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Encouraging § 101 Ex-Parte Reexamination of Pre-Alice Patents

Encouraging § 101 Ex-Parte Reexamination of Pre-Alice Patents published on 6 Comments on Encouraging § 101 Ex-Parte Reexamination of Pre-Alice Patents

The shift in § 101 law arising from the Alice decision has created a major problem for the patent community: thousands of patents were issued under the more permissive standard of State Street Bank (even modified by Bilski v. Kappos) and remain in force, yet would be found invalid if litigated. Even worse than the invalidation of previously issued patents, some decades old, is the miasma of uncertainty: since Alice has recast patent-eligibility as a purely subjective determination, the only reliable way to determine patent-eligibility is to litigate the subject patent to the exhaustion of the legal process.

Without proactive efforts to resolve this dilemma, the patent community will grapple with this issue for the lifespan of patents issued before Alicei.e., until the year 2034 (and longer in some cases, due to patent term extensions). How might the patent community, and the USPTO in particular, undertake a systematic review of the patent-eligibility of pre-Alice patents?


Federal Circuit Judge Moore’s dissenting opinion in the CLS Bank v. Alice Corp. noted the foreboding trends in patent law as potentially prompting “the death of hundreds of thousands of patents, including all business method, financial system, and software patents, as well as many computer implemented and telecommunications patents.”

The actual results of Alice are perhaps not so dire. While the precise contours of the new § 101 requirement remain quite unclear, a small but significant segment of patents has been reviewed and held valid. 1 Nevertheless, it is clear that many of the patents that issued before Alice would be invalid today. Worse, because Alice is far from a model of clarity, the only way to determine the patent-eligibility of any patent is to litigate it to the exhaustion of the legal process – a process that can take multiple trips to the courts and the PTAB.

The uncertain validity of pre-Alice patents harms everyone:

  • Owners of these patents suffer from open questions about their validity. In every activity involving the patent – licensing, litigation, startup formation and investment, and even the development and release of products featuring unprotected IP – this question of patent validity lurks in the background, encouraging “efficient infringement” over legitimate competition.

  • Companies must contend with an even more treacherous minefield: in addition to discovering which competitors’ patents might cover their products, these companies must also hazard a guess about the validity of such patents. A particular patent may be respected by Company A, which allocates resources to license or circumvent it, but perceived as invalid by Company B, which directly infringes it – one of these companies is correct, and the other will suffer unfairly.

  • The patent office suffers from inefficiency, in the form of demand for the inter partes review process that has greatly exceeded expectations. The resources required to review patent-eligibility through inter-partes review – requiring a trial-like process – considerably outweigh those required by ex-parte reexamination. And the persistent backlog of the PTAB, in part due to the burden of these inefficient processes, inflicts a host of additional deleterious consequences on the entire patent system.

  • The court system, including the PTAB, suffers from having to apply the law of § 101 de novo to every pre-Alice patent (which, according to Judge Plager in the Amdocs v. Openet oral argument, seems to be “every other case” that reaches the Federal Circuit), without the benefit of a USPTO analysis.

These consequences will continue to afflict the patent community until every pre-Alice patent that might now be invalidated is either reviewed or expired – the latest of which will last until 2034 (and in some cases even longer, due to patent term adjustments). As Patently-O noted in 2014, this is a problem that demands attention.

Based on the volume of patents that may require review, the only agency that could handle such a task is the USPTO. However, this undertaking would be complicated by several considerations:

  • The USPTO cannot, sua sponte, order thousands of issued patents to be recalled for § 101 review, as it lacks the economic resources to institute a review of thousands of patents of its own accord. Such considerations do not apply when patentees voluntarily submit their patents for review and pay a fee, but the USPTO is on shakier ground when it (or a third party) 2 initiates the reexamination.

  • Patentees could be compelled to submit patents for ex-parte reexamination – for example, it could be made a prerequisite for the payment of a maintenance fee (rather like an auto emissions test for registration of older vehicles). But with its current price tag and the prospect of having the patent invalidated, such a requirement would inflict a massive toll on the patent community – absent any statutory authority! – and may provoke a backlash on par with the Tafas v. Dudas lawsuit. And for the same reasons, any “patent reform” effort involving a mandatory $12,000 fee to maintain previously issued patents will be dead on arrival.

  • The current fee for a voluntary ex-parte reexamination (for undiscounted entities) is $12,000 – not including practitioner’s fees, which, given the stakes involved and the requirements of this task, are not trivial. Compare this fee with the base cost of $2,560 to obtain the patent (the filing fee, search fee, examination fee, and issue fee) – for reasons that are unclear, ex-parte reexamination is nearly five times as expensive.

