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Patent Baristas

“The pharmaceutical industry is trashed nightly as being second only to the tobacco industry in the corporations-we-hate-most department.”

   ~ Martin Voet

In Martin Voet’s book, The Generic Challenge: Understanding Patents, FDA and Pharmaceutical Life-Cycle Management (third edition), he provides a concise guide to the necessary information so that pharmaceutical executives, managers, regulatory, legal and business development professionals, those involved in strategic marketing and in research and development, among others in the pharmaceutical field, can deal with the increasingly aggressive tactics of generic companies designed to legally copy innovative drug products.

This Third Edition comes with updates on new case law, materials on the interaction of Section 8 skinny labeling and patent use codes, a new section on biosimilars and a new, actual example of life-cycle management.

A Section 8 ANDA is an Abbreviated New Drug Application (ANDA) filing with labeling omitting an approved, but patented, indication.  Thus, it enables the ANDA filers to not have to provide Paragraph IV certification and are not entitled to the first-filer, 180-day exclusivity.  This is the so-called “skinny” labeling or “carve out” filing.  The Section viii certification may only be approved if the composition patents covering the reference listed drug have expired, or will expire, prior to the date of the proposed marketing and sale of the generic drug.  In addition, there must be no overlap between the proposed carve-out label and the use code narrative submitted by the patentee or “innovator” manufacturer.

Proving inducement of infringement in an ANDA case is often difficult for innovator pharmaceutical companies.  Indeed, proof of inducement “requires evidence of culpable conduct, directed to encouraging another’s infringement.”  Such evidence may be found in the ANDA applicant’s proposed labeling, which might instruct physicians that the drug is indicated for a particular (patented) use.

Because a Section 8 statement potentially allows an ANDA filer to obtain approval of a generic drug without delay, it is of great interest to both innovator and generic companies.  In addition, physicians routinely prescribe generic drugs as a substitute for name brand medications, and some physicians will also prescribe such generics for off-label and patented methods of use.

While not intended to replace competent legal counsel, this concise little guide is intended for the busy executive to learn these subjects in understandable language so that you will be able to ask the right questions and understand the answers you receive. Broad in coverage, the book covers patent enforcement and infringement, pharmaceutical product life-cycle management, regulatory matters, and legislation related to pharmaceuticals with Take Home Messages at the end of each chapter summarizing the main points.

We highly recommend it.

About the Author

Martin A. Voet is a Senior Vice President and Chief Intellectual Property Counsel for Allergan.

The Generic Challenge: Understanding Patents, FDA and Pharmaceutical Life-Cycle Management (third edition) is available at Amazon.

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This morning, President Obama signed the America Invents Act at Thomas Jefferson High School for Science & Technology in Alexandria, Virginia—a school named for the first official to issue U.S. patents.  On stage with President Obama was a bipartisan group of legislators:  Sen. Patrick Leahy (D-VT); Rep. Lamar Smith (R-TX); Rep. Bob Goodlatte (R-VA); Rep. Jim Moran (D-VA); and Rep. Mel Watt (D-NC).

Have questions on the America Invents Act?

Today, US Chief Technology Officer Aneesh Chopra will be answering your questions with USPTO Director David Kappos during an Open for Questions event on WhiteHouse.gov. Join them live at 5:00 p.m. EDT on Friday, September 16th. Here’s how it works and how you can participate:

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Author and inventor John D. Smith doesn’t want you to file a patent application.  Smith, author of the book “Don’t File a Patent!” book (232 pp.) writes:

“The patent process is an illusion of protection that takes inventors’ hard earned money and gives them nothing in return.”

So, why would I write about NOT filing patent applications if I’m a patent attorney?  Well, it’s certainly not because of the very unflattering description of patent lawyers offered up by Smith.  It’s that Smith makes some very valid points even if his anger and criticism are sometimes misdirected.

Here are his 10 reasons not to file a patent :

1. The Patent Office has a posted “patent allowance” average of 40%, but the true allowance ratio with some classes of products is as low as 5 to 16%.

