This Teleforum addresses whether there is a need to amend Section 101 of the Patent Act, which defines what counts as an invention eligible for receiving patent protection. Between 2010 and 2014, the Supreme Court issued four decisions interpreting and applying Section 101 to business, high-tech, and biotech inventions. In all four cases, the Court held that the patents were invalid for claiming abstract ideas, laws of nature, or facts of nature. Since 2014, federal courts have invalidated many patents in applying the Court’s new rules on patent eligibility. The Patent Office is also rejecting many patent applications. Some people in the innovation industries express concern that the Court’s decisions are vague and provide no objective framework as to whether a claim is patent eligible. Three trade associations, the Intellectual Property Owners Association (IPO), the American Intellectual Property Lawyers Association (AIPLA), and the American Bar Association’s IP Section, have released proposed amendments to Section 101. Others in the innovation industries maintain that the Supreme Court was right to reinvigorate patent eligibility doctrine, tightening up this basic legal standard for obtaining a property right in a new invention or discovery, because too many overbroad and vague patents had been issued in recent years by the Patent Office. These invalid patents, they contend, are clogging the gears of the innovation economy by imposing unnecessary costs on other innovators and consumers. This Teleforum discusses the proposed amendments to the Patent Act, and whether legislative reform of Section 101 is necessary or not.
Mr. Phil Johnson, Founder and Principal, Johnson-IP Strategy & Consulting
Mr. Dana S. Rao, Vice President, Intellectual Property and Litigation, Adobe Systems, Inc.
Mr. Robert Sachs, President, Robert R. Sachs PC
Moderator: Prof. Adam Mossoff, Professor of Law, Antonin Scalia Law School, George Mason University
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Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Intellectual Property Practice Group, was recorded on Tuesday, February 6, 2018 during a live teleforum conference call held exclusively for Federalist Society members.
Wesley Hodges: Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is a discussion on if Congress should amend Section 101 of the Patent Act. My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today's call.
Today we're happy to have with us a fantastic panel to talk on this subject. And moderating today is Professor Adam Mossoff who is Professor of Law at the Antonin Scalia Law School at George Mason University.
After our speakers give their remarks, we'll eventually open for an audience Q&A, so start thinking of questions you may have for our speakers.
Thank you for speaking with us today. Professor, the floor is yours.
Prof. Adam Mossoff: Excellent. Thank you, Wesley and it's a real pleasure to be here today with a fantastic panel to talk about the issue of whether should Congress amend Section 101 of the Patent Act. As the moderator, I'll take a few moments just to kind of set everything up and then I'll introduce our panelists for what promises to be a really fun and engaging discussion on what is an incredibly important topic for innovation and the innovation industries more generally.
So the issue is whether Congress should amend section 101 of the Patent Act. Section 101 of the Patent Act is the provision of the patent statutes that addresses what counts as an invention that is eligible for receiving patent protection. It states, quote, "whoever invents or discovers any new and useful process, machine, manufacturer, or composition of matter, or any new and useful improvement thereof, may obtain a patent, therefore, subject to the conditions and requirements of this title," end quote. So it sets forth essentially four categories: process, machine, manufacturer, composition of matter as patentable inventions for which then you can assess whether these invention are novel, useful, fully disclosed and non-obvious.
Over the years, the course of a construed Section 101 to therefore exclude patents on laws of nature, patents on physical -- or claimed inventions that cover physical phenomena, or abstract ideas. Classic examples here being you cannot patent E=mc2, or you cannot patent the law of thermodynamics, or you cannot patent a banana on a palm tree hanging on an island in the South Pacific. Patents only cover things that are "useful arts," to use the language from the clause of the Constitution that authorizes Congress to enact patent statutes to secure innovation. That is something derived from nature or used by people in a way not found in nature. Classic examples include a patent innovation on a molecule that's been taken from nature, isolated, and now used as a drug in treating a disease; the circuits in a smart phone, or the software that makes it possible for that smart phone to function as a smart phone, such as the 4G communications technology that we all live by today; and, of course, classic machines that build cars and refrigerators and our cell phones and coffee machines; or even the processes for making things, such as the process for making rubber or GORE-TEX or other types of services and products that we all enjoy today.
Now, this is a very important section of the Patent Statute or at least it has become very important. It had actually dropped out of application and wasn't applied very much for a period from around the mid-1990's up through around the mid-aughts shortly after the turn of the century, in which then the Patent Office began to issue some -- reject some patent applications on 101 grounds, that these did not cover eligible inventions that should be covered by the Patent statues. And then, eventually, this led to both an appeal to the Supreme Court and then follow-on cases arising from standard litigation that resulted in four decisions from the Supreme Court over the span of four years, starting with Bilski v. Kappos in 2010, Mayo v. Prometheus in 2012, Myriad v. AMP in 2013, and Alice v. CLS Bank in 2014. Each of these cases addressing various aspects of inventions. In Bilski v. Kappos: business methods, Mayo v. Prometheus: a method for treating a disease, Myriad: the isolated DNA used in medical treatments, and Alice v. CLS Bank: a software program for managing complex financial transactions.