  • The America Invents Act (“AIA”) created a new “supplemental reexamination” process, where applicants can ask whether an issue requires review. 3 On the one hand, the cost of submitting the supplemental request is $4,400 – quite a bit less than the full ex-parte reexamination (though still nearly twice the basic fees for obtaining the patent). However, if the request is granted and reexamination is ordered, the applicant owes an additional $12,100 for the reexamination – thus making the process even more costly than the inflated ex-parte reexamination.

  • Traditional ex-parte reexamination requests are prompted by the patentee’s discovery of new information that may jeopardize the patent – such as prior art that the patentee only discovered after issuance, or a claim term that the company now thinks might be ambiguous. In those cases, the high fees represent an encouragement for patentees to identify and address such problems before issuance, such as with better searching or more careful claim drafting. However, in this case, ex-parte reexamination is prompted by circumstances beyond the patentee’s control: a fundamental shift in the § 101 requirement. This change was not foreseeable by the owners of pre-Alice patents, and it is not fair to penalize them in the form of a $12,000 fee.

  • Several sectors of the USPTO are over-applying § 101: some art units are approaching a 100% rejection rate, and the PTAB’s § 101 metrics are so dismal that even PTAB Chief Judge James Smith acknowledges its “death squad” moniker. Patentees are unlikely to utilize (and pay for!) any program that has an overwhelming chance of invalidating their patent – they will simply to let the patent lapse (eventually), or to maintain it without soliciting an opinion.

These circumstances indicate that the USPTO currently lacks an effective mechanism to initiate and carry out a § 101 validity review of thousands of patents.

Given these constraints – how might a review process be generated? A special initiative by the USPTO – a “Patent-Eligibility Validation Program” – could be instituted as a specialized version of ex-parte reexamination, with the following characteristics:

  • Focus. The program should be focused solely on the issue of patent-eligibility, concluding with an examiner’s determination and explanation of the analysis according to the Interim Guidance framework.

  • Fee discounts and subsidies. The biggest obstacle to using the existing ex-parte reexamination process for this task is the price tag. A greatly discounted fee of $1,000 would be reasonable. 4
  • Consensus of independent reviewers. Given the subjectivity of § 101, relegating this critical determination to a single reviewer may result in subjective results. An alternative process may involve assigning each patent to two or three examiners selected at random – withholding the names of the other examiners – and basing the review outcome on a consensus determination. Differences of opinion may indicate borderline cases that require higher-level attention by more experienced § 101 examiners.
  • Patentee win = presumption of patent-eligibility. If the review results in a finding of patent-eligibility, the result of that determination should be given some deference by the PTAB and courts, such as a presumption of patent-eligibility – otherwise, this exercise is pointless.
  • Patentee loss = continuation-in-part option. The program must feature an opportunity to rehabilitate the patent. This is a key requirement: patentees are not likely to pay for a program that will invalidate their patents without recourse.

    If the patent is found to be ineligible, the patentee should be granted an opportunity to file a continuation-in-part that adds subject matter to “fill in the gaps” for the purpose of § 101. For example, if the patent is missing subject matter that recites a particular algorithm, the applicant should be permitted to insert it into the specification and claims. And if the patent already includes such subject matter but recites broad claims that were acceptable before Alice but not after, the patentee should be entitled to file narrower claims that do not suffer from overbreadth.

    As with ordinary continuations-in-part, the new subject matter is granted a priority date as of the new filing. However, this will not generally raise any issues of novelty or non-obviousness. The claims in the parent case satisfied § 102/103, so adding further language to these claims that satisfies § 101 will, by definition, still be novel and non-obvious.

  • Mandatory examiner interview for refiled applications. The continuation-in-part refiling might require a conference between the examiner and the applicant to discuss the new subject matter and amended claims in the context of § 101. Such a conference would greatly promote the prompt resolution and reissue of these refiled applications.

This program has several clear advantages:

  • The program removes unenforceable patents from the patent force.

  • The program validates patents that satisfy the current § 101 requirement, and restores the presumption of validity for issued patents that have been reviewed.

  • This program primarily relies on existing mechanisms. The adjustments are either completely within the USPTO’s authority, such as reducing or waiving fees, or that are within the USPTO’s rule-setting authority, such as through Federal Register notices.

  • This program would provide a salve to large-scale patent portfolios. Many of the world’s top technology companies have spent millions, over decades, patenting their research and development efforts. § 101 poses a threat to the value those portfolios that is impossible to gauge without a comprehensive review – and, even more importantly, a “seal of approval” by an agency whose opinions garner some measure of deference in judicial review. These companies need help distinguishing which patents are reliable (and which products remain patented!), from patents that are invalid (and for which maintenance fees should not be paid).