2. The Office Action rejection process is a moneymaker for patent attorneys, but a money loser for the Inventor.

3. Patent Examiners do not have “obvious skill in the art” to determine the patentability of every type of invention.

4. In your Office Action rejection, the Patent Examiner will cite the illogical 35 U.S.C. 103(a) “obviousness” rejection clause, which makes no sense.

5. Filing a patent application wastes valuable capital that you should be using to develop and market your product.

6. The patent process takes approximately 3 to 6 years; your product could be obsolete by the time the patent issues.

7. A patent does not protect your product against a copycat; it just gives you the right to sue.

8. The Patent Office is a complicated bureaucracy with many problems that may never be fixed.

9. Patent maintenance fees are expensive and unreasonable.

10. The Patent Office may be showing favoritism towards big companies that, year after year, are awarded hundreds or thousands of patents.

As you can see, most of the list is devoted to Patent Office practices.  Are there some valid arguments for not filing a patent application? Sure, plenty of them.

  • Does the US Patent Office have a low percentage rate for patent allowance?  Fact.
  • Do examiners beat applicants over the head with 35 USC 103(a) obviousness rejections?  Like a rented mule.
  • Are patent maintenance fees expensive and unreasonable.  You betcha.

Mr. Smith seems to have had a very difficult and probably unnecessary, bad experience with the Patent Office.  But, saying never file a patent application is foolish advice without doing a more careful analysis.

For many innovations, like pharmaceuticals, consumer products, and many others, patent protection is great. In the United States , an inventor is granted the exclusive right to their invention for a period of 20 years from the date of filing the application. But, there are many times when patents are not worth the expense.

So, where do I stand on all this?  Consider these facts:

a.  Patents can be incredibly valuable and a critical asset to companies from start-ups to Fortune 500 sized blue chips.

b.  Patents can be a complete waste of time and money.

How do I reconcile these seemingly inconsistent statements?  To answer that you need a well thought-out business plan that addresses these three questions:

1.    How are you going to make your money?  Is it by licensing out the technology and collecting royalties?  Is it by making and selling a product directly?  Either way, how big of a market is there and how much can you realistically make from the invention?  Here, you need to look at some hard, very sane numbers and ask yourself if the risk/reward ratio makes protecting the idea worth the cost and effort.

2.  How long will you most likely need to protect your product?  Some products have a very short life cycle.  Given that filing and prosecuting a patent to issue can easily take 3-5 years, it would not make sense on a product that will be obsolete quickly.  On the other had, for some products — like pharmaceuticals — the most valuable years of the patent life are the last years.

3.  Can you police your invention in a practical manner?  That is, who is likely to infringe and can you sue them?  If your invention is one that takes place in the back of a shop and you can not detect the use from the product, you won’t be able to know if competitors are infringing.  If you can detect them, are they infringers you can collect from?  Generally, if the infringer is a private individual or small company, then they won’t have the money to pay anyway.  Likewise, if you don’;t have the money to sue and enforce the patent, perhaps the best course is to not file.

As Smith notes in his text, a patent merely gives you the right to keep others from using it.  More importantly, they are not self-enforcing, which means you have to enforce your rights yourself (read: sue).  You may want to consider if there are other types of intellectual property protections available for your product like copyright or trade secret.

Some advantages of trade secrets include:

  • Trade secret protection has the advantage of not being limited in time (patents last in general for up to 20 years from the date of filing). So, trade secret protection could continue indefinitely as long as the secret is not revealed to the public.

  • Trade secrets involve no registration costs (though there may be high costs related to keeping the information confidential).

  • Trade secrets have immediate effect.

  • Trade secret protection does not require compliance with formalities such as disclosure of the information to a Government authority.

Once you’ve made this analysis, then it becomes clear whether or not to file a patent application on your invention.  Regardless of the path you take, Smith’s book does have some helpful advice to an entrepreneur trying to get a product to market.  If you can get past his patent (and lawyer) bashing in the first half, his tips on how to manufacture and sell your invention yourself, which fill chapters 2-25, are really the useful part of the book.