And these cases added up to what is sometimes referred to now as the Mayo/Alice test, taken from two of the decisions, Alice and Mayo, which sets forth a two-prong test for determining whether a claimed invention actually fits within one of the categories of Section 101 and therefore, can then be assessed later for novelty, non-obviousness, it's utility, and whether it's been fully disclosed. And that is courts first need to determine, or a patent examiner first needs to determine, whether, first, the patent claim is directed to an abstract idea, natural phenomenon, or law of nature, and if it's found to be so, then you must, secondly, then determine whether the claim's elements considered both individually or as a combination contain an inventive concept that therefore makes it patent eligible and not fall within the classic exclusions from 101.
Now, since 2014, courts and the Patent Office have been applying the Mayo/Alice test to both patent applications being submitted at the Patent Office as well as dissents in patent cases and in declaratory judgement actions brought to invalidate patents. And the statistics have been alarming to some. So at the Patent Trial and Appeal Board, for instance, or the covered business methods program, there's almost a 100 percent invalidation rate of patents that are actually put through a hearing before the PTAB panel. There're also extensive invalidation rates in the federal courts, as well as extensive rejection rates at the Patent Office.
And in addition to some of the statistical concerns, there's been expressed some concerns about indeterminacy. How exactly is this two-prong test to be applied and when is it to be applied? And there're some classic, kind of, anecdotal examples. For instance, the PTAB held that a patent covering an MRI machine was a patent for an abstract idea. In one court case, a court held that a patent on snow plows is an abstract idea. And in a recent petition to this U.S. Supreme Court, the lower courts and federal circuit had invalidated a patent on a method for operating an oil derrick. So kind of a classic process patent, classic technology as basically, essentially, an abstract idea.
Now, in counter to these concerns about the extensive invalidation rates and the indeterminacy or over-restrictiveness in patent eligibility doctrine, there are actually lots of counter concerns: that there are, in fact, too many patents issuing since the 1990s that are vague and overbroad, that these quote, "bad patents," end quote—or as they're sometimes referred to in the policy debates as bad patents—they'll clog up the gears of the innovation economy by imposing unnecessary costs on the innovative companies doing work in our innovation economy, imposing on them unnecessary search costs and getting clearance rights, unnecessary licensing costs or unnecessary litigation costs.
Now, to talk about the state of patent eligibility doctrine since the Supreme Court issued its four decisions over the span of four years and reestablished the significance of 101 in the patent system, and whether, therefore, Congress should step in and perhaps amend 101 to address some of these concerns we have, as I said, a great panel of speakers. In order of speaking, we have Robert Sachs, who is President of Robert R. Sachs PC, who focuses on strategic patent cancelling and prosecution for software technologies. He's also a former partner of Fenwick & West with longstanding experience in prosecution, and of patents on computer-implemented innovations, and in evaluating standard essential patents.
And then following Bob, we will have Dana Rao, who is the Vice President of Intellectual Property and Litigation at Adobe Systems. And before he went to Adobe, he was Associate General Counsel of Patents at Microsoft Corporation.
And then, last on the panel, certainly not least, we have Phil Johnson, who's Founder and Principal of Johnson-IP Strategy & Consulting. And before that, he served as Senior Vice President in the Law Department and Chief Intellectual Property Counsel of Johnson & Johnson.
All three of these gentlemen have a long and storied history with many achievements and accolades to their names. So you don’t want to hear me speaking about all of these things on this call. You want to hear them talking. But if you are interested in learning more about them, you can easily Google them, using a patented innovation that was brought to the innovation economy about almost 20 years ago, and find out all of those awesome achievements that they have had over their lives.
So without much further ado, I'm going to turn it over to our first panelist, Bob Sachs. Each of the panelists will speak for about 8 to 10 minutes, and then we will turn it over to the audience for question/answer. So, Bob?
Mr. Robert Sachs: Thank you, Adam. I'd like to open by quoting something I think is illustrative of the problem we face today, and it was rather a prognostication. And the statement is, "The cases considering the patentability of program-related inventions do not establish rules that enable a conscientious patent lawyer to determine with a fair degree of accuracy which, if any, program-related inventions will be patentable. Second, the inclusion of the ambiguous concept of algorithm, within the law of nature category of unpatentable subject matter has given rise to the concern that almost any process might be so described, and therefore, held unpatentable."
Now, you may think that that is a quote from some recent decision in a patent eligibility case. It's not. It was by Justice Stevens himself in his dissent in Diehr, many, many years ago, laying down what he thought was his objections to the majority's opinion in the Diehr case. So we're talking back 1980, and Stevens himself was saying where we were going at that time did not establish a clear rule. Where are we now so many years later? We are in the same quagmire that Stevens identified then.
And what is that? We have numerous inconsistent decisions from the federal circuit. You cannot square many of these decisions. Even though the federal circuit goes approximately more—90 percent ineligible on the cases that it takes under appeal. They're just many inconsistent cases. BASCOM, which we're all familiar with, which held that subject matter there was eligible by doing internet filtering at the ISP. You cannot square that case with the Smart Systems decision in which the Court held that using a white list to authorize access to -- a white list of credit card numbers to authorize access to the Chicago Transit System was patent eligible.
