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Intellectual Property Bulletin - Fall 2017


 

Trump’s Impact on IP Law: Two Key Changes to Watch

By John Kind and Irene Lopez

In the Winter 2017 edition of the Intellectual Property Bulletin, we reported on IP-related changes expected with the incoming Trump administration and the new Congress. Here we look at two such changes currently underway: the nomination of a new director of the U.S. Patent and Trademark Office, and a restructuring of the Copyright Office.

What Do We Know About the Nominee for USPTO Director?

On September 5, 2017, President Trump formally nominated Andrei Iancu to become director of the U.S. Patent and Trademark Office. The Senate Judiciary Committee has yet to schedule a hearing on the nomination, so it is unclear what his nomination means for patent and trademark holders. Still, Iancu's background provides clues as to how the USPTO might evolve under his leadership.

Iancu is the managing partner at a California law firm and teaches patent law at UCLA Law. Prior to becoming a lawyer, he was an award-winning aerospace engineer. Iancu's legal practice focuses on IP litigation, but he is also registered to prosecute patents in the USPTO and has been active in inter partes review proceedings since their creation by the America Invents Act in 2012.

Some commentators have questioned Iancu's suitability, citing his lack of government or in-house experience. However, former Director David Kappos had no government experience prior to his appointment and his tenure is widely regarded as having been extremely successful. Furthermore, Iancu's service as managing partner of a large law firm for the past five years constitutes significant experience that is comparable to serving in-house.

But while Iancu appears qualified to serve as director of the USPTO, his résumé alone reveals little about what policy directions the USPTO might take were he to be confirmed. Some have criticized Iancu's nomination on the grounds that he will favor patent holders too strongly, but that is not clear from his history. Although Iancu has had some high-profile wins against patent infringers, most of his work has been on the defense side. For example, he successfully invalidated a genetic testing patent in Ariosa Diagnostics, Inc. v. Sequenom, Inc. — a result that was not popular among biotechnology companies. His litigation work says more about his commitment to his clients than about any particular policy position.

Over the last 10 years, Iancu has produced a steady stream of articles on patent law matters, although his publications provide only marginally more insight into the policies he might adopt. For the most part, they present analysis and guidance on various legislative and judicial developments in patent law, with a focus on predicting future developments rather than advocating one position over another.

The most revealing of Iancu’s publications is his 2008 article in the Journal of the Patent and Trademark Office Society, Code on Disks and Hat Tricks – Is Computer Software on a Medium Really Patentable? There he predicted that the courts would soon find Beauregard claims (claims to computer code stored on a computer-readable medium) to be invalid. He argued that because the code itself was not patentable as abstract, and computer-readable mediums were known, merely adding non-patentable code to a medium was obvious. Although his specific prediction did not come to pass, the general thrust of his reasoning was prescient; if courts had adopted his approach, it would essentially align U.S. obviousness analysis with the European approach of separating out the technical and non-technical features in a claim. Many commentators have noted that the recent trend in subject matter eligibility decisions coming from the Federal Circuit Court of Appeals is bringing U.S. law closer to the European approach. In other words, although the precise route the courts have taken differs from Iancu's prediction, the end result is remarkably similar.

Overall, the available information suggests Iancu would likely be an objective director who understands the conflicting interests that the patent system must balance—although again, most of that information has been gleaned from his work as a practicing attorney with a range of clients. His apparent neutrality could reflect his own beliefs, or could be a product of balancing different client interests. Whether he has particular policy positions or preferences that he would push as director remains to be seen.

Assuming Iancu is confirmed, he will immediately be faced with several pressing issues. In Aqua Products, Inc. v. Matal, for example, the Federal Circuit invalidated the USPTO’s rule requiring a patent holder to show a proposed amended claim is patentable over known prior in an IPR proceeding. The decision was en banc but highly fractured, with five separate opinions issued by the 11 judges. The USPTO must determine—most likely before confirmation of the new director—whether to seek review by the Supreme Court, and how to revise its rules should such an appeal not be taken or fail. The USPTO also faces a broader challenge to the IPR system as a whole in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC, and the new director likely will need to deal with changes prompted by that ruling when it comes down.