I don’t begrudge Smith, though.  It is easy to understand his frustration.  There are a lot of difficulties in securing and enforcing a patent.  Unfortunately, Smith blames his patent attorney when most of the list of 10 reasons not to file have to do with patent office procedures that are not under the control of the attorney.  A good business plan (and good business advisers) could have saved him a lot of aggravation.

I even understand his sentiment when Smith opines that the word “attorney” may be Latin for “I need a bigger boat.”  Believe me, I think this same thought about my kids orthodontist every time I get a bill.  It’s easy to forget about all the capital expenditures, overhead and staffing expenses that are included in those bills and that the orthodontist doesn’t get to deposit that whole amount in his bank account.

It’s not about the hourly rate.  If you don’t have an attorney you feel confident is giving you the best advice for your business, you need to find another one.

Don’t File a Patent! Expanded Second Edition is available in paperback at Amazon as well as in paperback and PDF E-book format on Smith’s website, http://www.dontfileapatent.com.

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This is the third of a series of articles on IP and Antitrust issues. This article deals with some specific types of licensing restrictions. This is not an exhaustive list of practices that attract antitrust scrutiny. The licensing restrictions dealt with here are tying arrangements, tie-outs, royalty arrangements, exclusive dealings, cross-licensing, pooling and grant backs.

This blog installment deals with licensing restrictions. As mentioned in the previous post, IP is just one cog in the machine of production process and its value is truly enhanced only when combined with other factors. Frequently an IP owner will sell his rights in the IP to another, enter into a joint venture agreement with a view to further develop his IP, license or cross-license his IP so as to integrate his IP with that of another. Most of these arrangements seem innocuous but are apt to attract antitrust scrutiny if competition suffers harm or if the agreements are improperly drafted.

A “tying” or “tie-in” arrangement is defined as “an agreement by a party to sell one product… on the condition that the buyer also purchases a different (or tied) product, or at least that he will not purchased that [tied] product from any other supplier”. Eastman Kodak Co. v. Image Technical Services, Inc., 112 S. Ct. 2072, 2079 (1992)

Tying may manifest itself in the requirement that a licensee purchase a product or service from the licensor as a condition of receiving a license, or a requirement that a licensee take a license on additional intellectual property as a condition of receiving the license it is seeking. In the Kodak case, tying-in was achieved by Kodak implementing a policy of selling replacement parts for micrographic and copying machines only to buyers of Kodak equipment who use Kodak service or repair their own machines.

Tying-in attracts antitrust scrutiny where (1) it involves two separate products or services; (2) that are tied together; (3) the supplier possesses market power in the market for the tying product; (4) the tie has an anti-competitive effect in the tied market; and (5) the tie affects a substantial volume of commerce. See Jefferson Parish Hosp Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) where the dispute was regarding whether every patient undergoing surgery at the hospital must use the services of one firm of anesthesiologists and if not, whether the contract is illegal because it unreasonably restrains competition among anesthesiologists.

Tying-in assumes different forms such as package licensing, technological tying or tie-outs. Package licensing is not necessarily unlawful if both parties willingly enter into it and there is no coercion. As always market power is considered a deciding factor in such cases.

In the recent Microsoft case, technological tying is an issue that comes to the forefront. Technological tying involves using product design to combine two potentially separate products into one. In Microsoft’s case the operating system and internet browser were sought to be combined. The Court held that Microsoft’s exclusion of Internet Explorer from the Add/Remove Programs utility constituted exclusionary conduct. United States v. Microsoft, 253 F.3d 34, 66-67

Tie-out is essentially akin to restriction clause or a covenant not to deal in competing technologies. Such arrangements are a misuse of intellectual property and can attract antitrust scrutiny. Other kinds of restrictive covenants such as fields of use, prospective or existing customers, territories of work, price of object sold, quantity manufactured or the outputs of the licensee are also liable to be considered antitrust in nature.

Exclusivity refers to the license and whether the licensor can license the product in question to more than one licensee. Exclusive licenses are not illegal per se. However, an exclusive arrangement may attract antitrust scrutiny if the licensees or the licensor and licensee are in a horizontal relationship. (See Part II in the series for horizontal relations).

