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 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:

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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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In Classen Immunotherapies, Inc. v. Biogen IDEC, Circuit Judge Moore dissented to just about everything:

I believe that the claims at issue are to a fundamental scientific principle so basic and abstract as to be unpatentable subject matter and therefore I would affirm the district court’s grant of summary judgment of invalidity under § 101…. I also dissent from the majority’s refusal to reach Merck’s appeal of the denial of its motion for summary judgment of anticipation. … Finally, I dissent from the majority’s analysis of infringement and its construction of the safe harbor provision under § 271(e)(1).

Ouch.  Not really ambivalent.

Moore expressed dismay that the majority concluded that the ’283 patent claims are not directed to patentable subject matter, but that the claims of the ’139 and ’739 patents are directed to patentable subject matter.

The majority opinion:

“The representative claim of the ‘283 patent is directed to the single step of reviewing the effects of known immunization schedule, as shown in the relevant literature.”

Ummmm…no.  Did you read the independent claim in the ’283 patent?

Claim 1 of the ’283 patent was designated as representative:

1. A method …, which comprises immunizing mammals …, and comparing the incidence, prevalence, frequency or severity of said chronic immune-mediated disorder or the level of a marker…

This claim requires two steps: (1) immunizing a group of mammals according to a schedule and then (2) comparing the incidence of chronic immune mediated disorder in the group to a control group.


I am perplexed by the majority’s suggestion that this claim “is directed to the single step of reviewing the effects of known immunization schedules,” Maj. Op. at 20, as the claim clearly requires immunizing mammals and then comparing the results to the known group.

Claim 1 of the ’739 patent requires two steps: (1) compare the incidence of chronic immune mediated disease in two groups of mammals who were immunized according to different schedules and then (2) immunize a mammal according to the lower risk schedule. There is virtually no difference between these two claims for the purposes of our § 101 analysis. One involves immunizing and then comparing (’283 patent); the other comparing then immunizing (’739 patent).

While I confess the precise line to be drawn between patentable subject matter and abstract idea is quite elusive, at least for me, this case is not even close. In the ’283 patent, Classen claims the scientific method as applied to the field of immunization. No limitations exist on the type of drug to immunize with, the schedules that should be used for the immunization, the type of chronic immune disorder to look for, or any limitation on the control group. It is hard to imagine broader claims. It is harder to imagine a more conceptually abstract claim in the immunization area.

The real problem with the Classen decision is that we are left without a good understanding of the test for determining patentability under § 101:

I do not understand the distinction that the majority draws between claim 1 of the ’283 patent and claim 1 of the ’739 patent. Nor do I understand the test the majority proposes for determining patentability under § 101.

Citing Research Corp. Technologies v. Microsoft Corp., 627 F.3d 859 (Fed. Cir. 2010), the majority holds that if the specified method is “functional and palpable,” the claims are drawn to statutory subject matter. Maj. Op. at 17. How do we determine whether any given method or claim is “functional” or “palpable?” Is this a return to the rejected notions of “useful, concrete, and tangible?”

Warren Woessner of Patents4Life viewed the discrepancy thusly:

At best, this is a complete misreading of claim 1 of the ‘283 patent, which should be corrected by issuance of a revised opinion. At worst, it suggests acceptance of the Metabolite dissent, and a bleak future for diagnostic claims that correlate the level of a marker to the presence of a pathology, without reciting a treatment step.

Moore also hit back on the decision based on the safe harbor of § 271(e)(1) because the majority § 271(e)(1) limited it to pre-approval activities.

The majority’s construction is contrary to the plain language of the statute and Supreme Court precedent. The statute broadly recites that “[i]t shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs . . . .” 35 U.S.C. § 271(e)(1). Nowhere does the statute limit the safe harbor to pre-approval uses.

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To me, it’s a good idea to always carry two sacks of something when
you walk around. That way, if anybody says, “Hey, can you give me a
hand?” You can say, “Sorry, got these sacks.”  ~Jack Handey

Chief Judge Rader, joined by Circuit Judge Newman, offered their own deep thoughts in a concurring opinion on Classen Immunotherapies, Inc. v. Biogen IDEC by pondering various ways that crafty patent drafters sneak ineligible patent subject matter into their claims.  Particularly by the use of the Beauregard claim:

The patent eligibility doctrine has always had significant unintended implications because patent eligibility is a “coarse filter” that excludes entire areas of human inventiveness from the patent system on the basis of judge-created standards. For instance, eligibility restrictions usually engender a healthy dose of claim-drafting ingenuity. In almost every instance, patent claim drafters devise new claim forms and language that evade the subject matter exclusions. These evasions, however, add to the cost and complexity of the patent system and may cause technology research to shift to countries where protection is not so difficult or expensive.