Architecturally, the claims are identical. In fact, Judge Linn in his dissent makes quite clear that the whole problem with Alice/Bilski is that it is very hard to figure out what the bright line is, if any, between eligible and ineligible subject matter. He says the abstract idea exception is almost impossible to apply consistently and coherently. And at core, the problem is how do we know which limitations to ignore? Do we ignore some? Do we ignore others? You don’t know where to draw the line between what is directed to it—abstract idea—and what is an overly-reductionist exercise to find it. You can't square that with Thales, which was a case on an inertial tracking sensor on a pilot's headset or pilot helmet. That was an extraordinarily broad claim, and yet, held not to be abstract subject matter and ineligible when you look at other cases such as the ones -- you know, cases about the recent ITC's decision on controlling a garage door and determining the force that a garage door was closing with was held by the ITC to be ineligible subject matter.
So very inconsistent cases. It's not limited -- and the differences of opinions among the federal circuit is not limited on the bio-tech side. I mean, everyone is familiar with Ariosa and the concurring opinion saying that the Court was bound by Supreme Court's holding in Myriad and Mayo. The problem is not just limited to differing views of the federal circuit on the bio side. It also extends to the software/abstract idea side.
The second thing that I'd like to point out is that what's really going on—and no one seems to deny this—is that Section 101 is being used as a proxy for 103 and 112 concerns. And even Judge Dyk, who is a vigorous utilizer of Section 101, he basically admits this or he seems to admit it in his opinion, his concurring opinion in the Ariosa en banc. He makes quite clear that 101 is serving the purpose of doing the work of finding cases that are obvious because they're routine applications of natural law to be ineligible subject matter. And we find many district court opinions to the same effect, that the subject matter just uses your routine, conventional, eligible, SOU hardware or any other new technology.
So 101 is being used as a proxy, which is not what it's supposed to be used for. Every section [inaudible 23:24] in 101 does work should be limited to it does. So what's happening in the courts is the courts are using 101 to weed out bad patents. But they're bad not because they are ineligible subject matter; they're bad because they're not enabled; they're bad because they're obvious or they're already anticipated.
And then, finally, what we find is, and as Adam alluded to, was the impact -- the real hidden impact. The number of patents invalidated is relatively small. We're in the numbers of several hundreds, about 500 or so. The hidden impact is what is rejected inside the Patent Office and then ultimately abandoned. And those numbers are in the tens of thousands. The Research into this area, by looking at rejection rates and then following looking at the follow-on history of the applications, found by estimates are upwards of 60,000 patent applications have been abandoned based on rejections, assuming, coming out of Section 101. So that's the dog that doesn't bark. We just don't know what things are being given up. We have some evidence, at least in the bio side, of patents that were rejected here and then abandoned on various bio-technology inventions and then patented in China, Europe, and Japan or other countries. And those are numbering, with the examples I've collected and working with David Kappos and others, several hundred examples of life science inventions that were rejected, abandoned here and then issued in other countries.
So we know that there is technology that is being lost. It is being lost not so much in the courts as it is being lost inside the Patent Office. And that has a chilling effect because [inaudible 16:09] and there are things that are simply just not being filed on because costs and the risks are too high. So the impact, ultimately, is very hard to call. We don't know whether there is a crisis, but we do know that there is a lot of technology that is not being invested in because the availability of IP is not there. And we are seeing companies that are shifting their investments in life sciences, in software and other technologies because of the unavailability of the risk of unavailability of IP.
So those are kind of the three main things that are happening, and I think it establishes the base case for why Congress needs to come in and clean up, and clarify, ultimately, that what it said in 1952, when it separated 101 as subject matter eligibility as kind of the basis of a statutory class, it separated that out from novelty, non-obvious, and written description support, and made clear that those were very distinct things. Congress needs to come back and make clear that message again. They told the courts once to get it right and now they need to tell the courts, again, "Follow what the law says." Thank you, Adam.
Prof. Adam Mossoff: Thank you, Bob. Bob, just FYI, your phone was cutting in and out a bit so you might want to double check your signal because we want to make sure we hear you well and that we have a great recording for the podcast after this.
Mr. Robert Sachs: Well, I'm on one of these innovations of an IP phone so we'll see.
Prof. Adam Mossoff: Oh, okay. Dana?
Mr. Dana S. Rao: Great. Thanks, Adam. Thanks, Bob. So I think I've a different view, a little bit, from what Bob was saying. We, at Adobe, have been filing software patents for 30 of our, probably, 35 years. And so we're pretty familiar with the ins and outs of the Patent Office and the examiners, and how they're looking at software, and what's happened since Alice. But I would say, stepping back a little bit, I think 101 does serve a purpose, and I think it's a purpose that is different than 112 and 103. And I'm going to preface this by saying I'm going to focus a little bit specifically on software and the high-tech areas and not the bio-tech side, which, I think, actually has a different and probably more urgent problem than we do on software and high-tech.
So for us, and having been in the software industry while I was at Microsoft and now at Adobe, I think software poses a unique problem for patenting. And we file patents at Adobe. We feel like we have real inventions at Adobe, and I also felt the same way at Microsoft. And I felt like we got patents on them. But it was easy to see as a patent lawyer how software allows you to blur that line.