  • This program would improve the USPTO’s reputation in the patent community. Over the past several years, the USPTO’s approach to patent reform has been uncomfortably anti-patent – ominously similar to the disastrous policies of former Director Jon Dudas. The USPTO should be eagerly searching for ways to help applicants and patentees negotiate the hazards of § 101 in a cooperative way – both to improve its standing in the community, and in keeping with its mission statement.

  • By centralizing the review of a large number of issued patents under § 101 – presumably including a large number of patent-eligible claims – this program enables the USPTO to generate a deeper library of examples of § 101 analysis. This library can inform the identification of characteristics of patent-eligible and patent-ineligible claims. These insights can guide both the advising of applicants to promote patent-eligible claims, and the guidance of the examining corps, such as expanding the examples provided in the Interim Guidance.

  • The USPTO may initially encourage patentees to initiate the program for patents that are likely to survive the review process. Metrics that bear out this result would present a sign of good faith that this ex-parte reexamination program is not simply a “death squad,” but a mechanism to salvage borderline-eligible patents, thus encouraging buy-in to the program by patentees as a whole.

  • The program would provide a new and productive use of USPTO resources, in response to diminished filings and demand for USPTO services. 5

  • Many patentees will decline or fail to submit their patents for review – but unreviewed patents may be regarded by the patent community as suspect, like a deed for real property that the claimant refuses to have validated by a title agency. Potential licensees can require patents to undergo and survive such a review as a precondition of licensing. Accused defendants can interpret the absence of a USPTO validation of patent-eligibility as a cloud on the presumption of validity of the patent – and an indication that the patent may be vulnerable to invalidation under inter-partes review or declaratory judgment.

After decades of divisive arguments over patent reform, the patent community could use a rallying point: an initiative that ameliorates a key aspect of the most dangerous problem in patent law, to the betterment of the entire technology community. A program such as outlined above may be a good candidate.


Notes:

  1. The “death of business method patents” conclusion is not only inconsistent with DDR Holdings – it is inconsistent with a consistent, clear, and explicit refusal of the Supreme Court to reach this result. The Court’s lengthy explanation in Bilski v. Kappos that “Section 101 precludes of reading of the term ‘process’ that would categorically exclude business methods” remains valid and consistent with Alice – the opinions were only four years apart, and written by eight of the same justices.
  2. Legal questions persist about the jurisdiction of the PTAB as an Article 1 Court, and the extent to which the separation of powers doctrine prohibits the revocation of issued patent rights.
  3. Initial projections of the “supplemental reexamination” process, as a potentially more appealing replacement for ex-parte reexamination, have not come to fruition. The USPTO’s 2014 Annual Report indicates 86 supplemental reexamination requests for 2014, v. 343 ex-parte reexamination requests.
  4. In view of USPTO fee of $1,600 for the entire first round of examination – including two office actions covering § 101 and all issues in the case – a review solely of the issue of patent-eligibility should be achievable for a much lower cost to the USPTO.

    Moreover, any costs to the USPTO that are not covered by the patentee’s fee should be subsidized by the federal government. The violent shifts in § 101 law that require this review are the result of 40+ years of vacillation by the courts over the interpretation of a vague patent act – patentees should not have to foot the bill for the government’s failings.

  5. The USPTO has at times expressed concern about ebbing workloads and fees – such as a reduction in maintenance fees resulting from the wave of patent invalidations following Alice, and much-reduced filing rates in TC 3600. Of course, these problems are the USPTO’s own making: a 100% rejection rate reflects a blanket refusal to work with applicants to identify patent-eligible subject matter, and applicants cannot be expected to maintain filing rates in the face of futility. In repurposing such resources, the USPTO must take care to avoid contaminating other review processes with this reject-everything mindset, which could relegate this program to the scrap heap of poorly implemented USPTO initiatives, such as the First Action Interview Pilot Program, and the pre-first interview process provided in MPEP § 713.02 – which is so poorly designed that many practitioners don’t even know that it exists.

6 Comments

An interesting read and an interesting proposal – thanks!

I’m not sure I understood one portion – in your suggestion that a patent that fails a § 101 review should be allowed to pursue a continuation-in-part, you say “As with ordinary continuations-in-part, the new subject matter is granted a priority date as of the new filing. However, this will not generally raise any issues of novelty or non-obviousness. The claims in the parent case satisfied § 102/103, so adding further language to these claims that satisfies § 101 will, by definition, still be novel and non-obvious.” I’m not sure how you arrive at this conclusion. The narrowed claims must be novel and non-obvious not only over all of the art that existed before the original patent issued, but over all of the art that has been developed, in many cases by the patentee, since the patent issued. Any patentee who has begun to commercialize an invention would be unlikely to get a continuation-in-part granted in view of their own advertising material. A continuation-in-part would only seem to be worthwhile in a field which has not had any new publications since the original patent application was filed, which is unlikely for any invention.