Grant backs require the licensee to grant the licensor the right to any intellectual property developed by the licensee. Such a provision can attract antitrust concerns if it limits the licensee’s incentive to innovate. According to the ABA Section of Antitrust Law, Intellectual Property Misuse: Licensing and Litigation (4th ed. 1997) the consequences related to a grant back may be antitrust depending on a number of reasons such as:

(1) whether the grant back includes technology that goes beyond the originally licensed intellectual property;

(2) whether the grant back is in the form of an assignment, exclusive license, non-exclusive license or an option;

(3) whether the licensee retains any rights under the intellectual property subject to the grant back;

(4) the duration of the licensee’s grant back obligation;

(5) the parties’ market power;

(6) whether the parties are competitors;

(7) whether the grant back is royalty-free;

(8) the effect of the grant back on the parties’ incentive to innovate;

(9) whether the licensor can sublicense the intellectual property that is the subject of the grant back; and

(10) whether the grant back promotes dissemination of improvements developed by the licensee, increases the licensor’s incentive to license or otherwise increases competition and output in the relevant market.

Cross-licensing and patent pooling as such do not attract antitrust scrutiny. However, there are instances where such arrangements have unlawful anti-competitive effects:

(1)     where the arrangements include collective price or output restraints and do not contribute to an efficiency enhancing integration of economic activity;

(2)     where the patent pool is exclusive and (a) excluded firms cannot compete in the relevant goods or service market without access to the technology and (b) the pool participants collectively possess market power; and

(3)     where the pooling arrangement discourage or deters members from engaging in research and development (e.g. if the pooling arrangement includes mandatory grant back obligations, particularly at low royalty rates).  United States v. Krasnov, 143 F.Supp. 184

This concludes the series on IP and Antitrust issues. In conclusion, intellectual property and antitrust issues must be considered as a whole and not divest of one another. The purpose of IP laws is to provide incentives to future inventors and for dissemination and commercialization of new technology. The antitrust laws strive to achieve the same goal of promoting innovations and consumer welfare. In the end, of course, each case is unique and must be considered in light of its own facts and circumstances. The Agencies’ guidelines and the legislation in this area have to be applied to each case keeping the facts in mind. Ultimately however, the two areas of law must be seen as complementary in nature and not independent.

The next topic in this series deals with different types of licensing restrictions.

See part I here: Intellectual Property & Antitrust Issues: Market Power
See part II here: Intellectual Property & Antitrust Issues: Licensing Practices

Today’s post is by Guest Barista Shalini Menezes of ::O.bi:t.er: D:ic.t:um.

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On 9/6/11, US Business & Industry Council (USBIC) arranged a briefing for Senate staff about the Leahy-Smith America Invents Act (H.R.1249)(formerly known as the Patent Reform Act of 2011).

This briefing’s purpose was to make the Senate aware of many of the problems with this horrific legislation. The panelists were (from right to left (facing out from the panel)):

Chief Judge Paul Michel (retired), U.S. Circuit Court of Appeals, Federal Circuit

Gary Lauder, Lauder Partners, Silicon Valley venture capitalist (recording, so not seen)

Valerie Gaydos, Founder, Angel Venture Forum

Kevin Kearns, President, U.S. Business & Industry Council, Moderator (at podium)

Jonathan Massey, attorney and constitutional expert

Dr. Pat Choate, author, Hot Property: The Stealing of Ideas in an Age of Globalization

The main video of the presentations will be posted by USBIC.

Some excellent sound bites here from Judge Michel regarding the bill.

At 11:41 he talks about FTF not being worth wrecking the patent system.

At 12:00 he said of Post-Grant Review: “I can guarantee you that if I went into private practice, [under this bill] I could hold up any patent for almost a decade in post-grant proceedings. It would never get to trial in the district court.”

At 12:53 “It’s a big setback, not a step forward, and the idea that it’s going to create jobs is a joke.”

At 13:15 “Passing the bill is going to slow down the queue, not speed it up, so how can it possibly create jobs?”