So software is magic. That's what Bill Gates always said. And it's magic because you can have an idea and then someone can code it up and that idea is in existence. There's very little barrier between idea and implementation, and patents are supposed to be about, and in my opinion and I think for grounded in law, a technological solution to a technological problem. That's what we're trying to incent with the patent system. People solving hard problems with technology and allowing the progress of the useful arts.
So the problem with software is you can very easily have an idea and then have that idea be created just through routine conventional means without solving any of those problems. So I think the development of the 101 law is in response to that, be it in response to the fact that you can have an idea and have it implemented without solving a technological problem. I think that as long as we are writing claims that are more focused on the technology on how we're solving the problem, I think those patents are going to stand up under 101, and I think they are standing up under 101.
When I look at the trends in the case law, as Bob has said, there's been a lot of flux about what the right test is. Also in my career here, and I'm sure Bob and Phil will agree, there's been a lot of flux in other areas of the law for the federal circuit. We've all had our different gripes about the federal circuit's position on damages and obviousness and other areas. So there's always going to be flux as they develop a case law under a new doctrine.
And that's what they're doing right now. They're trying to sort out what is that line in software. And the courts don’t have the answer perfectly. I think they're going to and are starting to converge on a technological test. And I think that's the right answer. I think the trends in the cases, we've just had two cases in January where I think the patents were found valid under 101 because of this test, and I saw another patent that was declared invalid under 101 under this test. And I think all three of those results are pretty good. But there are going to be cases that could go either way. I think Bob mentioned one, the Smart Systems case. It could've gone either way, 2-1 dissent with a dissent, a strong dissent, a good dissent, and maybe that should've gone the other way. But that's how it is in an emerging area of law.
I think the other thing we want to talk about is when we talk about legislation. The need for legislation. What are we trying to do when you pass a law? You're trying to have -- you're trying to solve an economic problem. There's got to be some economic problem we're trying to address here. So one would think after Alice's test in 2012 if we really needed to pass a law, we would see some sort of economic issue, in the software industry, anyway.
But that's not what we're seeing. We're seeing investment in software companies up. R&D spending is up 44 percent since 2012. VC funding has doubled since 2012. And I think most importantly, I know we can talk about the abandonment rate, maybe in the software arts. But the patenting is up and I think that really speaks to what the applicants feel like is going on at the Patent Office. There are more patents being issued today than there were in 2012 in software. There're more patents being filed today in software than there was in 2012.
I know at Adobe I went back for the purposes of this call and thought, "Okay, let's see how we're doing at the PTAB." We appeal cases that we lose. And it doesn't happen very often. So over the last three years, we had 11 appeals on 101, and we had 100 appeals on 102, which tells me looking at our team, we're actually not even needing to appeal 101 very often compared to other rejections we're getting. And it's not because we're abandoning. In those 11 cases, we actually won 8 of them. And I look at it and I say, "Well, why are we getting our cases allowed?" There's really not a case we don’t choose to file. And it's because we put the 'how' in. So the software is patentable. There are harder problems we're solving, Adobe is solving, and are either a Photoshop product or an Acrobat product or our digital marketing product or we have algorithms in data science. Just harder problems. We put those hard problems into the claim. We put the solutions to those hard problems into the claim.
The reason we have the problem where we are today, I think Bob alluded to, is this patent troll phenomenon. So what happens is when you have a software patent and you can just claim the idea. You can just say that the idea is what I'm going to put in the claim because the software just makes it happen. You get a very broad patent. You get a very overbroad patent. You get a patent that you can use to apply to hundreds of companies because the idea is so broad and generic, and then you can go get your fees from them. And so, that's the problem. The misuse of software patents, the misuse of software claiming that's resulted in the actual damage to the economy. All the money that companies like Adobe have been spending to defend against specious lawsuits, we can really point to that economic impact. That's real.
And 101 is a good way, an economically efficient way, of saying you can't force people to pay for these claims that are now being claimed at the idea level, at the abstract idea level. You need to go put the 'how' back into your claim. Maybe that could be 112. Maybe it could be 102. 101, I think, is also still appropriate for that level of claiming. And it's good to stop that practice. That is good for the economy. It does have an economic impact.
So right now, my opinion for the software and high-tech side, legislation isn't needed. I think things are going the right direction. 101 is doing the right thing. I actually haven't heard a test articulated that would be any better than what I've heard the courts provide. So I think we're in a good spot. It's maybe been a rocky first few years, but I think we're ending up in a good place. Adam?
Prof. Adam Mossoff: Thank you, Dana. And, Phil?
Mr. Phil Johnson: Thank you. Well, I come from a little different background than the other two panelists in that I spent a lot of my career in the biotechnology and medical device and consumer products areas. And I think that, as Dana has mentioned, there is a differential impact as to how the law as developed and how it treats these different technologies.
First of all, I'd like to point out that all three of the major IP bar associations, that'll be IPO—that's Intellectual Property Owners Association—AIPLA and the ABA IP Section have all looked at this and have all recommended that the statute be amended for clarification. And they both, particularly IPO and AIPLA, have good explanations of the history and the reasons that they’ve come to this conclusion. Primarily, they point out the fact that before the original codification of patent law, which was in 1952, the courts relied on an arbitrary and subjective standard of invention, which was really not well-defined. It went through a number of iterations. There was a time when people looked at whether the invention resulted from a flash of genius or other sources.
