2019 IP Law Year in Review – Patents

2019 was another milestone year in intellectual property law that resulted in hundreds of decisions by the courts and Patent Trial and Appeal Board (PTAB) that will affect your company’s litigation, patent prosecution or business strategy. This special report on patents discusses some of the most important cases from 2019 from the US Supreme Court, the US Court of Appeal for the Federal Circuit and the PTAB.

On January 22, 2019, the Supreme Court addressed in Helsinn Healthcare S.A. v Teva Pharmaceuticals, USA, Inc. the question of whether, under the America Invents Act (AIA), an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention. In a unanimous decision authored by Justice Clarence Thomas, the Supreme Court concluded that such a sale qualifies as prior art.

Also, in the Supreme Court’s highly anticipated opinion in Iancu v. NantKwest, the Court struck down the US Patent and Trademark Office (USPTO) policy that automatically demanded repayment of its legal bills, finding that it was against the centuries-old “American Rule,” which requires US litigants to pay their own attorney fees.

2019 also saw the USPTO’s and Federal Circuit’s application of §315(b) time bar statue. On January 24, 2019, the PTAB found that an inter partes review (IPR) petition was time barred because an unnamed real-party-in-interest (RPI) and privy of the petitioner had been served with a complaint more than one year earlier. Ventex Co., Ltd. v. Columbia Sportswear North America, Inc., Case No. IPR2017-00651 (PTAB Jan. 24, 2019) (Cocks, APJ). The PTAB determined that structured, pre-existing, contractual and well-established business dealings between entities can create an RPI relationship, and made the unnamed party a privy of the petitioner. In another precedential decision, the PTAB dismissed a petition for IPR, finding that the one-year time limit for filing an IPR petition under § 315(b) is triggered even if a party serving a district court complaint alleging infringement lacks standing to sue. GoPro, Inc. v. 360Heros, Inc. Relying on the Federal Circuit’s 2018 decision in Click-to-Call v. Ingenio, the PTAB found that service of a pleading asserting a claim of infringement triggers the one-year time period for a petitioner to file a petition, even where the serving party lacks standing to sue or where the pleading is otherwise deficient. Further, although § 315(d) provides that “the determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable,” the en banc Federal Circuit held that a decision to institute an IPR after finding that the § 315(b) time bar did not apply was appealable.

Although the Federal Circuit tried to clarify patentability under 35 U.S.C. §101 by issuing several precedential decisions, it is still difficult to know with certainty what is considered patent eligible subject matter these days. In Athena Diagnostics, Inc. v. Mayo Collaborative Services, the Federal Circuit addressed the subject matter eligibility of diagnostic methods based on underlying natural laws, finding them invalid notwithstanding the Federal Circuit’s acknowledgement of the claims’ recitation of “certain concrete steps.” Along the same lines, the Federal Circuit found claims directed to methods of identifying and detecting a biomarker to be directed to patent-ineligible natural law. –(IP Update Vol. 20, No. 8) In contrast to the diagnostic methods that the Court has declared invalid on several occasions, the Federal Circuit has been willing to find method-of-treatment claims, employing a specific method on specific patients or subjects using a specific compound at specific doses to achieve a specific outcome, patent eligible. See e.g., Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC, Case No. 18-1295 (Fed. Cir. Mar. 15, 2019); Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc. Similarly, in the field of computer technology, a divided panel of the Federal Circuit held that a claimed method for monitoring and analyzing a computer network was directed to an improvement in computer capability, not an abstract idea. SRI International, Inc. v. Cisco Systems, Inc. Relying on the Court’s Enfish opinion, the majority explained that the claimed technology provides a network defense system that monitors network traffic in real time to automatically detect large-scale attacks, thus providing a “specific asserted improvement in computer capabilities.” In its analysis, the Court explained that the challenged claims were not directed to using a computer as a tool, but instead were directed to improving the technical functionality of the computer and computer networks by reciting a specific technique for improving computer network security.