HD version is available.  More info: http://bit.ly/patentreform

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Well, it looks like it’s all over but for the crying.  The Senate voted 89 to 9 to pass the Patent Reform Act bill yesterday.

The Senate rejected proposed amendments to the house bill H.R. 1249, approved by the House last June, including:

  • An amendment by Sen. Tom Coburn, R-OK, to go back to the Senate financing version;
  • An amendment to strip out a provision from the bill that clarifies a method of calculating the deadline for applications to extend a patent. Cheers, MDCO!
  • An amendment by Sen. Maria Cantwell, D-WA, that would have created a transitional program for consideration of business method patents.

The bill, known as the America Invents Act, changes the method for determining the priority of patent applications to a “first to file” system from the long-standing “first to invent” method.  Hold on to your butts, folks.

Partyin’, partyin’ (Yeah)
Partyin’, partyin’ (Yeah)
Fun, fun, fun, fun
Lookin’ forward to the weekend

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The Leahy-Smith America Invents Act, H.R. 1249, which passed the House in June by 304-117 in June, contains a provision to amend 35 U.S.C. 156, the statute governing patent term extensions.

Specifically, a section of HR1249 would insert the following clause:

‘For purposes of determining the date on which a product receives permission under the second sentence of this paragraph, if such permission is transmitted after 4:30 P.M., Eastern Time, on a business day, or is transmitted on a day that is not a business day, the product shall be deemed to receive such permission on the next business day. For purposes of the preceding sentence, the term ‘business day’ means any Monday, Tuesday, Wednesday, Thursday, or Friday, excluding any legal holiday under section 6103 of title 5.’

Known as the “Dog Ate My Homework Act”, the provision has been bounced around for several years now, and is intended (very specifically) to help Massachusetts-based The Medicines Company, which submitted its PTE application for U.S. Pat. No. 5,196,404 for ANGIOMAX (bivalirudin) 61 days after FDA approved its New Drug Application (NDA) .

In case you haven’t already guessed, the patent term extension law requires the submission within 60-days of the date of NDA approval. There are no exceptions to that window, so patent officials rejected the application for extension.  The above clause would put the Medicines Company’s application within the window of time.

The Medicines Co. wants its patent to be extended 1,773 days, giving it exclusive rights to the drug until Dec. 15, 2014. This is a high-stakes game of chance as the Medicines Co. expects Angiomax to generate more than $500 million in sales in the United States by 2010.

The NY Times ponders whether this could be viewed as a bailout of a specific lawfirm since the provision could get  the law firm WilmerHale off the hook for a possible $214 million malpractice payment.

Senator Jeff Sessions, R-AL, has proposed an amendment that would remove the provision from the bill.  However, Senate leaders want to pass the House version of the bill, which contains that provision, without any amendments, saying any changes could jeopardize the entire legislation.

While some would say that “deadlines are deadlines” and it’s just tough luck for those who miss them, it doesn’t make sense to deny any kind of equity.  I think the standard should be the same reviving an application that becomes abandoned because of failure to timely pay the issue fee or respond to a Patent Office deadline, that is, when the abandonment was unavoidable and unintentional. Both require a fee where the fee for unintentional is a huge fee compared with unavoidable since fault is admitted on the part of the applicant.

For both unavoidable and unintentional revival there is no time limit, but the applicant must state that the entire delay between abandonment and the filing of the revival petition was unavoidable or unintentional. For equity’s sake, a terminal disclaimer would then be filed equal to the time that the application was abandoned. Why should patent term extensions receive different treatment than other types of patent term “oops”?  The effect is the same for both.

It is worth noting that without the extension, the Medicines Co. stands to lose an estimated $500 million to $1 billion in profits.

What a Diff’rence a Day Makes!

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Beauregard claims took a hit in the CyberSource Corp. v. Retail Decisions, Inc. decision at the US Court of Appeals for the Federal Circuit.  The Court also pronounced a “human mind power” test for patentable subject matter.

CyberSource is the owner of U.S. Patent No. 6,029,154, which recites a “method and system for detecting fraud in a credit card transaction between [a] consumer and a merchant over the Internet.” For online sales where the product purchased is downloadable content, the patent explains, “address and identity information are not enough to adequately verify that the customer who is purchasing the goods is actually the owner of the credit card.”