And when it came to writing the 1952 act, they recognized that this arbitrary and subjective approach was just not what we needed. And they wrote the sections of the Patent Law, Section 101, to define the category of eligible subject matter. And then to handle issues of breadth, they required that the invention be new, so they wrote Section 102. They required that it be non-obvious, and they wrote Section 103. They also required that the disclosure be precise, that the invention be claimed with precision, and they put those requirements in Section 112.
It's very clear from going back to 1952 that Section 101 was not intended to be the gatekeeper, other than the fact that it defines a very broad category of eligible subject matter, not just inventions, but also discoveries. It starts, "Whoever invents or discovers," and goes on to list the examples that were given, but saying at the end that, "anyone who does this may obtain a patent, therefore, [but only] subject to the conditions and requirements of this title," meaning, of course, the other sections that I just mentioned.
The committee report that accompanied the passage of the act made it very clear that this was intended to be a very broad provision, allowing an invention to be, quote, "anything under the sun made by man," unquote, provided the other conditions of patentability were fulfilled.
And for about 60 years, it was fairly well accepted that patentable subject matter was very broad and it included, for example, isolated and purified compounds derived from materials that exist in some form of nature and diagnostic methods, even those based primarily in the discovery of naturally occurring biological phenomena or processes. And because of this, huge investments have been made over the course of the last 50 years to develop life-saving drugs, including but not limited to important antibiotics, many of which are derived from natural substances. And to diagnostic methods, it revolutionized the detection and treatment of disease. The fact is you look forward to the future of medicine and health care, you realize that the future is not in curing someone after they get sick; the future is in detecting who is going to get sick and preventing them from getting sick, looking forward to a world without disease. A world where we don’t get sick because we understand the natural phenomena, the natural biology, and how to intervene appropriately to stop that from happening.
This is where we have a problem with Section 101, especially in the biotechnology industry because what has happened is, and this has been mentioned by Bob, is that Section 101 challenges are brought up as preliminary matters, usually on motions to dismiss. And they are not determined with a full record, for example, of what is the closest prior art with a deep down investigation as to whether the invention really was obvious or not. Instead, there is this short-end test that really takes us back to this subjective approach that was used before 1952 where the Court is asking whether or not a natural phenomenon, law of nature, abstract idea is something that the claims are directed to.
But, of course, just at some level all inventions take advantage of natural phenomena, laws of nature, or abstract ideas. Inventors have conceptions that start as abstract ideas, and then rely on natural phenomena or laws of nature, whether it's the law of gravity or biological phenomenon, in order to make them work. And, in fact, many of the best inventions, or the most important inventions, are ones that comes from discoveries of the underlying mechanisms that are then cured or addressed by putting together concrete, technological solutions to take advantage of the insights gained from those discoveries.
Using the two-step test, however, perhaps in those situations the more important the invention is, the more likely it is to be found to be ineligible. And the reason is because the courts have started to look to these exceptions as ones that are appropriately broad because if they were not broad, the inventions would preempt the use of these concepts or phenomena or laws of nature by other people who would be working in the field.
But, of course, there we have the ultimate conflict within the system because the entire purpose of the Constitution in granting patent rights is to secure to inventors the exclusive right to their inventions for limited periods of time. So you have the Constitution on the one hand and you have the courts on the other hand saying, "Oh, no. We're not going to have it be eligible subject matter if you preempt too much in what you've invented." And when they go through this preemption, there is no bright line—this has been mentioned. It's not that you have to preempt everything. The cases say, "Well, maybe you preempting just some of it is too much." And the cases are all over as to the different situations and whether too much is preempted or not enough is preempted to cause a problem.
And to make matters worse, instead of considering the invention as a whole, which is the way all other issues of patent law, such as novelty and non-obviousness are decided, they dissect the invention down to different parts. If it were a machine and it be the equivalent of saying, "Well, let's look at this lever, let's look at this gear, let's look at whatever…" And of course, all inventions are combinations of elements that are known. The original chief judge of the federal circuit once opined that only God can start with new elements. Mortals must start with assembling things that are old.
So, of course, when you dissect almost any invention into its segmented parts, you're going to conclude that each one was known. And because inventors, even though they may sometimes think so, are not God, you usually end up finding that the subject matter is not patent eligible.
So I think I've gone on probably too long, but I commend to you the areas of the Sequenom case, which has been mentioned, which really talks and finds patent ineligible a groundbreaking invention, diagnostic invention, where two of the three judges on the court agreed that it was a fabulous invention and a great advance but that they were compelled by the task I just described to hold it patent ineligible. And as a result of that, diagnostics—that and other cases—diagnostics has been set back; personalized medicine has been set back; the development of naturally-derived drugs has been set back.
And the real problem is people don’t realize it because what's happening is the investments are going elsewhere. And maybe they're flowing those investments that would've gone into life-saving future inventions are flowing into the area that Dana is working in. But if that's the case—or other areas of activity—it would be a shame because we need what can be invented in the biological sciences, and unless we get an amendment of Section 101, I don't think that will happen.
