Publications
Intellectual Property 2014 Year in Review
Introduction
There were a number of notable developments in patent case law in 2014. Key decisions from the Federal Circuit and Supreme Court tackled a variety of key issues, including patent eligibility of software and business methods, standards for induced infringement when multiple actors are involved, the burden of proof in declaratory judgment cases, the continuing development of inequitable conduct jurisprudence, the standard for indefiniteness, the standard for awarding attorneys’ fees, laches, and guidance for damages, particularly for standard essential patents.
By the end of 2014, we also concluded two years of operation of the new statutory framework provided by the America Invents Act (AIA), which introduced new post-grant procedures for challenging the validity of patents at the U.S. Patent Office. As discussed further below, inter partes review and the covered business method review have become potent weapons against patent owners.
In the new landscape, one in which the eligibility โ and hence validity โ of many software and business method patents has been thrown into question by the Supreme Court’s Alice case, and one in which challenging the validity of patents under the AIA has proven quite successful, patent owners would be wise to review their existing portfolios and prosecution strategies and develop strategies to address these changes.
Post-Grant Proceedings
In addition to moving the United States from a first-to-invent to a first-inventor-to-file patent country, the 2012 America Invents Act (AIA) introduced new trial-like procedures that permit third parties to challenge the validity of issued patents in the U.S. Patent Office. The former inter partes re-examination procedure was replaced by inter partes review (IPR), post-grant review (PGR), and covered business method review (CBM) procedures before the newly formed Patent Trial and Appeal Board (PTAB). While patent infringement claims are still adjudicated in the courts, these new post-grant proceedings provide an alternative avenue for patent holders and challengers to battle over a patent’s validity in the Patent Office without resorting to traditional litigation in the courts.
Now two years since their inception, these post-grant proceedings are proving to be incredibly popular. Initial USPTO projections had forecast about 420 petitions per year seeking to initiate these new proceedings. However, about 600 petitions were filed in the first year since these proceedings became available, and nearly 1,900 petitions were filed in the second. Post-grant proceedings are particularly popular in the electrical/computer arts, with over 60% of petition filings occurring in this technology area.
For a comprehensive look at current and future issues related to Post-Grant Proceedings, please see our September 2014 articles in IPLAW360, available at the following links:
Patent-Eligible Subject Matter
In Alice Corp. Pty. Ltd. v. CLS Bank Int’l, the Supreme Court issued a long-awaited and unanimous decision on patent eligible subject matter, holding that claims directed to implementing abstract ideas on a generic computer, without further limitations, are not patent eligible.
By way of background, courts have historically created three judicial exceptions to what otherwise is a broad statutory definition of subject matter that is eligible for patent protection (see, 35 U.S.C. ยง101). The Alice decision sets forth a 2-part test for determining if a patent claim is directed to eligible subject matter. First, it must be determined if the claim is directed to one of these three judicially created exceptions (e.g., an abstract idea). Second, if the claim is directed to one of these three categories, it must be determined if the claim additionally recites an “inventive concept” that covers something more specific than a law of nature, a natural phenomenon, or an abstract idea. Unless the claim recites such additional inventive concept, the claim is not eligible for patent protection.
The Alice decision has resulted in drastic changes to the eligibility of software and business method patents. Post Alice, the Federal Circuit and district courts have been invalidating many software and business method patents based on their interpretation of the Supreme Court’s Alice decision. For example, in Ultramercial, Inc. v. Hulu, LLC, the Federal Circuit concluded that the patent at issue, a software business method patent directed to viewing an advertisement in exchange for access to copyrighted media, did not claim patent-eligible subject matter. The claims were not patent eligible because they simply instructed one to implement an abstract idea using routine, conventional computer activity.
However, software and business methods may still be patent eligible, if properly claimed. The Alice Court was careful to point out that a claim is not necessarily ineligible for patent protection simply because an abstract idea is involved. Patent claims, including an abstract idea, will skew more towards eligibility if they require specific implementations that do not prevent others from practicing the underlying abstract idea.
For example, in DDR Holdings, LLC v. Hotels.com, L.P., the Federal Circuit affirmed the district court’s ruling that a patent claim directed to a system for retaining visitors on a website was patent eligible. The Federal Circuit concluded that the claimed system constituted patent eligible subject matter because it provided a new solution to a problem specifically arising in the realm of computer networks.
For its part, the United States Patent and Trademark Office (USPTO) has issued a new set of guidelines to help its Examiners properly apply the Alice test to patent claims, including abstract ideas. The Guidelines include examples of patent eligible and non-eligible claims. There is likely to be a teething period as Examiners adjust their examination process to implement these new guidelines.
As illustrated by the seemingly contradictory Federal Circuit decisions above, the line between what is and is not patent eligible subject matter remains unclear. It was clearly not the Supreme Court’s intent in Alice to eliminate software and business method patents. However, until case law further clarifies the boundaries of what constitutes patent eligible subject matter, patent applicants and patent holders of software and business method patents will face challenges in obtaining and enforcing patent rights to their inventions.
For additional information on the implications of the Alice decision and some practice tips, please see our related article: Patenting Business Methods and Software in the U.S.
FRAND / Standards-Essential Patents
While technical standards advantageously lead to cost savings for industry and provide for interoperability of many products, patented features that are covered by an industry standard can provide an unfair competitive advantage to the patent holders by requiring industry members to license those patents. Two particular concerns regarding standards-essential patents are royalty stacking (the need to license multiple patents to comply with a standard) and patent hold-up (demanding excessive royalties once companies sign on to a certain standard). To level the playing field, standards setting organizations typically require their members to license their standards-essential patents on fair, reasonable, and nondiscriminatory (also known as “FRAND”) terms.
The question of how to properly calculate damages in infringement cases involving patents subject to a FRAND obligation has been a subject of ongoing debate. This year, the Federal Circuit’s decision in Ericsson, Inc. v. D-Link Systems, Inc. provided significant guidance on this issue. Typically, a court instructs the jury in a patent infringement case on the “Georgia-Pacific factors,” a set of 15 factors that are weighed together to arrive at a reasonable royalty to be paid by the infringer. The Ericsson decision, however, noted that in cases involving FRAND patents, many of the Georgia-Pacific factors may not be relevant or may even be contrary to the FRAND obligation. The Federal Circuit held that district courts must consider the patent holder’s actual FRAND obligation and must specifically instruct the jury accordingly as to the factors it should consider. The Federal Circuit also ruled that awarded damages should only be based on the value added to the standard by the patented feature, apportioned to all other features required by the standard and should not be premised on the overall value of adopting the standard.