In Review and Moving Forward

2021 was a big year for IP at the Supreme Court of the US (SCOTUS): the court addressed the constitutionality of administrative patent judge (APJ) appointments in United States v Arthrex and narrowed the scope of assignor estoppel in Minerva v Hologic. The US Court of Appeals for the Federal Circuit, meanwhile, tackled thorny questions surrounding patent subject-matter eligibility and IP venue – two issues that may make their way to the high court in 2022.

IP at the Supreme Court in 2021

Administrative patent judges and assignor estoppel

Arthrex: constitutionality of APJs

In Arthrex,¹ the court found that the appointment structure of the Patent Trial and Appeal Board (PTAB) APJs was inconsistent with the US Constitution.

The PTAB is housed within the US Patent and Trademark Office (USPTO) and so falls under the executive branch of the US government. But the PTAB reviews the validity of patents in proceedings that look similar to those in courtrooms: opposing parties offer evidence and argument about patentability before a panel of three APJs, who then may uphold or cancel patent claims. The losing party can appeal the PTAB’s decision to the Federal Circuit.

The Supreme Court determined that this review structure was unconstitutional because the Constitution’s Appointments Clause requires a senior, politically accountable executive official – a so-called “principal officer” – to have the final say of the executive branch as to patentability. To remedy the constitutional violation, the court gave the USPTO Director the authority to review PTAB decisions. Thus far, in the months since Arthrex was decided, the director has granted review only once.

Minerva: the fate of assignor estoppel

Assignor estoppel is a judge-created doctrine rooted in principles of fairness that prohibits the assignor of a patent (or patent application) from later claiming that the patent (or patent issuing from the application) is invalid. In Minerva,² the Supreme Court narrowed the doctrine, holding that it applies only in cases where “the assignor’s claim of invalidity contradicts explicit or implicit representations[]made in assigning the patent.” This means that consistency is the focal point. For example, the doctrine does not apply when an assignment occurs before the invention is patented, when post-assignment changes in the law render a patent invalid, or when the assignee materially broadens the claims of the patent after assignment.

IP at the Federal Circuit in 2021

Patentable subject matter and venue

Patentable subject matter: the role of improvements in the Alice two-step

Not everything can be patented. Under the Supreme Court’s Alice³ decision, laws of nature, natural phenomena, and abstract ideas are not eligible for patent protection. Determining whether a claim is patent-eligible under Alice involves a two-step inquiry. First, courts ask if “the claims at issue are directed to” a patent-ineligible concept. If not, the invention is patent-eligible. But, if the claims are directed to an ineligible concept, the courts move to the second step and ask if there is an “inventive concept” that transforms the claims into patent-eligible subject matter. This test has proven notoriously difficult to apply, as the Federal Circuit’s 2020 decisions in Stanford, Sensormatic, and CosmoKey illustrate.

In Stanford,⁴ the claim related to a computerised method for determining the parental source of an inherited gene through a statistical prediction. Stanford alleged that its method improved prediction accuracy. The Federal Circuit nonetheless held at Alice step one that an enhancement to a statistical model is an ineligible abstract idea. At Alice step two, the court applied similar reasoning to find that there was no inventive concept. The court stated that the claimed steps of reciting, extracting, and storing data while executing an algorithm on a regular computer were “conventional,” so the application of those “basic tools” “result[ed] in the [ineligible] mathematical analysis itself”. The improved accuracy of Stanford’s method – even assuming it was novel – also could not save the claim, because novelty is “not the touchstone of patent eligibility”.

The Federal Circuit also declined to view novelty as evidence of patent eligibility in Sensormatic,⁵ but it did so at Alice step one. Sensormatic asserted that its wireless surveillance method claim improved wireless range, bandwidth capacity and device compatibility, and data storage and retention for surveillance technology. Sensormatic explained that these improvements resulted from Sensormatic’s claimed configuration of surveillance sensors, dual encoding of input data, and prioritisation of that data, respectively. But the Federal Circuit determined that each of those claim steps – configuration, dual encoding, and prioritisation – were abstract ideas. And the court found no inventive concept at Alice step two because the abstract ideas were implemented using conventional computer technology.

But, in CosmoKey,⁶ the Federal Circuit found that the claimed authentication method contained an inventive concept at Alice step two because the technique improved the security and simplicity of identity-authentication practices. CosmoKey’s claimed technique worked differently than the typical method of double-checking user identity: instead of requiring manual entry of an authentication factor, CosmoKey’s invention authenticated a user’s identity by checking for an activated authentication function. The Federal Circuit acknowledged that prior cases suggested that claims directed to authentication and verification were patent-ineligible. But the court explicitly declined to address Alice step one and proceeded to step two, where it found an inventive concept because CosmoKey’s claimed method represented an inventive “technical improvement” – namely, it increased security and employed a simpler method of authentication. It is not clear why these improvements rendered CosmoKey’s patent eligible while the improvements at issue in Stanford and Sensormatic did not.

Venue: preventing forum shopping in Texas

2021 saw the Federal Circuit take an active role in restricting patent plaintiffs from forum shopping, especially in Texas federal district courts.