On the legislative side, the USPTO’s fee-setting authority expires in September 2018 absent congressional renewal, which might be difficult given the current political climate in Washington. The USPTO also faces questions over its participation in the Department of Commerce's Enterprise Services initiative, under which various human resources, information technology and procurement services are centralized across the Department of Commerce. Several major IP groups have expressed concern that the program violates the America Invents Act by using USPTO fees to fund services for other branches of the Department of Commerce. Iancu’s experience as a litigator and managing partner might serve him well in addressing these issues, but the positions he would take remain purely speculative.

Patent and trademark holders should be cautiously optimistic about Iancu’s nomination, but should pay close attention to his Senate confirmation hearing once it is scheduled. With luck, the hearing will provide greater insight, and interested parties will be better able to plan accordingly.

A Re-Org at the Copyright Office?

Since President Trump assumed office, copyright issues have, for the most part, taken a back seat in the administration. This is true despite the urgent push for reforming what some call the “antiquated” structure of the Copyright Office. With the core copyright industries adding $1.2 trillion to the U.S. GDP and employing nearly 5.5 million people in 2015, many in IP are keeping a close eye on what steps the administration will take in this increasingly vital area.

One significant development has emerged—but from the legislative, rather than the executive, branch. On April 26, 2017, the House of Representatives passed H.R. 1695 - The Register of Copyrights Selection and Accountability Act of 2017 by an overwhelmingly bipartisan vote (378-48). The bill amends federal copyright law to allow the president to appoint, with the consent of the Senate, a Register of Copyrights from a list of individuals recommended by a panel composed of the Speaker of the House of Representatives, the President pro tempore of the Senate, the majority and minority leaders of the House and the Senate, and the Librarian of Congress. (Currently, the Librarian of Congress is in charge of appointing the Register of Copyrights.) In addition, the bill seeks to limit the term of office for the Register of Copyrights to 10 years, although the Register may be reappointed. Finally, the bill gives the president the power to remove the Register of Copyrights from office.

Upon introduction of the bill, House Judiciary Committee Chairman Bob Goodlatte, Ranking Member John Conyers, Jr., Senate Judiciary Committee Chairman Chuck Grassley, Ranking Member Dianne Feinstein and Senate Judiciary Committee member Patrick Leahy issued a joint statement making clear their commitment to modernizing the Copyright Office, writing: “Reforms being considered include public advisory committees, improvements to Copyright Office systems for data inputs and outputs, and the copyright ownership transparency. However, time is of the essence when it comes to the selection process for a new Register of Copyrights. … With the current Register serving only on an acting basis, now is the time to make changes to ensure that future Registers are transparent and accountable to Congress.”

To many, this bill is a step in the right direction. Because the copyright industry has grown exponentially in the past century, some have argued that it has become increasingly important to have an independent Copyright Office. For example, former Register of Copyrights Ralph Oman (1985-1993) and Marybeth Peters (1994-2010) cited as a problem having the Copyright Office in the Library of Congress, stating that the competing missions and differing priorities of the two institutions have been an increasing source of tension. They expressed this sentiment in a letter to the Committee on the Judiciary following the dismissal of Maria Pallante as the Register of Copyrights, writing: “Stripped to its basics, the choice is stark: Does Congress want modernization and independent copyright advice straight and true from the expert agency, or does it want copyright administration and advice filtered through the lens—and shaped by the perspective—of the head of the national library?”

The bill has also gained wide support from property rights groups such as the Motion Picture Association of America, the Copyright Alliance, the Directors Guild of America and SAG-AFTRA, which represents more than 160,000 media artists. These and other advocates believe the law would make Congress more accountable and increase public transparency. They also contend that it would (1) enable interested parties to provide input through their elected officials on the selection of the Register, (2) allow the Copyright Office to more effectively focus on its modernization and (3) enable the office to fully exercise the authorities granted to it in the U.S. Copyright Act.

On the other hand, critics such as Rep. Zoe Lofgren (D-Ca.) see this bill as problematic, considering that President Trump’s list of nominations for federal positions currently numbers in the hundreds. In a statement, she wrote: “… this legislation will harm and delay much-needed modernization efforts by making the Register a presidentially appointed position. Currently, there is a backlog of 495 Appointee positions that have not even been nominated. This not only will delay effective administration of the Copyright Office, but also puts the efficiency gains made by the Library at risk.”

At the same time that proponents of the bill argue that—given the urgency for modernization — the president appoint the Register, opponents believe the bill will actually harm modernization efforts. Indeed, current Librarian of Congress Dr. Carla D. Hayden has already drafted modernization plans for the Copyright Office that she believes can speed modernization by almost two years and save significant amounts of money.