To help alleviate some confusion in view of the recent Federal Circuit decisions, the USPTO issued the revised 2019 Patent Subject Matter Eligibility Guidance, as well as an update issued on October 18, 2019. The update is similar to the 2019 PEG and includes additional examples applying the subject matter eligibility test. While the USPTO guidance is useful, especially in the context of prosecution, practitioners should not assume, especially in the context of enforcement actions, that a claim similar to one designated as patent eligible in the PTO guidance will survive a § 101 challenge.

§ 101 – A 2019 RETROSPECTIVE

2019 was a busy year for § 101, with decisions covering a wide range of issues including diagnostic methods, covered business methods, abstract ideas and even mechanical claims.

USPTO Guidance

The USPTO’s Patent Eligibility Guidance update in January 2019 caused quite a stir among practitioners when they split Step 2A of the Alice/Mayo test into two prongs. After a lengthy comment period (and an increase in allowance of patents facing § 101 issues), the Office released an update to its 2019 PEG, clearing up five areas of confusion (IP Update Vol. 22, No. 11). First, the Office clarified that a claim may impliedly “recite” a judicial exception without explicitly reciting the exception (as was the case in the patent claims in Alice). Second, the 2019 PEG distilled the previous case law-based grouping of abstract ideas into three general categories: mathematical concepts, methods of organizing human activity and mental processes. The October Update provided detailed descriptions of each of the three new categories. In the third section, the update included a new mini-flowchart to depict the two-prong analysis that is performed in Step 2A: differentiating between claims that are “directed to” a judicial exception and those that instead “integrate a judicial exception into a practical application.” The latter case applies when the claim exhibits improvements to the functioning of a computer, effects prophylaxis for a disease, is implemented on a particular machine, effects a transformation of an article or contains additional features that place a “meaningful limit” on the judicial exception. In section four, the update details the analysis an examiner should provide in order to establish a prima facie case when making a subject matter eligibility rejection. Finally, section five describes the efforts made by the Office to educate examiners on the application of the 2019 PEG.

The Life Sciences – § 101 Issues Abound

Diagnostic methods, biomarker detection, genotyping and method-of-treatment claims all had their days in court in 2019—with mixed results. In Athena Diagnostics, Inc. v. Mayo Collaborative Servs, LLC the US Court of Appeals for the Federal Circuit (CAFC) held that methods for diagnosing neurological disorders by detecting protein antibodies were directed to patent ineligible laws of nature (IP Update Vol. 22, No. 2). Although Athena’s methods were new and the radioactive testing compounds were manmade, the Court applied Mayo v. Prometheus in holding that Athena merely discovered a natural law. In a 7-5 decision denying Athena’s petition for rehearing en benc, the judges (in varying levels of concurrence and dissent) submitted eight separate opinions, with many citing to their previously-recorded concerns over the current “troubling” precedent set by Mayo (IP Update, Vol. 22, No. 8). The final nail in the coffin for hopes of judicial clarification came in January 2020 when the Supreme Court denied certiorari on a swath of §101-related cases, including Athena v. Mayo. Similarly, the CAFC found Cleveland Clinic’s biomarker detection patent to be directed to ineligible natural law. This was the patent owner Cleveland Clinic’s second attempt at obtaining protection of their invention, but the appellate court agreed that the “rephrasing of the claims [did] not make them less directed to a natural law.” The court also reiterated that they are not bound by the USPTO guidance (discussed above) which was attempting to clarify patent eligibility.