This theme comes across most clearly in Samsung,⁷ where the Federal Circuit ordered a case transferred from Texas to California, citing what the court viewed as the plaintiff’s “efforts to manipulate venue”. The plaintiff had set up a sister corporate entity in Texas for the purpose of seeking venue there. But, after Samsung moved to transfer venue to California for more convenient access to evidence and witnesses and the US District Court for the Western District of Texas refused, the Federal Circuit stepped in to mandate the venue change. The court emphasised that the alleged acts of infringement centered on Samsung’s actions in California, and it rejected the importance of the Texas court’s eagerness to set a fast-paced schedule.

The Federal Circuit took a similar approach in Juniper to order a case transferred out of Texas.⁸ Again, the court found that the physical location of evidence, witnesses, and the alleged acts of infringement all centered on California, so the Federal Circuit ordered the case transferred there.

IP at the Supreme Court in 2022

Picking up where the Federal Circuit left off

The Supreme Court may provide more insight into patent subject-matter eligibility and another venue-related issue if it grants review in American Axle and either Apple or Mylan.

Patentable Subject Matter: Guidance on Alice Step One

If the Supreme Court grants review of only one IP case for 2022, it will probably be American Axle.⁹ The petition there stems from the Federal Circuit’s determination that American Axle’s claimed method of manufacturing a car part to limit vibration was patent ineligible. At Alice step one, the court found American Axle’s claim directed to a natural law known as Hooke’s law (a law of physics concerning the force needed to stretch or compress a spring). The court reasoned that, although American Axle claimed an improved result (ie, a car part that vibrates less), it failed to limit its claim with “any physical structure or steps for achieving” that result. And the court held that this improvement could not supply the inventive concept at Alice’s second step because the improvement itself was simply the consequence of the natural law.

A Supreme Court decision in American Axle could provide courts and litigants with much-needed guidance on the bounds of patent-eligible subject matter.

Venue: asserting patent invalidity at district court, PTAB, or ITC

The Supreme Court may also tangentially weigh in on IP venue if it takes up Apple¹⁰ or Mylan.¹¹ Apple and Mylan’s petitions challenge the USPTO’s NHK-Fintiv discretionary denial regime for institution of inter partes review (IPR).

IPR is an administrative route through which parties challenge patent validity at the PTAB. Under 35 USC section 314(a), the PTAB may not institute an IPR unless “there is a reasonable likelihood that the petitioner will prevail,” but the statute does not require institution in those circumstances. And section 314(d) states that PTAB’s determination “whether to institute” an IPR “shall be…nonappealable”. In recent years, the PTAB, following two precedential PTAB decisions called NHK and Fintiv, has followed a practice of denying institution if proceeding in an IPR would be inefficient in light of parallel litigation. Under NHK-Fintiv, the PTAB can deny IPR institution if co-pending cases at a federal district court or the International Trade Commission (ITC) are at an “advanced state” of the proceedings. This can prove especially problematic for IPR petitioners defending in Texas district courts (which often set quick trial schedules) or in the ITC (which is statutorily required to resolve cases in a short amount of time and, moreover, lacks the power to cancel patent claims).

The Apple and Mylan petitions question the substantive legality and procedural unreviewability of NHK-Fintiv denials based on co-pending district-court litigation. Apple’s petition concerns a NHK-Fintiv denial based on co-pending litigation in the Eastern District of Texas where a jury had already determined that Apple failed to show the only contested claim was invalid. Since the PTAB would have reached its final decision more than one year after the conclusion of the trial, the PTAB reasoned that a discretionary denial avoided inefficient use of PTAB resources. In Mylan, the PTAB based its NHK-Fintiv denial in part on the impending trial of the plaintiff’s litigation against a separate defendant (albeit a defendant who raised the same grounds for invalidity against the same claims as Mylan’s IPR petition).

Of course, it is possible the Supreme Court will deny review of both the patent eligibility and venue issues discussed above – in which case the state of the law surrounding patent eligibility and the status of the PTAB’s NHK-Fintiv regime will remain uncertain.

Footnotes

1. US v Arthrex, Inc, US,141 S Ct 1970 (2021).
2. Minerva Surgical, Inc v Hologic, Inc, US, 141 S Ct 2298 (2021).
3. Alice Corp Pty Ltd v CLS Bank Int’l, 573 US 208 (2014).
4. In re Bd of Trs of Leland Stanford Jr Univ, 991 F.3d 1245 (Fed Cir 2021).
5. Sensormatic Elecs, LLC v Wyze Labs, Inc, 2021 WL 2944838 (Fed Cir 14 July 2021).
6. CosmoKey Sols GmbH & Co KG v Duo Sec LLC, 2021 WL 4515279 (Fed Cir 4 Oct 2021).
7. In re Samsung Elecs Co, Ltd, 2 F.4th 1371 (Fed Cir 2021).
8. In re Juniper Networks, Inc, 14 F.4th 1313 (Fed Cir 2021).
9. Petition for writ of certiorari, Am Axle & Mfg, Inc v Neapco Holdings LLC, No 20-891 (28 Dec 2020).
10. Petition for a writ of certiorari, Apple Inc v Optis Cellular Tech, LLC, No 21-118 (26 July 2021).
11. Petition for a writ of certiorari, Mylan Lab’ys Ltd v Janssen Pharm, NV, No 21-202 (9 Aug 2021).

This article originally appeared in the December 2021/January 2022 issue of Intellectual Property Magazine.