various rules and guidelines it put into place to deal

with the AIA and has had many sessions with interested parties and groups to seek input.


Impact of Recent Legislation and Case Laws on Patent Litigation, Patent Validity,

Obtaining a Patent, Licensing Technology, and Investing in Technology

As described above, because the recent legislation and case law are new, there has been

limited time to determine their long-term impact. Therefore, many patent practitioners,

patent litigators, and owners of intellectual property question whether additional patent

reform by Congress is necessary. This is especially true when patent litigation was down

by 40% last year. Unfortunately, there will be uncertainty for some time, as pointed out

by recently by Paul Michel, retired chief judge of the Federal Circuit. When considering

the provisions of the AIA, judge Michel asserted that there will be heightened uncertainty

for the rest of the decade, that the AIA makes fundamental changes, and that many

sections are poorly written and ambiguous. He also said that a downside to the new post

grant procedures is that there will be a greater uncertainty over issued patents than ever

before and that venture capitalists may wait to see what happens in post-grant review

proceedings before investing.

Because recent court decisions have narrowed what can be claimed or what is patentable,

thousands of patents are effectively now invalid. One estimate alone suggests that tens of

thousands of assets owned by companies such as IBM, Microsoft, Apple, Oracle, Google

and Cisco are invalid or susceptible to challenge following the Alice judgment. Since

that judgment was handed down, there have been a series of software patent rights being

overturned by lower courts.

Moreover, there are other factors working in favor of accused patent infringers. In

Nautilus the Court tightened restrictions on patent applicants by narrowing the scope of

inventions being claimed. In Octane Fitness, the Court made it easier for courts to make

the loser pay for all attorney costs. And in Limelight, the Court made it much harder to

sue e-commerce companies for infringing patented processes involving electronic

transactions between multiple parties. What may be certain is that patent litigation is

dropping. Some experts believe that investors are growing more cautious about financing

patent litigation, a practice used in the US. The risk of losing based on an ineligible

claim, and spending a significant amount doing so, has gotten substantially higher.

It is recommended that patentees and their licensees carefully evaluate how to proceed,

including determining if the cost of going to trial is worth the risk of losing a patent battle

in a post-Alice/Mayo/Myriad courtroom. Of course, as described above patents are now

subject to attack through new post grant procedures at PTAB as established by the AIA.

For example, the PTAB, several federal district courts and the Federal Circuit have

overturned software patents post-Alice. However, at least a few decisions have found

that computer-related patents were patentable if the scope was narrow enough that the

claims covered more than an abstract idea.

Recent biotechnology decisions exemplify the trend in courts that requires novel methods

for obtaining, analyzing, or detecting evidence of anything that can be cast as a natural

phenomenon and has created a dilemma for companies relying on diagnostics and use of

biomarkers. It appears that, in general, a diagnostic test or assay must now include

something novel that was not required in the past. For example, if the assay itself is a

new (novel) and non-obvious assay, then a diagnostic claim reciting that specific assay

appears to be patentable.

The recent court decisions are now resulting in many patents becoming invalid and

difficulty in obtaining patents in the areas of personalized medicine, diagnostics, and in

use of software. Because of these new laws, companies and universities that patent or

license technology should become familiar with them and work with their patent, patent


litigation, and transaction attorneys to come up with new ways to obtain, protect, and

license technology, as well as defend themselves if accused of infringement.

Bibliography

1) Leahy-Smith America Invents Act, One Hundred Twelfth Congress of the

United States of America, Public Law 112-29, September 16, 2011, 125 Stat 284

2) KSR Int'l. Co. v. Teleflex Inc., 127 S.Ct. 1727 (2007)

3) Alice Corp. Pty. v. CLS Bank Int'l, 134 S.Ct. (2014)

4) Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014)

5) Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107

(2013)

6) Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289

(2012).

7) Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 1749 (2014)

8) Bilski v. Kappos, 561 U.S. 593 (2010), 130 S.Ct. 3218 (2010)

9) Limelight Networks, Inc. v. Akamai Technologies, 134 S.Ct. 2111 (2014)

***

Rodney L. Sparks, J.D., Ph.D. joined the University of Virginia Licensing & Ventures

Group in 2004 from the well known intellectual property group at Drinker Biddle &

Reath LLP, in Philadelphia. His practice concentrated on biotechnology, pharmaceutical

and chemical patent issues, including medicine and gene therapy. He has represented a

variety of clients in the United States and abroad, including universities, biotechnology

companies, and pharmaceutical companies. Prior to working at Drinker, he was also in

private practice at Morgan, Lewis and Bockius LLP, and at Akin, Gump, Strauss, Hauer

and Feld, both in Philadelphia. After completing work on his Ph.D., Dr. Sparks

completed postdoctoral training in the cellular and molecular biology of cancer at the

Johns Hopkins University and at the Mayo Clinic. He was on the faculty of the Oregon

Health Sciences University School of Medicine and was a tenured faculty member of

Tulane Medical School. While on the faculty at Tulane, he graduated from the evening

program of the Loyola University School of Law. Dr. Sparks’ current focus includes

overseeing outside patent counsel, drafting and prosecuting patents in the pharmaceutical

and biological sciences, preparing opinions and providing counseling on patent matters.

He also is responsible for providing counsel on government reporting matters for the

Licensing and Ventures Group and teaches law students in the Law Student Patent and

Licensing Clinic of the University of Virginia School of Law, where he is also a Lecturer.

Dr. Sparks is a member of the American Intellectual Property Law Association and

belongs to the Biotechnology, Inter Partes Patent Proceedings Committee, Licensing and

Management of IP Assets, and Patent-Relations with the PTO committees of that

organization. He also is a member of the Association of University Technology

Managers. Dr. Sparks has lectured at national and international meetings on various

patent and licensing topics, has served in various consulting capacities for several

agencies of the U.S. government, and is an adjunct faculty member of the University of

Virginia School of Law, teaching a clinic in patent law and licensing. He has served as a

judge for the Modern Marvel patent contest sponsored by the U.S. Patent and Trademark

Office and InventNow.org.

Christopher D. Paschall, Ph.D., CLP is a licensing manager with the University of

Virginia Licensing & Ventures Group. He was formerly a licensing associate with

Emory University. He is a registered patent agent with the United States Patent and

Trademark Office. Paschall received his doctorate in biomedical engineering from the

University of Virginia, where his research focused on leukocyte adhesion in


inflammatory responses and its application to targeted drug delivery. He also has a

bachelor's degree in chemical engineering from the University of Virginia. Prior to

graduate school, he worked as a quality control and process engineer at Klockner

Pentaplast of America in Gordonsville, Va. At Klockner, he helped implement a

company-wide software program to more efficiently manufacture pharmaceutical-grade

plastic products.

Woo Sin Sean Park, M.S., J.D., was a student at the University of Virginia School of

Law, class of 2015. He earned his bachelor's degree in Molecular Genetics from the

University of Rochester and his graduate degree from the University of Virginia. In law

school, he was the Online Editor for Virginia Law Review and member of various

student organizations, including Virginia Society of Law and Technology. He also

enrolled in Patent Law and Licensing Clinics over two semesters. He spent the summer

of 2014 with the law firm Day Pitney, LLP, and will return upon graduation.

The University of Virginia Patent Foundation, doing business as the University of

Virginia Licensing & Ventures Group, is responsible for technology transfer at the

University of Virginia and licenses and patents intellectual property developed at the

university. It advances promising research discoveries to the marketplace through

licenses with industry, new venture formation, and other available pathways.

recent patent legislation and court decisions in the united states: impact on validity of patents...

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