The ’154 patent solves this problem by using “Internet address” information (IP addresses, MAC addresses, e-mail addresses, etc.) to determine whether an Internet address relating to a particular transaction “is consistent with other Internet addresses [that have been] used in transactions utilizing [the same] credit card.”

Claim 3, as amended during reexamination, reads:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

(a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
(b) constructing a map of credit card numbers based upon the other transactions and;
(c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The CAFC held that the claims are unpatentable mental processes:

The district court found that claim 3 recited “an unpatentable mental process for collecting data and weighing values,” which did “not become patentable by tossing in references to [I]nternet commerce.” The court further found with respect to claim 2 that “simply appending ‘A computer readable media including program instructions . . .’ to an otherwise non-statutory process claim is insufficient to make it statutory.

The method of claim 3 simply requires one to “obtain and compare intangible data pertinent to business risks.” The mere collection and organization of data regarding credit card numbers and Internet addresses is insufficient to meet the transformation prong of the test, and the plain language of claim 3 does not require the method to be performed by a particular machine, or even a machine at all.

We find that claim 3 of the ’154 patent fails to recite patent-eligible subject matter because it is drawn to an unpatentable mental process—a subcategory of unpatentable abstract ideas.

[C]laim 3’s steps can all be performed in the human mind. Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101. Methods which can be performed entirely in the human mind are unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps,3 but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the “basic tools of scientific and technological work” that are free to all men and reserved exclusively to none. Benson, 409 U.S. at 67.

A Beauregard claim is a patent claim named after In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)—is a claim to a computer readable medium (e.g., a disk, hard drive, or other data storage device) containing program instructions for a computer to perform a particular process.

Claim 2, as amended during reexamination, reads in its entirety:

2. A computer readable medium containing program instructions for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of…

Again, the court just did not buy the tangible media angle:

Regardless of what statutory category (“process, machine, manufacture, or composition of matter,” 35 U.S.C. § 101) a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes. Here, it is clear that the invention underlying both claims 2 and 3 is a method for detecting credit card fraud, not a manufacture for storing computer-readable information.

In the present case, CyberSource has not met its burden to demonstrate that claim 2 is “truly drawn to a specific” computer readable medium, rather than to the underlying method of credit card fraud detection. … we have never suggested that simply reciting the use of a computer to execute an algorithm that can be performed entirely in the human mind falls within the Alappat rule. Thus, despite its Beauregard claim format, under Abele, we treat claim 2 as a process claim for patent-eligibility purposes.

William Morriss, a patent attorney with Frost Brown Todd LLC noted that there have been two Fed. Cir. cases analyzing Bilski v. Kappos in the software context.  One of them (Research Technologies Corp. v. Microsoft) used very permissive analysis. The other, Cybersource, was very restrictive.  But we don’t know which mode of analysis the Federal Circuit will ultimately embrace. Judge Dyk, the author of the Cybersource decision, was also the author of a stridently pro machine or transformation concurrence in In re Bilski.  Given the heavy reliance on machine or transformation in Cybersource, Morriss said: “I suspect that Judge Dyk would have found a way to invalidate any method which achieves a result which could be obtained by a human (assuming infinite time, patience, attention to detail and memory). If that’s the course the Federal Circuit ultimately takes, adding various computers and databases to the claim wouldn’t help, since anything a computer can do a human, in theory, could do as well.”

As noted in the Cybersource decision:

[It] is clear in the present case that one could mentally perform the fraud detection method that underlies both claims 2 and 3 of the ’154 patent, as the method consists of only the general approach of obtaining information about credit card transactions utilizing an Internet address and then using that information in some undefined manner to determine if the credit card transaction is valid. Because claims 2 and 3 attempt to capture unpatentable mental processes (i.e., abstract ideas), they are invalid under § 101.

For inventions in the diagnostic field, careful drafting of claims will be necessary to avoid the appearance of a method where all the steps can all be performed in the human mind.  No word yet from the Amazing Kreskin.

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