Prof. Adam Mossoff: Thank you, Phil, and thank you to the panelists. Wesley, do you want to give our audience the information on how they might ask questions?
Wesley Hodges: Absolutely. Let's go ahead and move to audience questions.
Prof. Adam Mossoff: And while we're waiting for our audience to queue up, I thought I would just quickly throw out a question to the panelists. Dana made an interesting point that he thought this was primarily a problem in the high-tech software industries in terms of overbroad and vague patents that should not have been granted, and that it was not primarily a problem in the bio-pharmaceutical industry. And yet, two of the four cases are bio-pharmaceutical cases—Mayo involving a diagnostic test and Myriad involving isolated DNA used in medical treatment. And as Phil just mentioned, the Ariosa case, which involved, actually a method, a pre-natal diagnostic treatment method or testing method for testing fetus and whether they have various genetic conditions using a DNA test as opposed to doing amniocentesis, which can be very dangerous.
And so, I'm curious if any of the panelists can explore this issue of is there a divide between the high-tech industry and the bio-pharmaceutical industry here in terms of this concern in 101? Or is impacting both? Or is this a false separation, or are they united, actually?
Mr. Dana S. Rao: I was just going to say it probably depends on who you ask. For me, personally, I'll say I think there is a divide. I think the 101 has been applied, in my opinion, differently and more negatively in the bio-tech area. I actually was reading the bio-tech cases not having achieved straight C's in biology in college while getting my electrical engineering degree, I'm not any expert here, but they seem -- I don't think they got the result right. What I understand of the invention, it seemed like those should have been patented or patent eligible anyway.
So I do agree. I think that there's probably, and given where the Supreme Court is, there's probably more of a need for legislation in that area. That is not my opinion on the software side. I do believe that the technological test is percolating through the cases as I read them. I have not seen a lack of patenting. I don't see, Phil was referring to a divergence of R&D. I see more R&D than ever in the areas that are allegedly impacted by this area. So I do think there is a distinction between the two and a difference in the need for legislation in the two.
Mr. Robert Sachs: So I think I agree with Dana that there's a self-perception in the industry, and yes, it depends on who you ask, and there's a self-perception that it needs more attention on the bio side than on the software side. I think that’s a shortsighted view. The biotechnology company of the future, the pharmaceutical company of the future, is a company which has 30 to 50 percent of its staff are computer scientists. Computational biology, molecular biology, many of these things are software-driven processes. You're taking vast amounts of biological data, you're sifting through it, you're modeling it, you're doing all sorts of analytical steps which, you could argue, "Well, that's just all mental steps. You don’t have to invent a new computer to do it." And those will, and they have been, invalidated in the courts and in the PTO as abstract ideas. So --
Mr. Dana S. Rao: We get those patents, though Bob. I mean, that's the part where we are different. The diagnostic testing patents, I think—maybe that was Adam's question—I think the different subject matter -- when you're saying biotech is doing data science, and I agree with you. They're just in the same bucket as we are. But that's where I'm going to argue that I think the law is going in the right way.
Mr. Robert Sachs: But, again, my point is that it's not going the law way because those patents are being rejected and they're being invalidated, right? When they're software based inventions. And let me address something you said. You said, you're winning. You're getting it right. And you said, "Well, why are we winning? Because we put the 'how' in the claim." Well, Dana, you know, that's a 112 problem. You're satisfying 112. So that's great. I'm glad. I'm glad you're putting 'how' in there. But what you're saying is, yeah, the problem is that these are -- you know, you said there's very short distance from idea to implementation and you could just write these broad patents and broad claims without the 'how'. I don't entirely agree with that. If it was, Microsoft wouldn't have spent $100 million doing the next iteration of Windows, getting… Just because you have an idea, to do it in software is not trivial. It takes a fair amount of redevelopment and time there.
But more importantly, if the problem is, as you say, that you've got the misuse, you've got patent trolls and specious patents, and they don’t say 'how,' they don’t solve a problem, then fine. Kill them under 112. I have no problem with that. Kill them under 103. I have no problem with that. To quote from Raiders of the Lost Ark or to misquote, don't use a bulldozer to find a china cup. If the problem here is litigation abuse, at the end of the trail, at the end of the line, then fix that problem. But trying to do that with 101 at the beginning of the door, at the beginning of the process is the wrong approach. I'd be all for legislation that allowed for motions dismissed on obviousness or on 112. I mean, that's really what's happening, in fact. So let's just call it out and make it the law.
You say there's unclear -- we have differing opinions in the courts about exhaustion or infringement or other patent documents. We always have this back and forth. That's true. But nobody decides, "You know, I'm not going to file an application or I'm not going to invest in this area because it's unclear whether the patent claims will be exhausted." That happens on the 101 end. It's the only doctrine, probably, where people make decisions whether or not to file because of the unclarity of the law. Other area I don't think it has that impact.
And you said this was an emerging area of law. We're way -- we're 40 years into this. I don't think this is an emerging area of law. It's been an upended area of law, but it's not an emerging area of law. I held a conference a number of years ago in which a very noted professor said, "Well, it's only been 40 years since Gottschalk v. Benson." And the venture capitalist sitting next to her, who I invited, he said, "I don't have 40 years to figure this out. I have 15 minutes." So I think that there's just a number of issues of why the Congress needs to get it right now, or at least try to get it right now. And it needs a unified approach that solves it on both ends because you can't slice it in between.