In separate March 2019 decisions reversing the lower courts, the CAFC found two method-of-treatment claims patent eligible. In Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC the CAFC reversed, finding that claims related to beta-alanine consumption for increased muscle working capacity were patent eligible by “using a natural product in unnatural quantities to alter a patient’s natural state” (IP Update Vol. 22, No. 4). The Court acknowledged that while the method claims rely on natural relationships, “the method claims require specific steps be taken in order to bring about a change in a subject, altering the subject’s natural state.” The fact that beta-alanine exists in nature and is consumed as part of the human diet did not alter the Court’s analysis. In a similar opinion, the CAFC reversed a lower court’s finding of patent ineligibility in Endo Pharmaceuticals v. Teva Pharmaceuticals (IP Update Vol. 22, No. 4). Endo’s patent was directed to a method of treating pain in patients with impaired kidney. Despite Teva’s argument that the claims were simply directed to the natural reaction of a renally-impaired person’s body to oxymorphone, the Court found that the claims were “directed to a specific method of treatment for specific patients using a specific compound at specific doses to achieve a specific outcome function.”

Finally, the CAFC addressed the patent eligibility of genotyping in Genetic Veterinary Sciences, Inc. v. LABOKLIN GmbH & Co., KG (IP Update Vol. 22 No. 9). The claims at issue related to in vitro methods for genotyping Labrador retrievers to identify a recessive disease. Under step one of the Mayo/Alice framework, the Federal Circuit found that the claims were directed to a natural phenomenon, noting that claim 1 was “nothing more than ‘observing or identifying’ the natural phenomenon of a mutation.” Under step 2, the Court concluded that the claims did not recite an inventive concept that transformed the observation of a natural phenomenon into a patentable invention.

Abstract Ideas – An Ineligibility Hat Trick for the CAFC in 2019

• ChargePoint, Inc. v. SemaConnect, Inc. (March 2019) (IP Update 22, No. 4)
  • Note: The Supreme Court denied cert on January 27, 2020.
  • Technology: Electric vehicle chargers
  • Holding: Affirmed – The claims are directed to the abstract idea of “communicating over a network for device interaction.” “A claimed invention’s use of the ineligible concept to which it is directed cannot supply the inventive concept that renders the invention ‘significantly more’ that that ineligible concept.”
  • Takeaway: The specification is “helpful in illuminating what a claim is ‘directed to’ [but] reliance on the specification must always yield to the claim language in identifying [the] focus.”
• Solutran, Inc. v. Elavon, Inc. (July 30, 2019) (IP Update 22, No. 8)
  • Technology: Quick paper check processing
  • Holding: Reversed – The claims are directed to the abstract idea of “crediting a merchant’s account as early as possible while electronically processing a check.” The claims did not amount to an inventive concept because they used “a general purpose computer and scanner to perform conventional activities in the way they always have.”
  • Takeaway: “Crediting the merchant’s account before the paper check is scanned” may be an advancement, but is still an abstract idea.
• The Chamberlain Group, Inc. v. Techtronic Industries Co. Ltd. (August 21, 2019) (IP Update 22, No. 9)
  • Technology: Wireless garage door
  • Holding: Affirmed – “The only described difference between the prior art . . . and the claimed [garage door] is that the status information about the system is communicated wirelessly, in order to overcome certain undesirable disadvantages of systems using physical signal paths.” “The specification . . . makes clear that transmitting information wirelessly was conventional at the time the patent was filed . . . yet wireless transmission is the only aspect of the claims that CGI points to as allegedly inventive.”
  • Takeaway: The Court can rely heavily on the patent specification in finding an invention directed to an abstract idea.

Mechanical Claims – Subject to § 101 Like All of the Rest

In a pair of cases, the CAFC confirmed that claims covering physical products can in fact be ineligible subject matter under § 101. In In re: Marco Guldenaar Holding B.V., the CAFC affirmed the holding that claims covering a dice game with certain unmarked dice faces was directed to the abstract idea of “rules for playing a game” (IP Update Vol. 22, No. 7). Each die’s markings (or lack thereof) communicated information to the players, but did not functionally relate to the substrate of the die itself—i.e., the markings did not provide the die itself with new functionality.