The first unintended consequence, claim drafting evasion, has occurred several times in the past. After all, patents require a translation of technology into text, i.e., patent claims. Inevitably the subject matter exclusions of eligibility doctrines depend on the way that claims are drafted. Thus, careful claim drafting or new claim forms can often avoid eligibility restrictions. Eligibility then becomes a game where lawyers learn ingenious ways to recast technology in terms that satisfy eligibility concerns.

Two well-known examples of claim drafting to circumvent eligibility restrictions are the Beauregard claim and the Swiss claim. The Beauregard claim was devised to draft around restrictions on software imposed in Gottschalk v. Benson, 409 U.S. 63 (1972). Benson denied eligibility to mathematical algorithms, a category broad enough to endanger computer software in general. The Beauregard claim form, however, was for “computer programs embodied in a tangible medium.” In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995). Claims were redrafted so that the intangible computer code in Benson instead became an encoded tangible medium in Beauregard. See id. at 1584 (PTO stating it will treat such claims as patent eligible subject matter); MPEP § 2106 (8th ed. Rev. 8, July 2010) (same).

The Swiss claim was devised to draft around restrictions on medical treatment methods imposed by the European Patent Convention (“EPC”). EPC, art. 52(4) prohibited patents on the use of a compound X for the treatment of disease Y. The Swiss claim form, however, was for the use of a compound X for the manufacture of a medicament for the treatment of disease Y. Claims were redrafted so that the focus became the manufacture of a product instead of the direct treatment using that product. The theory was that the claimed use was restricted to the patentable (initial) industrial use instead of the ineligible (ultimate) therapeutic use. See Eisai/Second Medical Indication, G05/83 O.J. (EPO Enlarged Bd. of Appeals 1984) (allowing Swiss claims); Preparatory Documents to Revision of EPC art. 54(5), CA/PL 4/00 (EPO Jan. 24, 2000) (revising the EPC to make clear that such subject matter is patent eligible so that Swiss claims are not needed).

When careful claim drafting or new claim formats avoid eligibility restrictions, the doctrine becomes very hollow. Excluding categories of subject matter from the patent system achieves no substantive improvement in the patent landscape. Yet, these language games impose high costs on patent prosecution and litigation. At the same time, the new games can cheat naïve inventors out of their inventions due to poor claim drafting. Moreover, our national innovation policy takes on characteristics of rewarding gamesmanship.

In addition to gamesmanship, eligibility restrictions increase the expense and difficulty in obtaining a patent. By creating obstacles to patent protection, the real-world impact is to frustrate innovation and drive research funding to more hospitable locations. To be direct, if one nation makes patent protection difficult, it will drive research to another, more accommodating, nation.

Once again, this unintended consequence is not theory but history. In the past, this cause-effect relationship of eligibility restrictions and stifling innovation favored our country in, for example, biotechnology. While Europe imposed eligibility restrictions, the United States embraced strong patent protection. Compare Diamond v. Chakrabarty, 447 U.S. 303 (1980) with EPC, art. 53 (1973) (exceptions to patentability) and Harvard/OncoMouse, T19/901 E.P.O.R. 501 (Technical Bd. of Appeal 3.3.21 1990) (eventually deciding against an outright ban but continuing to impose restrictions).

Europe became known for subjecting such inventions to delays in the patent office, challenges in litigation, increases in cost, and uncertainties in the legal landscape. With those difficulties as a primary contributing factor, investors, corporations, and clinics shifted their research from Europe to the United States. See Opinion of European Union Economic and Social Committee, COM (1995) 661 final (July 11, 1996), (recognizing that “Europe is lagging further and further behind the USA,” as evidenced by the stark contrast in number of biotech patents, firms, and products; proposing strong patent protection as in the United States to solve “Europe’s backwardness”); Council Directive 98/44, 1998 O.J. (L 213) (EC) (finally providing some protection for biotech inventions to counter the trend of companies preferring to patent in the United States). Thus, with some considerable blame on its eligibility doctrines, Europe lost innovation investment to the United States. Our country became the world leader in biotechnology innovation. Nevertheless, the tide can turn against us, too. The effect of eligibility restrictions can send innovation investment elsewhere. Maybe an accommodating clinic in another country would be happy to take the additional funding and opportunity. In sum, judges should tread carefully when imposing new limits on the protection for categories of human innovation.