Prof. Adam Mossoff: Wesley, do we have any audience members in the queue?
Wesley Hodges: We do have several. Let's go ahead and move to our first caller.
Ron Katznelson: Hi, this is Ron Katznelson. I have a question to Bob and perhaps the other panelists related to the new legislation being offered on some of these issues. I noticed that some proposals, not all of them, do try to fix the concept of abstract idea and try to cabin it in a way that might be more plausibly capable of discerning, but what would be an abstract idea and what would not. Do you believe this is, actually, the wrongheaded approach, the finding abstract ideas? Because the very nature of abstract ideas used across the board in every invention number one, number two, one can take any claim and dissect it to multiple abstract ideas. For example, if one were to apply today the concept of an abstract idea, you could come up with three elements of the claims. Each of them are a separate abstract idea and there's nothing more from there. So the concept of abstract idea as a means of determining eligibility is inherently a problem right from the start. Do you agree with that, and it shouldn’t be an amendment in the statute?
Mr. Robert Sachs: Ron, good to hear from you. Thanks for the question. Yeah, I think it is the wrong approach to try to define that. Not that it can't be defined. I come from a background in philosophy and the question of what are abstract objects and abstract ideas is something that's well articulated in the philosophical domain. And, as all things in philosophy, there are a variety of arguments and approaches.
So it's not that it can't be done. It's just that it doesn't really make sense in the domain we're talking about in patents because, as you said, you can always boil it down. You can take any claim and boil it down to abstract ideas. And that was Linn's core argument in his dissent in Smart Systems. Where do you draw the line? How do you know?
I can take any claim, as can you, and we can come up with multiple levels of abstraction. The federal circuit says, "Well, it's all just data collection, aggregation, and display. Or it's encoding and decoding information." Well, yeah, that's true. If you say a claim is directed towards collecting, aggregating, and displaying information and that's an abstract idea, you just wiped out 75 percent of software patents because you can always boil it down to that. If you want to call encoding and decoding abstract, you just wiped out about 90 percent of them. So picking the level of abstraction, there's nothing objective about it. It's what the courts are going to -- it's what are the strengths of the party's arguments?
So I do think it's wrong to define it. It's just not in the statute to begin with. So I think the approaches are to avoid that and avoid that entirely and come up with something that is more objectively administrable.
Prof. Adam Mossoff: Dana or Phil, do you guys have anything to add to that.
Mr. Phil Johnson: Yeah, I'd add to that that at least two of the bar association's approaches, not to define what is an abstract idea as much as to ensure that the only exception as to subject matter eligibility will be—and I'm reading from the AIPLA one because it happens to be in front of me—the only exceptions will be that "a claimed invention is ineligible under section (a) only if the claimed invention as a whole exists in nature independent of and prior to any human activity or can be performed solely in the human mind." And then the AIPLA proposal, we go on—and I think the IPO one would as well—say that the eligibility of the claimed invention under the foregoing subsection "shall be determined without regard to the environments or conditions of Sections 102, 103, and 112 of this title, the manner in which the claimed invention was alter discovered or whether the claimed invention includes and inventive concept."
So what the bar associations are proposing to do is to put the novelty and non-obviousness and written description requirements back where they belong, get them out of an eligibility discussion and limit, very carefully limit, what the exceptions are to subject matter eligibility. And I think that it certainly has merit to consider because when I talk to people in the field, including people like Dana, and ask for cases that they think where they got it right or they got it wrong, usually the objections such as the one we heard from Dana about being overbroad or not having the 'how' can be handled, as Bob suggests, by a strict application of Section 102, 103, or 112, or some other limitation in the past laws.
Prof. Adam Mossoff: Wesley, should we take our next caller?
Wesley Hodges: Sounds good. We have three more questions in the queue. Let's go ahead and move to our next caller.
David Boundy: Hi. This is David Boundy. I'm an intellectual property lawyer in Cambridge, Mass. My office is about a mile from Harvard and about a mile from MIT. And I'd like to challenge Dana that on software patents is a claim to a specific mechanism of solution, the right scope. Often my inventors are the first to recognize that there's any solution. Shouldn't they be able to claim, as they have historically, that a claim that is broad enough to, as a practical matter, cover all solutions? Some of my inventors are the first to even recognize that there is a problem to be solved. If they can only get a claim on one specific solution to a problem, they don’t have a patent that lets them go to investors and explain that they have a protected market.
For at least most of my clients, the importance of patents is that they are the first to enter a market, and they're trying to -- they're trying to, as startups, to get a foothold into the market, into the economy, and they really need the protection of the patent system. They don’t have an existing monopoly. They don’t have 30 years. They haven't been able to have the good fortune of squeezing out all this, and almost everyone else, and having effectively a monopoly. They need the patent system in order to get any financing or get any business at all.