If H.R. 1695 does become law, it's anyone's guess as to how long it might take President Trump to appoint a new Register of Copyrights. Currently, the bill awaits Senate action, so for now, interested parties not undertaking lobbying efforts remain in a wait and see position.


 

General Plastic: Comforting Limits for Patent Owners and Guidance for Petitioners in PTAB Trial Follow-On Petitions

By Jennifer R. Bush

The recent decision in General Plastic Industrial Co. v. Canon Kabushiki Kaisha denying the petitioner’s requests for a rehearing provided a “baseline” of factors to be considered as to the limited circumstances when second — or “follow-on” — petitions are likely to be successful in Patent Trial and Appeal Board trials.

The petitioner in General Plastic filed two inter partes review petitions, each challenging one patent. The PTAB denied institution on the merits. The petitioner then sought rehearing, which was denied. The petitioner filed further petitions several months later with newly discovered art, challenging the same two patents based in part on the new references.

The decision, rendered by an “expanded” panel including Chief Judge David P. Ruschke, is significant both procedurally — because the decision was rendered by an expanded panel — and substantively — because it provided greater clarity to all parties in an area of PTAB trials processes that had previously been somewhat inconsistent.

To date, less than half of follow-on petitions have been instituted, showing the PTAB’s reservations about them. However, there was great disparity in the prior PTAB decisions on this topic, including whether all seven factors laid out in NVIDIA v. Samsung Electronics were addressed. The varied outcomes led commentators and practitioners alike to wonder whether initiation of a given follow-on petition was dependent on the particular panel drawn by petitioner. Thus, the decision to render the decision via an expanded panel likely represents a recognition of the inconsistency of the PTAB decisions in follow-on petitions, and perhaps stands as a statement that — while designated “informative” rather than “precedential” — the analysis in the General Plastic decision should be followed by the PTAB on a going-forward basis.

Substantively, the decision by the expanded panel describes how multiple challenges to the same patent will be evaluated. It made clear that the seven NVIDIA factors — which the PTAB stated should, at minimum, serve as a baseline moving forward — likely will limit the number of challenges that a patent ultimately goes through, which could be encouraging for patent owners.

The seven NVIDIA factors are:

  1. the finite resources of the PTAB;
  2. the requirement to issue a final determination not later than one year after institution;
  3. whether the same petitioner previously filed a petition directed to the same claims of the same patent;
  4. whether, at the time of the filing of the first petition, the petitioner knew or should have known of the prior art asserted in the later petition when it filed its earlier petition;
  5. whether, at the time of filing of the later petition, the petitioner already received the patent owner’s preliminary response to the first petition or received the PTAB’s decision on whether to institute review in the earlier petition;
  6. the length of time that elapsed between when the petitioner learned of the prior art asserted in the second petition and the filing of the second petition; and
  7. whether the petitioner provides adequate explanation for the time elapsed between the filing of multiple petitions directed to the same claims of the same patent.

The PTAB said, however, that “additional factors may arise” — essentially leaving open the door for panels to consider other factors outside the seven NVIDIA factors. In its decision denying the requests for rehearing, the Board noted that both 35 U.S.C. § 314(a) and § 325(d) made institution of review “discretionary.” Indeed, the discretionary nature of the institution decision might be the reason the PTAB opted to designate the decision as “informative” rather than precedential, despite rendering the decision via an expanded panel — so that panels rendering future decisions do not feel compelled to follow the guidance of General Plastic to the letter, maintaining the discretionary nature of such decisions.

However, the limits of the Board’s discretion is being called to question in SAS Institute v. Lee, which the Supreme Court will hear this term, in which SAS argues that the USPTO cannot partially institute IPR proceedings, since 35 U.S.C. § 318(a) says the PTO “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” In the past, the Board has taken its interpretation of its discretion to an extreme, e.g., in Shaw Industries Group v. Automated Creel Systems, arguing that the statute only articulates the negative of when the trial may not be instituted, but that institution is never compelled. If SAS prevails, however, the decision could impose new limits on the Board's discretion.