These public policy reasons are consistent with the broad language of § 101. As discussed in the majority opinion, section 101 is a general statement of subject matter eligibility. It is a threshold statement that explicitly directs attention to the “conditions and requirements of this title” to qualify for a patent. Thus, patentability, as opposed to subject matter eligibility, depends on the substantive conditions in the rest of the title. See 35 U.S.C. §§ 102, 103, 112. Many litigation-spawned applications of section 101 do not focus on categories of subject matter that deserve no patent protection but on the particularities of claim language, a question of patentability depending on prior art and adequate disclosure.

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clo·ture.  noun /ˈklōCHər/  (in a legislative assembly) A procedure for ending a debate and taking a vote; a cloture motion.

(*update: The Senate voted 93-5 to end debate on a motion to proceed with the bill, limiting debate to 30 hours.) 

The Leahy-Smith America Invents Act, H.R. 1249 passed the House in June by 304-117, in June.  Now, Senate Majority Leader Harry Reid (D-Nev.) has filed for cloture on the patent reform bill, setting up a vote today.

The Senate is scheduled to vote on the motion to end debate on the America Invents Act of 2011 and then vote on the bill itself. The bill to be voted on by the Senate is word for word from HR 1249, the patent reform measure passed by the House of Representatives on June 23.

By adopting the House version of patent reform, the Senate loses on some provisions of the bill.


The patent bill passed by the Senate in March ended the practice of fee diversion — diverting USPTO revenues to other parts of the government, and allowed the USPTO to keep the fees collected. It is estimated that Congress has diverted about $1 billion in fees since 1992.

The House version creates a sequestered account for USPTO revenue in excess of appropriated funds, for use exclusively by the USPTO.  As pointed out by Patrick Anderson of Gametime IP, the excess funds may be used by the USPTO if, and only if, provided in appropriations Acts by Congress.  That meaning there is no guarantee how much in excess funds will be available, if any amount at all.  To access that money, the USPTO must submit requests to the House Appropriations Committee. However, the fund give the USPTO a 15% fee surcharge and the authority to set rates going forward.


Earlier this year, the Senate voted 95-5 to approve legislation guaranteeing funds collected by the US Patent and Trademark Office (USPTO) would be used to pay for patent examination and related expenses (S.23 Section 20).  That is, providing that “amounts deposited into the Fund under paragraph (2) shall be available, without fiscal year limitation.” (emphasis added)

In contrast, the House of Representatives amended this such that any user fees that exceed the USPTO’s allocated funding would be placed into a special account, Congress could then appropriate to the USPTO. (H.R. 1249 Section 22), if it felt moved to do so.  It remains to be seen if the Senate decides to press for the end to fee diversion.

Supporters of the bill point out that there has been no significant fee diversion in the past decade.

Post-grant Review

A petition for a post-grant review must be filed no later than 9 months after the grant of the patent or issuance of a reissue patent  (correction via Prof. John Villasenor, UCLA).  Post-grant proceedings would be conducted by a new Patent Trial and Appeal Board, with the current Board of Patent Appeals and Interferences abolished.

The House bill also creates a new inter partes review allowing third-party challenges to patents after they have been granted, limited to prior art consisting of patents and printed publications. Inter partes review may only be sought after a post-grant review, or after the one-year time period expires for requesting third-party review.

Money, Money, Money

According to the Congressional Budget Office, the House bill is projected to cost $446 million between FY 2011–2016, but will ultimately cut $717 million from future budget deficits, mostly since USPTO fees will be reclassified from offsets to discretionary spending to offsetting receipts.

At 5:00 PM, the Senate will proceed to an Executive Session to consider Cal. #109 (Bernice Bouie Donald to be United States Circuit Judge for the 6th Circuit).  There will be 30 minutes of debate followed by a vote on the nomination.  Immediately following the judicial nomination vote, the Senate will proceed to a cloture vote on the Motion to Proceed to H.R. 1249 (Patent Reform Bill).

I’m sure you’ll be glued to C-SPAN.

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