And I'd like to challenge a fact. When you mentioned that patenting and businesses were up, I put into Google "Startup formation." And The New York Times, and CNN, and the Kauffman Foundation all note that the formation of startups is way down. And it's not, obviously, entirely the patent system. But in many respects, life for the most innovative companies has become much more difficult, and we see it in a fall in venture capital funding and in actual startup formation.
Mr. Dana S. Rao: Thanks, David, for the question. I appreciate your perspectives right there in the heart of innovation. So I guess my -- just on statistics, VC funding is up. I don't know about your stats on startup companies. The actual absolute number of companies. I don't know that so I would go look it up. But VC funding is up. And I think that gets to maybe a different point, and maybe the bigger point of your question, which is why shouldn't I be able to get a claim as broad as possible, I think is the right question you're asking, if I'm in the software arts?
And I think I'm going to go back to where I said before, and Bob had mentioned Microsoft does a lot of hard work, and I know that better than anyone. There's a lot of work that goes into building a software app in making an idea reality, and in most cases, you've invented something to accomplish those: a server architecture, a client architecture, a communication protocol, compression algorithm that's better, different, whatever it is. You've got something. So there's some problem you overcame, a technological problem that you overcame.
Now, you may say, "Hey, look, I'm the first guy to ever think of, you know, real estate lending." No one's ever thought about giving someone a loan—I'm making this up, obviously—why shouldn’t I get that patent, right? Because I can implement that in software. I'm the first guy to think of this idea of maybe creating a market between two different -- a buyer and a seller in a different way. And this is the problem, and this is why I think we need 101 still. So I'm sort of rejecting the premise that I've heard so far that 101 can be substituted for.
I do not think that software has the ability to allow the articulation of an idea to be a patent without providing any details. So you can just have an idea and then say, "I will implement it in software." And you can write a patent around that without articulating any of the problems. I don't think the patent system was ever intended to allow such patents. You don’t get that patent—I'm sure Phil will correct me if I'm wrong—you don't get that patent in the pharmaceutical industry. An idea: you don’t get that patent. You don’t get that patent in the hardware area. You don’t get that patent in the consumer products area. You have a very specific concept, an articulated concept. You don’t get an idea patent anywhere else except software. So the question only arises in software, in my opinion, and that I don't think software should be different than other places. I don't think you should have this concept of getting a patent on an idea and preempting, as Phil mentioned, every possible way of doing it. You invented the way of doing it, but you don’t necessarily have to get your way, but you should have to invent it someway.
So if we don’t allow idea patenting anywhere, I don't think we should allow it in software. Go ahead.
David Boundy: So, for instance, in pharmaceutical, it's fairly common to say, to find a fairly large genus of molecules and have a claim that says, "Administering a compound from within this genus in an effective amount to treat disease state X." That is largely the kind of solution patent that --
David Boundy: -- a problem definition patent. We allow, and for exactly the reason you just said, we often allow in other arts, for instance, in mechanical terms, we allow a claim to be directed to. But we allow the language in the claim to claim the end functional useful result by whatever means achieved.
Prof. Adam Mossoff: Wesley, is the next person in the queue?
Wesley Hodges: There is. Let's go ahead and move to the next person.
Tyson Benson: Hi. This is Tyson Benson and I guess it'll just be a general question due to the time, but would love to hear everyone's perspective on the new USPTO director and possibly what steps could be implemented. So I'll leave it at that.
Prof. Adam Mossoff: Thank you. Why don’t we just start with, and go in order again. So just very quickly, Bob, Dana, and Phil?
Mr. Robert Sachs: I haven't spent -- I don't have an opinion on where he's going to come out on and how he may change the Office in how it approaches 101. I'd be hopeful, but I don't have enough insight to give a clear opinion on that.
Mr. Dana S. Rao: All right. I agree with Bob. I think he's -- for us, we don’t really have a lot of familiarity with the new director so I don’t have an opinion on what his positions will be. Certainly, obviously, the USPTO can have a significant impact on clarifying the rules around subject matter eligibility and hopefully he continues that effort.
Mr. Phil Johnson: Yeah. We all wish him well, of course, and we're happy to have a new director. But he is bound by the Supreme Court precedent just the way the rest of us are. And the Office has been trying mightily to try to sort out how to interpret and reconcile these different cases. And perhaps he'll be better at it than everyone else who's been up until now. But at least the view of the major bar associations is, as they've expressed, that this isn't something that can be fixed in the courts or in the Office. This is going to have to be fixed be legislation.
Prof. Adam Mossoff: Well, great. Well, this has been a really far-ranging and wide-ranging discussion addressing the extent to which the Supreme Court cases have been clear or not for innovators and lawyers, to the extent to which we have conflicts with old doctrine as well as conflicts within existing doctrine, where there are differences between the high-tech industries and the bio-pharmaceutical industries. And, of course, we talked about the proposed reforms that have been submitted by various organizations.
I really want to thank our panelists for an excellent discussion and for an engaging discussion on a great topic. And thank the audience for a good discussion and good questions. Wesley, do you have any closing remarks?
Wesley Hodges: No. Just want to iterate what you said. On behalf of The Federalist Society, I'd like to thank our speakers today for the benefit of their valuable time and expertise. We welcome all listener feedback by email at email@example.com. Thank you all for joining us. This call is now adjourned.
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