While the Board stated that the NVIDIA factors would serve as a “baseline” going forward, a few factors in particular stood out in the General Plastic decision as holding more weight than others. Factor 1, “PTAB resources,” was articulated in the decision as: “the Board’s resources would be more fairly expended on initial petitions, rather than follow-on petitions.” If this is the way the PTAB is interpreting factor 1, it is likely to always weigh in favor of the patent owner, i.e., if the PTAB is favoring initial petitions over follow-on ones.

In addition, factors 5 and 7 seemed particularly important, as each addresses some aspect of the timing of the follow-on petition: whether a patent owner preliminary response (POPR) and/or institution decision has been issued in the first petition, i.e., whether two and five months have elapsed, respectively, from the notice of a filing date (factor 5), and whether the petitioner has provided an adequate explanation of the time elapsed between petition filings (factor 7). Here, the second petitions were filed a few months after the institution decisions in the prior petitions and no adequate rationale was provided — so both of these weighed against the petitioner.

Factor 6 (time elapsed since knowledge of art in the second petition) seemed less important than did factor 4, as it was a relatively short timeframe that the art in the second petition actually was known to the petitioner, since it came from a prior art search performed after the institution decision in the first cases. However, there was no clear reason why the new art could not have been found/applied previously (i.e., it “should have” been known) — which weighed in the patent owner’s favor for factor 4.

Takeaways and Implications

On the whole, the decision provides patent owners some comfort that no true ‘second bite at the apple’ — i.e., a new petition challenging the same claims of the same patent after the PTAB has issued an institution decision — is likely to be allowed unless truly changed circumstances justify the second petition (factor 5). Considering the seven factors, such attempted ‘second bites’ of this type likely would mean at least four factors (factors 1, 3, 5 and 6) — and possibly more — weigh in favor of denying institution. The expanded panel in General Plastic echoed this sentiment in cautioning against using a first institution decision as a roadmap for follow-on petitions, noting that second petitions are not a time for modifying challenges to cure the board-identified deficiencies of the prior petition.

Many commentators have pointed out that patent owners should be pleased with the decision. Although the expanded panel indicated that “there is no per se rule precluding the filing of follow-on petitions” and that “there may be circumstances where multiple petitions by the same petitioner against the same claims of a patent should be permitted,” most read this language as followed by an implied “however”: e.g., however, the institution of follow-on petitions is reserved for exceptional circumstances.

For petitioners, the expanded panel decision provides some clarity when seeking to file follow-on petitions — specifically, as to how to bolster their chances of success in getting them instituted. In particular, petitioners should attempt to file any follow-on petition before the institution decision is rendered in the first petition, and before the POPR if possible. Furthermore, petitioners need to articulate a strong rationale justifying any delay in filing the second petition.

What the General Plastic decision makes clear is that petitioners seeking a true ‘second bite at the apple’ — in which a petitioner tries to remedy the shortcomings of the earlier petition, especially those noted by the PTAB in the institution decision in the first petition — are almost certain to be unsuccessful. This aspect alone should provide some comfort to patent owners who face challenges to their patent via PTAB trials, who previously were uncertain as to what limits existed for such challenges. Although it might seem limiting to petitioners, the General Plastic decision does provide guidance that will help prevent petitioners wasting time, cost and resources filing second petitions when they are almost certain to be unsuccessful.

The upcoming SAS case may shed light on whether the Board has been applying the right amount of discretion to its institution decision, including the application of the seven NVIDIA factors in General Plastic. By asking the Supreme Court to interpret 35 U.S.C. § 318(a), the SAS case will require the justices to interpret the language of the AIA to determine what level of discretion the Board may apply. It seems likely that the absolute discretion that the Board has argued is not the correct standard, especially without explanation of the underlying rationale, for precisely the reasons Judge Moore cautioned against during oral arguments in Shaw, when she likened the Board’s institution inconsistencies to throwing darts while blindfolded.

In particular, of the seven NVIDIA factors, the most problematic may be factor 1 (PTAB resources), since it seems to favor denial of institution without analysis beyond convenience for the PTAB. The one other AIA section noted by the Board that provides possible guidance as to second petitions is 35 U.S.C. § 325(d), which allows the Director to “reject the petition or request because, the same or substantially the same prior art or arguments previously were presented to the Office.” This statue seems related to NVIDIA factors 4, 6 and 7. It seems likely that the SAS decision may place some limits on the Board's institution discretion, including whether the NVIDIA factors will continue to serve as a “baseline” going forward.