In American Axle & Manufacturing, Inc. v. Neapco Holdings LLC the CAFC highlighted that even mechanical inventions may fall under the judicial exceptions to § 101 (IP Update Vol. 22, No. 11). American Axle’s patent was directed to a method of manufacturing propeller shafts in a way that attenuated different types of vibration. The majority found that the claimed invention was nothing more than a recitation of Hooke’s law and therefore was undoubtedly a law of nature. In an argument akin to one used to reject a patent under § 112, the majority noted that “this case might well be significantly different, if, for example, specific [finite element analysis] models were included in the claims.”

§ 101 in IPR – A Potential Ground for Denying Amended Claims

The PTAB designated as precedential Amazon.com, Inc. v. Uniloc Luxembourg S.A., finding that 35 USC § 101 is a potential ground for denying proposed amended claims in an IPR(IP Update Vol. 22, No. 4). 35 USC § 316(d) provides a patent owner the right to file a motion to amend, but does not prevent the PTAB from considering unpatentability under sections other than § 102 and § 103 with respect to substitute claims.

KEY SUPREME COURT RULINGS FROM 2019

2019 – Secret Sales, Personhood, and the American Rule

In 2019, the US Supreme Court addressed three somewhat nuanced areas of patent law. The Supreme Court started the year by considering whether the on-sale bar of § 102(a)(1) applies to confidential sales where specific details are not made public, in Helsinn Healthcare S.A. v Teva Pharmaceuticals, USA, Inc. (IP Update Vol. 22, No. 2). In a unanimous decision, the Supreme Court concluded that such a sale qualifies as “on-sale” prior art, and that the different language used in post-AIA § 102(a)(1) did not alter the Court’s interpretation given to its pre-AIA counterpart (§ 102(b)). The Supreme Court again turned to patent issues in June 2019, looking to whether the United States Postal Service (USPS) is a “person” such that they may petition for Covered Business Methods review before the PTAB. In a 6-3 decision, the Supreme Court rejected all of the USPS’s arguments as to personhood (the consistent usage principle; the executive interpretation; civil liability), finding that the USPS was not a person under the AIA. Finally, the Supreme Court closed out 2019 by blocking the USPTO from recovering attorneys’ fees under 35 U.S.C. § 145 in Peter v. NantKwest. The Supreme Court applied the American Rule’s presumption against fee shifting, and found that the relevant language of § 145 lacked the “clarity . . . required to deviate from the American Rule.”

Looking to 2020

2020 has the potential to offer as many patent-related Supreme Court decision as 2019, with one case already argued, one granted cert and another that is likely to be taken up by the Court. Unlike 2019, however, these three cases have the potential to upend the world of patent litigation.

• Thryv Inc. v. Click-To-Call Technologies LP (Argued Dec. 9, 2019)
  • Issue: Does 35 U.S.C. § 314(d) permit an appeal of the PTAB’s decision to institute an IPR upon finding that 35 U.S.C. § 315(b)’s time bar did not apply?
  • Potential Ramifications: If the Court finds that time bar-related institution decisions are appealable, the cost-effective nature of IPR challenges may be diminished. Justice Ginsburg noted that “[t]here’s something unseemly about nullifying the determination on the merits” where the PTAB “has already made the decision that the patent is no good.” Some court watchers believe is likely the Court will exclude time bar decisions (§ 315(b)) from the “nonappealable” language of § 314(d).
• Oracle America, Inc., v. Google Inc. (Granted certiorari 15, 2019)
  • Issues: (1) Does copyright protection extend to a software interface? (2) If so, does the petitioner’s use of a software interface in the context of creating a new computer program constitute fair use?
  • Potential Ramifications: Google’s supporters such as Microsoft argue that a ruling in favor of Oracle “threatens the viability of the interconnected software ecosystem” and “would have a profoundly destabilizing effect on the entire industry.” Whether that is the case remains to be seen, but many large technology companies have put their weight behind Google’s position that APIs are not subject to copyright.
• Collabo Innovations Inc. v. Sony Corp. (Petition filed Nov. 12, 2019)
  • Issues: (1) Does the retroactive application of IPR to a patent that issued before the passage of the AIA violate the Takings Clause of the Fifth Amendment? (2) Does the retroactive application of IPR to a patent that issued before the passage of the AIA violate the Due Process Clause of the Fifth Amendment?
  • Potential Ramifications: If the Supreme Court takes up this case and decides that retroactive application of IPR to pre-AIA patents is Unconstitutional, it would significantly limit the applicability of IPR in patent litigation. Currently, roughly two thirds of IPR petitions are filed against pre-AIA patents. Barring pre-AIA patents from IPR would likely cause a significant uptick in litigation before the district courts.

