IP Law Bulletin

1. Why do entrepreneurs need to protect their technical and scientific innovations?

If you start a grocery store, you probably are not selling a technical or scientific innovation, so your goal is to execute better than the grocery store down the street. You likely will compete on price, quality, and service. Businesses that develop technical and scientific innovations, such as Tesla, Apple, and Novartis, as well as startups, spend enormous sums of time and capital developing the next big thing. These companies directly capitalize on that innovation. Ideally, nobody other than the entrepreneur who developed that innovation can commercialize it, giving the entrepreneur the exclusive right to own and potentially build the protected market/product. Think of it another way—why spend all this time and effort to move the market forward just to let a competitor use it…and reap the benefits of your hard work!

Indeed, parties looking to acquire an innovative company (or analysts for an IPO) take a hard look at whether the technical and scientific innovation of that company is adequately protected. Unfortunately, poorly protected innovation can kill enterprise value and even kill a deal. Venture capitalists, private equity, angel investors, and others will make similar analyses because they strive for a positive return on their investments through an acquisition or IPO.

Steve Saunders, co-chair of Nutter’s Intellectual Property Department, recently contributed an article to IPWatchdog that analyzed how the pendulum continues to slowly drift toward patentees in this post-Alice world. In the article, “Ancora v HTC: Why You Should Draft Patents That Emphasize Technical Solutions,” Steve addressed the recent ruling Ancora Technologies v HTC America, in which the Federal Circuit reversed a lower court’s invalidity ruling under 35 USC §101 by concluding that Ancora’s claimed subject matter was concrete—not abstract—because it assigned specific functions to specific parts of a computer to improve computer security. According to Steve, this case is yet another in a string of post-Alice cases suggesting that patents should be drafted with an emphasis on the technical problem and technical solution delivered by the claims.

Akin to the hype that surrounded the Internet during its early years in the 1990s, blockchain technologies and their associated cryptocurrencies have dominated the news cycle recently. Cryptocurrencies are a form of digital currency that use cryptography to enable financial transfers between two parties without an intermediary. By touting a new technology that could reshape the way transactions are performed, cryptocurrencies grew exponentially, attracting investors searching for “the next big thing.” The demand for cryptocurrencies has reached such a fever pitch in the past two years that cryptocurrency trading platforms have struggled to keep up with the demand for new accounts and trading services. Driven by media coverage of extravagant returns for investors in cryptocurrencies such as Bitcoin, Ethereum, and Ripple, among others, some of which have exhibited 100,000 percent or more annual growth in the last year alone, the cryptocurrency market, and the blockchain technologies by association, have received a tremendous amount of exposure for an industry that is still in its infancy. While the prevalence of the Internet and social media have greatly contributed to the explosive growth and popularity of blockchain technologies and cryptocurrencies, such growth so early in the lifecycle of a fledgling technology can have negative consequences, such as significantly impairing development despite an overwhelming number of new adopters entering the space daily. 

The Court of Appeals for the Federal Circuit revisited the often unclear question of subject matter eligibility under 35 U.S.C. § 101 in Visual Memory LLC. v. Nvidia Corp. In the 2-1 decision, the Federal Circuit reversed the district court’s determination that the claims at issue were directed to an abstract idea. 

An old adage states that an infinite number of monkeys typing for an infinite amount of time will surely produce Shakespeare’s Hamlet. In a similar vein, the web site All Prior Art seeks to use computers and algorithms to create prior art. All Prior Art uses the existing U.S. patent database as source materials to create new “prior art.” The web site then publishes these new ideas under the Create Commons License, meaning the ideas are effectively dedicated to the public. While the algorithm is able to generate approximately 36,000 ideas a minute, the overwhelming majority are pure gibberish.

In view of the U.S. Supreme Court’s decisions in Alice, Myriad, and Mayo, the United States Patent and Trademark Office (USPTO) has issued a series of guidance documents on patent subject matter eligibility under 35 U.S.C. § 101. These documents are collected on the Subject Matter Eligibility page of the USPTO website. The USPTO’s “May 2016 Subject Matter Eligibility Update” (88 Fed. Reg. 27381), announced the newest in this series of guidance, including new life science examples, a memorandum to the patent examining corps with instructions on formulating subject matter eligibility rejections, an index of eligibility examples, and an appendix of subject matter eligibility court decisions.

Recently the Patent Trial and Appeal Board (PTAB) invalidated three patents held by Audatex North America, Inc. finding that the claims are not subject matter eligible under 35 U.S.C. §101 in view of the Supreme Court’s decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347 (2014). The three patents were generally directed towards “a method and system for entering data relating to an insurance claim for a damaged vehicle.” In each case, the PTAB sided with the Petitioner, finding that the claims were directed towards the abstract idea of valuing a damaged vehicle based on information about that vehicle and therefore not patent eligible.

Last week the Federal Circuit denied Sequenom’s petition for rehearing en banc to review patent eligibility of their cell-free fetal DNA patent, U.S. Pat. No 6,258,540 (the ’540 Patent).  The District Court found the ’540 Patent invalid under 35 U.S.C. § 101 for being directed to ineligible subject matter under the U.S. Supreme Court precedent in Mayo v. Prometheus Laboratories, 132 S. Ct. 1298 (2012). The Federal Circuit affirmed and Sequenom filed the petition for rehearing en banc.

Recently the Federal Circuit, sitting en banc, upheld the International Trade Commission’s (ITC) interpretation of 19 U.S.C. § 1337 to allow the ITC to prevent goods from being imported into the United States when the infringement does not occur until after importation. Although the panel was split 6-4, the primary practical justification for the majority’s decision stemmed from the determination that if the decision came out the other way, it would effectively make § 1337, and thus ITC cases, inapplicable to any induced infringement claims, as well as potentially all method claims. The case involved the importation of fingerprint scanning devices by the Korean company Suprema, Inc., which were then combined with software by Suprema’s American business partner Mentalix, Inc., before the scanners were actually sold in the U.S. The sole claim of the plaintiff Cross Match Technologies, Inc. that was at issue in the en banc appeal (claim 19) was directed to a method for capturing and processing a fingerprint image.

Summary: Two recent Federal Circuit cases serve as a reminder that the means-plus-function doctrine should be at the forefront of practitioners’ minds when drafting or evaluating patent claims, particularly in the case of computer-implemented inventions. These cases also demonstrate yet another weapon for invalidating functionally-claimed software patents.