PublishedJuly 31, 2017

The PTO’s § 101 Summary Report

One of the most important developments over the past few years is the Supreme Court’s decision in Alice v. CLS Bank – a decision that articulated a distinction between patent-eligible inventions, and patent-ineligible abstract ideas.  The Alice decision has enabled many companies, including small businesses, to defend themselves from baseless patent infringement lawsuits based on patents on abstract ideas.

Last year, the Patent Office requested public comments and held a pair of roundtables, all focused on the public’s views regarding § 101.  This week, they published a report summarizing those comments.  There’s a lot in there, but I wanted to discuss a few important points highlighted in the report.  The PTO presents multiple viewpoints, but the truth is this: computer-related industries, as a whole, are in favor of the Alice decision.  And the evidence shows that they should be.

Computer-Related Industries Favor Alice

The Patent Office report correctly notes that the two industries that have seen the most impact from recent Supreme Court decisions on § 101 are life sciences (Myriad and Mayo) and computer-related industries (Alice).  Summarizing the viewpoints expressed by the public, it states that the life sciences are united in favor of changing § 101, while computer-related industries are divided.

This is half right.  The life sciences industry is essentially united.  But so are computer-related industries.  They’re united in favor of § 101 and Alice.

Intel?  Google?  Oracle?  Amazon?  Microsoft?  Groups representing startups (Engine), the software industry (SIIA), high-tech and Internet companies (CCIA and IA), and the video game industry (ESA)?  The PTO notes that they all supported the current state of § 101 and provided a long list of reasons why.  Alice has helped startups and small businesses defend themselves from spurious patent lawsuits.  It has provided a tool to reduce the cost of patent litigation.  And it’s provided a sensible tool to weed out poor quality and overbroad patents that try to claim ideas, rather than solutions.

There is one major exception—IBM.  IBM is most likely the single largest patent-holder in the U.S., but it’s seen 5 straight years of declining revenue and growth.  (A fact which, in and of itself, should make you question whether the number of patents granted is actually indicative of innovation.)  About the only place where IBM is growing is in the yearly “number of patents granted” figure; given that, IBM’s desire to prevent invalidation of the patent portfolio that’s become its crown jewels makes sense.

The PTO calls computer-related industries divided primarily because of the comments from IBM (and a couple small computer companies).  But by the PTO’s standard, the life sciences industry has divided views also—after all, several life sciences companies took the time to file amicus briefs [1] [2] [3] in Myriad arguing against gene patentability.  Not to mention the amicus brief from the Nobel Prize-winning discoverer of DNA, James Watson, or the public statement of Nobel Prize winner John Sulston explaining how gene patents can chill research and innovation.

When it comes to the industries that most rely on software, from large companies to small companies, there’s agreement that Alice is a good decision, and that subsequent developments from the Federal Circuit go in the right direction.  

Investment Favors Alice Too

Despite fear-mongering from the anti-innovation lobby, the PTO’s report notes that investment trends have shown that Alice has been good for the software industry in terms of new startup formation, R&D spending, and investment.  In the years since Alice, we’ve seen startups like Slack, Docker, and Cloudera launch and/or grow to be hugely successful.

In the 12 months immediately prior to the Alice decision, software company R&D spending was around 16.5 percent, while in the 12 months immediately after Alice, R&D spending increased to 27 percent.  

In addition, there doesn’t appear to be any evidence that Alice’s impact on obtaining a patent harms startup formation and funding.  The PTO quoted academics such as Robin Feldman (UC-Hastings), who confirmed that investors increasingly place less weight on patent activity when funding new startups, and Mark Lemley (Stanford), who confirmed that he has seen no evidence of a decrease in venture capital funding in the software field after Alice.  

The PTO also cited to comments from associations of patent lawyers such as AIPLA and ABA-IPL that expressed concern that the Alice decision might impact innovation in the U.S.  But their comments were just that—concerns, lacking any evidence of a real impact.

There were also comments that Alice had devalued patent portfolios.  Financialization of everything aside, to the extent there’s been a devaluation in patent portfolio values, that devaluation seems to represent a return to an accurate value.  Patent portfolio prices were a bubble, propped up by a legal structure that made it hard to combat a patent infringement lawsuit and hard to actually invalidate an invalid patent.  Alice, inter partes review, and other recent trends in patent law have popped that bubble and returned patent portfolio valuation to a value closer to the actual value of those patents.  Any devaluation, in other words, is a feature, not a bug.

Life Sciences Don’t Rely Exclusively On Patents

The last point I’d draw out is one that the PTO doesn’t—probably because, for obvious reasons, they focus on patents.  Life sciences companies don’t rely exclusively on patents, and they don’t exclusively deal with the PTO.  They also benefit from FDA-managed exclusivity provisions.

The primary exclusivity the FDA offers is this: if you come up with a new drug and the FDA approves it, then (whether or not you have a patent—in fact, even if it couldn’t be patented) you get 5 years in which no one else can make or sell that drug.  It’s sort of like a patent, but only for drugs, and your term runs from when the FDA approves your drug, not from when you file the application.  And it isn’t based on new ideas; it’s based on a drug being approved by the FDA for the first time.

In other words, if I proved tomorrow that a cocktail of ibuprofen and acetaminophen, mixed together, cured cancer, I could get 5 years of exclusivity, even though that mixture is old and obvious.

This means that, even if Mayo and Myriad (the life sciences equivalent cases to Alice) won’t allow a drug-maker to get a patent, they still have an exclusive right to manufacture and sell the drug after it’s approved.  Essentially, the FDA gives pharmaceutical companies a chance to make back what they spent on research, development, and clinical trials, completely aside from any patents they might have received.

Now, there’s one sizable area of life sciences where this isn’t true.  The FDA doesn’t provide exclusivity for every FDA-approved subject.  One area lacking exclusivity is diagnostic methods—techniques for diagnosing illnesses.  Much of the life sciences community has focused on diagnostic methods as the reason they think § 101 needs to change.  

But protecting diagnostic methods doesn’t require changing § 101.  Changing § 101 would endanger the advances we’ve already seen in computer-related industries.  Given these dangers, other avenues, ones that are more narrowly targeted, are worth considering.  One conceivable approach, and one we already use elsewhere in life sciences, would be to provide FDA-managed exclusivity for diagnostic methods, similar to the drug exclusivity described above.  And this isn’t the only approach.  If we think Mayo and Myriad have affected diagnostic methods so significantly that it merits a legislative response, that doesn’t necessarily demand we rewrite the foundation stone of patent law.  There are alternatives.  Shouldn’t those be considered first?

Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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