FUTURE IMPACT OF § 315(B) TIME BAR

2019 saw numerous cases before the PTAB and CAFC related to § 315(b) time bar issues. In Ventex v. Columbia Sportswear, the PTAB found that Ventex’s petition was time barred because an unnamed real-party-in-interest (RPI) had been served with a complaint (IP Update Vol. 22, No. 3). Ventex was the supplier of fabrics to Seirus, who had been sued by Columbia more than one year before Ventex’s petition. The parties had done business together since 2013, and under an exclusive supply agreement since 2016. The agreement also required Ventex to indemnify Seirus. The PTAB found that Seirus was a clear beneficiary of Ventex’s IPR because the Ventex-supplied fabric was the very reason Seirus’s products had been accused of infringement. Combined with the parties’ long-standing and exclusive relationship, this meant that the parties shared a mutual interest in the outcome of the IPR. The PTAB determined that structured, pre-existing, contractual and well-established business dealings between entities can create an RPI relationship and made the unnamed party a privy of the petitioner.

In the same vein, the CAFC found in Power Integrations v. Semiconductor Components that consideration of all possible RPIs and privies occurs at the time of institution (IP Update Vol. 22, No. 7). The Court found the time bar was triggered by a merger involving a petitioner that was completed after the petition was filed, but before institution. The Court provided no guidance on whether waiting until after institution to complete a merger would save an otherwise time-barred RPI. One week later, the CAFC held in Mayne Pharma v. Merck Sharp that the PTAB is permitted to excuse an IPR petitioner’s late identification of additional RPIs. Initially, the PTAB did not believe that Merck Sharp’s parent company was a RPI, but after institution, and on a more fully developed record, the PTAB changed its position. It then permitted Merck Sharp to amend its list of RPIs to add its parent—more than one year after Mayne’s complaint was filed. Deferring to the PTAB’s interpretation of its rules, the Federal Circuit found no reversible error in the PTAB’s reliance on the “interests of justice” language in § 42.5(c)(3) for excusing the late action.

In a precedential decision on joinder, the Precedential Opinion Panel (POP) of the PTAB determined in Proppant Express Investments, LLC v. Oren Techs. that a party may use joinder under § 315(c) to add new issues to its own petitions (IP Update Vol. 22, No. 4). After institution, Proppant filed a second petition to add a new reference to correct “mistakes” in the prior petition. Because the second petition otherwise would have been time-barred, Proppant filed a motion under § 315(c) for joinder with its first petition. The POP determined that § 315(c) allows for a petitioner to join a proceeding in which it is already a party and provides discretion for the PTAB to allow joinder of new issues into an existing proceeding. The POP concluded that the time bar under § 315(b) is one factor for the PTAB to consider when exercising its discretion, but that it should only do so in limited circumstances—namely, where fairness requires it and to avoid undue prejudice to a party. Mistakes or omissions by a petitioner generally do not qualify.