This haunts me w/r/t the couple hundred pre-Alice patents I wrote in this space. While I know they were great at the time, now I often wonder about their fate.

Right! This is exactly the problem when radically altered standards are retroactively applied to previously drafted cases, and even previously issued patents. One of the patents that was recently invalidated issued in something like 2005, survived several rounds of court challenges, and was enforced for an entire decade – before suddenly being declared invalid.

Alice causes a sweeping redistribution of private rights. That, alone, should have raised red flags and prompted serious questions – not only of whether it’s a good idea, but of whether the courts are the appropriate wing of government to implement such changes. Supreme Court judges are not part of the democratic process – they are neither elected, nor beholden to a constituency. They are not generally well-versed in either technology or business. So manipulating the law of patents to optimize the practical use of patent rights in various technical markets is not part of their mandate. As the saying goes, the Supreme Court is “beyond their pay grade” on these issues.

David, a key problem is that currently there is no “law of § 101”. The actual words of 35 USC 101 have become meaningless for 99.99% of patent applications and patents, i.e., any patent application that claims a “process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”. These are the applications that used to be patent eligible.

The Supreme Court replaced 35 USC § 101 with its own version that includes several “tests” that are not really tests, based on terms such as “abstract”, “significantly more”, “conventional steps” that have no legal definition or commonly accepted meaning.

Even when the PTAB decides that the rare set of claims meet the “requirements” of 35 USC § 101, it’s hard to see why those claims are particularly different from other claims that the PTAB decided failed to meet the “requirements” of 35 USC § 101.

The PTAB finds things like “scheduling an appointment” to be abstract concepts, although I can find no definition of “abstract” that would support this finding (Ex Parte Bak).

The PTAB finds a process, based on zero evidence, that claimed steps can be performed mentally or with a pencil or paper, although there are steps involved that could clearly only be done electronically (Ex Parte Base).

Over 90% of so-called business method patent claims are found ineligible under 35 USC § 101 by the USPTO, despite the fact that business method patent claims have not been outlawed either by statute or by the Supreme Court.

You also have the USPTO saying in its 35 USC § 101 guidelines that it can take “official notice” of any “fact” that they want to with respect to 35 USC § 101, so the USPTO believes it can make any decision it wants to with respect to 35 USC § 101 with no evidence. So basically, the USPTO does not believe the “substantial evidence” requirement of the APA does not have any relevance with respect to PTAB or examiners making decisions with respect to 35 USC § 101.

Currently the “law” of 35 USC § 101 is whatever a justice, a judge or the USPTO says it is, i.e, there currently is no “law” of 35 USC § 101 just a bunch of opinions masquerading as “law”.

Rational, I agree with you. The program I propose might actually circumvent the PTAB – i.e., if an examiner (or even better, a consensus of two or three examiners) validate a patent under § 101, the PTAB may be less inclined to institute an IPR request. Indeed, accused defendants may even be disinclined to request IPR or declaratory judgment if patent-eligibility is strong.

Of course, this requires reviewers to give some measure of deference to lower reviewers’ findings – which, as I’ve noted in earlier posts, does not really seem to be happening. But the judicial process is already wearying of the “plague” of § 101 challenges, so perhaps the courts will welcome an easy “out” with these cases.

I would suggest that the real “easy out” for the courts, and, as a result, for everyone else, would be to interpret the holdings of Mayo, Myriad and Alice narrowly. Had the courts interpreted the cases narrowly, the worse that could have happened is that the cases would go back to the Supreme Court for clarification and possible reversal. The courts could have also pointed out in each of their decisions why they were interpreting the Supreme Court cases narrowly. For example, they could have pointed out that interpreting the cases broadly would do such things as: making any process potentially patent ineligible, the possibility of the judicial exception swallowing the rule (something the Supreme Court itself cautioned against), the effective eliminating of the word “discovers” out of 35 USC 101 which even the Supreme Court could not legally do, etc.

Weighing the potential hurt feelings of the judges who would risk being reversed by interpreting the Supreme Court decisions on 35 USC 101 narrowly against the chaos and lawlessness that has ensued by interpreting the Supreme Court decisions on 35 USC 101 broadly, I would have favored the lower courts interpreting the Supreme Court decisions on 35 USC 101 narrowly.

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