The Board recently designated three decisions as informative, underscoring the difficulty of challenging patents using arguments that were previously rejected during patent prosecution. All three cases — Unified Patents Inc. v. John L. Berman, Hospira Inc. v. Genentech Inc., and Cultec Inc. v. StormTech LLC — were denied institution on the holding that the art and/or the arguments were the same or similar to those previously presented to the USPTO.


 

Quick Updates

Disney v. VidAngel: Ninth Circuit Bedevils Streamer of Unobjectionable Flicks

By Mitchell Zimmerman

In Disney Enterprises, Inc. v. VidAngel, Inc. — a decision that includes a narrow interpretation of the Family Movie Act of 2005 and disturbing dicta on fair use — the U.S. Court of Appeals for the Ninth Circuit brought low an “angelic” video streaming service that filters movies to remove objectionable content.

Movie 'sanitizer' VidAngel purchased multiple authorized copies of movies, decrypted one of the copies, and ripped the decrypted movie to a computer. The company then created numerous intermediate files comprised of segments of the film that could be tagged for filtering many categories of potentially objectionable content.

When a customer wants to watch a movie, he or she “buys” one of VidAngel’s multiple copies. The customer identifies at least one type of objected-to content, and VidAngel streams a filtered version to the user’s device or computer. The “purchased” copy virtually always remains in VidAngel’s possession and is sold back to VidAngel after streaming.

In its lawsuit, Disney alleged that VidAngel violated its exclusive rights to copy and publicly perform Disney's films, and violated the Digital Millennium Copyright Act by circumventing the films’ access controls.

The Family Movie Act allows consumers to watch versions of movies that omit objectionable scenes or language by skipping such matter — so long as the filtering starts from an authorized copy and no fixed copy of the filtered version is created.

VidAngel maintained that the filtered version should be deemed to come from an authorized copy even though the intermediate, server copy was the immediate source of the filtered version. The Ninth Circuit, emphasizing the policy of reading the FMA’s exception to copyright holder rights narrowly, held that the FMA only protected filtering that proceeded directly from an authorized copy. (Curiously, the court ignored the fact that the original source was itself not the copy “purchased” by consumers, but another copy.)

The court’s analysis left open the question of what the FMA is supposed to accomplish if it does not permit making intermediate copies to facilitate filtering. If all the filtering technology does is provide automated instructions for skipping, and no fixed copy is created at the end, the right to copy would not be infringed in any event. Certainly, film owners’ copyrights do not include any right to require consumers to watch the entire work.

On fair use, the court held all four factors tilted against VidAngel. On the key issue of “transformativeness” — which considers whether the challenged work adds “something new, with a further purpose or different character” — the court seemed to treat this criterion rather literally, concluding that omitting content did not “add[] something new.”

The court spurned VidAngel’s “space-shifting” defense without deciding whether it could be fair use, because VidAngel’s use didn’t fit the space-shifting cases: it was neither personal nor non-commercial, and involved altered content. Manifestly skeptical of the defense, the court erroneously stated: “reported decisions unanimously reject the view that space-shifting is [copyright] fair use.” Actually, space-shifting was squarely held to be fair use in Fox Broadcasting Company v. DISH Networks LLC which we previously discussed.

On the DMCA circumvention claim, the court rejected VidAngel’s argument that owners of lawful copies have implied authority to decrypt, since decryption is necessary to access the works. “Rather, lawful purchasers have permission only to view their purchased discs with a DVD or Blu-ray player licensed to decrypt….”

Finally, VidAngel argued that its decryption wasn’t within 17 U.S.C. § 1201(a), which bars circumvention of technical protection measures that control access to a work. Its decryption went only to use of the copyrighted works, VidAngel maintained, governed by § 1201(b) of the DMCA. But that section only bars trafficking in such technologies — something VidAngel did not engage in. The court held that a technological protection measure could fall under both sections, and that VidAngel did circumvent an access control.

Not surprisingly, VidAngel filed for bankruptcy on October 18, 2017.

USPTO Issues New Guidelines for Marks Containing a Surname Combined with Other Wording

By Matthew Slevin

In August 2017, the U.S. Patent and Trademark Office issued new guidelines governing registration of marks consisting of a surname and other wording. The guidelines, released as the “ Examination Guide 3-17,” resolve an inconsistency between the Trademark Manual of Examining Procedure and controlling Federal Circuit Court of Appeals case law.