Finally, the POP of the PTAB found in GoPro, Inc. v. 360Heros (IP Update Vol. 22, No. 9) that the one year time bar under § 315(b) is triggered even if the complaint served is deficient. Relying on the CAFC’s 2018 decision in Click-to-Call v. Ingenio (IP Update Vol. 21, No. 9), the POP found that the words “served with a complaint alleging infringement” in § 315(b) are plain and unambiguous. The PTAB again confirmed this principle in Sling TV v. Realtime Adaptive Streaming by finding that even a suit brought by a non-patent owner starts the one year clock. Some practitioners have noted that § 315(b)—as currently written and judicially interpreted—opens the door to bad-faith actors to file deficient complaints in an effort to frustrate a petitioner’s ability to file an IPR. However, the PTAB in GoPro, Inc. v. 360Heros noted that if it were to encounter such a bad-faith filing in the future, it may revisit the question of the availability of an equitable tolling of the application of the time bar.

In addition to the impact of several key decisions in 2019, there are several important cases on the Supreme Court’s docket in 2020 that are relevant to IPR institutions. The Supreme Court has agreed to consider whether a petition for an IPR was filed within the one-year window provided by 35 USC § 315(b). Dex Media Inc. v. Click-To-Call Technologies, LP, Case No. 18-916 (S. Ct. June 24, 2019) (cert granted). Dex’s cert petition also asked the Supreme Court to consider whether an infringement suit that was voluntarily dismissed triggers the IPR time bar. While the PTAB has long said that it does not, the Federal Circuit in this case said that position was wrong. However, the Order granting cert does not include that issue.

Although the Supreme Court has not granted cert to any §101 cases, we can anticipate the Federal Circuit to issue several more precedential opinions to further clarify patent eligibility unless Congress beats them to it. The Federal Circuit’s opinion in Cellspin Soft, Inc. v. Fitbit, Inc. is likely to have an impact on the types of allegations contained in the patentee’s complaint with respect to the novel aspects of their patent. Addressing patent eligibility at the motion to dismiss stage of a case, the Federal Circuit vacated a district court’s grant of a motion to dismiss, finding that the district court improperly failed to accept as true the patent owner’s factual allegations that the asserted claims were directed to an inventive concept. In addition to holding that patents granted by the USPTO are presumed valid under § 101, the Court’s opinion will likely lead to patentees pleading additional facts related to the novel aspects of their patent in order to avoid an early dismissal.

Additionally, in all cases filed after July 25, 2019 and assigned to Judge Rodney Gilstrap, defendants are now required to serve “eligibility contentions” no later than 45 days after receiving service of the “Disclosure of Asserted Claims and Infringement Contentions.” Standing Order Regarding Subject Matter Eligibility Contentions Applicable to All Patent Infringement Cases Assigned to Chief District Judge Rodney Gilstrap (E.D. Tex. July 25, 2019) (Gilstrap, J). The confluence of timing requirements between P.R. 3-3 and the new Standing Order suggests that the eligibility contentions are envisioned as part of the invalidity contentions.

Finally, the constitutionality of the IPRs may continue to be at issue following the controversial Federal Circuit decision in Arthrex, Inc. v. Smith & Nephew, Inc., which held the appointment of administrative patent judges (APJs) at the PTAB was unconstitutional. The Court found that PTAB judges were appointed as if they were “inferior officers” but vested by the PTAB with authority that is reserved for Senate-confirmed “principal officers.” The decision creates uncertainty in dozens of IPR proceedings. While the full impact of this decision remains unclear, it appears the holding will immediately affect many pending cases. Some estimates note that at least 200 AIA reviews may be subject to rehearing. RPX Insight (Nov. 8, 2019). Similarly, the Supreme Court’s decision in Collabo Innovations Inc. v. Sony Corp. (petition filed Nov. 12, 2019) will address whether the retroactive application of IPRs to a patent that issued before the passage of the AIA violate the Takings Clause and Due Process Clause of the Fifth Amendment. A decision finding IPRs to be unconstitutional to pre-AIA patents will markedly limit the usefulness of IPRs for a great many patents for the near future.