Previously, TMEP § 1211.01(b)(vi) provided that when an applied-for mark contains merely descriptive wording combined with a surname, the mark should not be refused registration as “primarily merely a surname” under § 2(e)(4) of the Trademark Act, because merely descriptive wording is capable of functioning as a mark. That directive was at odds with a commonly cited proposition in In re Hutchinson Tech. In that case, the Federal Circuit reversed the Trademark Trial and Appeal Board’s refusal to register the mark HUTCHINSON TECHNOLOGY under § 2(e)(3). The court reasoned that the TTAB should have considered how the purchasing public would react to the mark in its entirety, rather than simply to “Hutchinson” or “Technology” as component parts.

Last May, the TTAB drew attention to the inconsistency between the TMEP section and relevant case law in Azeka Bldg. Corp. v. Azeka, 122 USPQ2d 1477 (TTAB 2017). It affirmed the refusal of the mark AZEKA’S RIBS for “barbecue sauce” as primarily merely a surname. It explained that, as in Hutchinson, the proper inquiry is the meaning of the mark as a whole and is not limited to the question of whether the additional wording aside from the surname—the word “ribs” in this instance — is capable of functioning as a mark.

The Federal Circuit weighed in on this issue in July. In Earnhardt v. Kerry Earnhardt, Inc., the court reversed the TTAB's dismissal of the opposer’s claim that the mark EARNHARDT COLLECTION was primarily merely a surname. The court said the TTAB made an incomplete assessment by only looking to the term “collection” and finding it was not generic for the applicant’s furniture goods. The court explained that that when a mark contains a surname and an additional term, that additional term should first be evaluated to determine whether it is merely descriptive or generic—but then the mark should be evaluated in its entirety (consistent with Hutchinson) to determine whether the additional term alters the surname significance of the mark. The court remanded to the TTAB to reevaluate the mark using that two-step test.

The new Examination Guide 3-17 instructs that marks must be examined consistent with the test as stated in Earnhardt. It also notes that in most cases, if the additional term(s) are generic or merely descriptive, they will not alter the character of the mark, and refusal of the mark under § 2(e)(4) will be appropriate. These new instructions were incorporated into the October 2017 revision to the TMEP.

This directive should make the Trademark Office’s examination of the surname-based composite marks more consistent in their analysis, which in turn might help brand owners to better understand the risk and costs for prosecuting these types of marks.

Courts Continue to Deny Patent Eligibility to Scientific Discoveries

By Christopher P. King

In the recent case of INO Therapeutics v. Praxair Distribution, a Delaware district court held as patent-ineligible a group of patents for treatment of neonatal (newborn) patients with inhaled nitric oxide (iNO). The court’s reasoning hinged upon the principle that patents are not to be granted to scientific discoveries.

Specifically, the court found that the core of the patent claim was the discovery of a natural human physiological response: an increased risk of adverse reaction to treatment with iNO on the part of neonatal patients with left ventricular dysfunction (LVD). In holding the claim to embody a law of nature, the court stated that “[w]hile man discovered the adverse physiological response that occurs when some patients receive iNO, such a discovery does not amount to innovation.” It further held that the patent claim’s step of excluding neonatal patents with LVD from INO treatment failed to confer patent eligibility, citing judicial pronouncements that “even valuable contributions [to science] can fall short of statutory patentable subject matter” and that “[g]roundbreaking, innovative, or even brilliant discovery does not by itself satisfy the § 101 inquiry.”

The blanket exclusion of scientific discoveries from the possibility of patenting might seem a curious one, given the explicit inclusion of discoveries in the relevant constitutional and statutory language. Article 1, Section 8 of the U.S. Constitution refers to granting exclusive rights to “discoveries.” Similarly, § 101 of the Patent Act states that whoever “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor,” thereby specifically including discoveries as well as inventions within the scope of patent eligibility (emphasis added).

Assuming that the discovery in INO Therapeutics of the connection between LVD and pulmonary edema was indeed useful and novel, why was it deemed ineligible for patent?

One explanation lies in the U.S. Supreme Court’s articulated exceptions to both inventions and discoveries based on constitutional aims. In Le Roy v. Tatham (1852), the Court stated, with reference to sources of power: “the invention is not in discovering them, but in applying them to useful objects.” In Gottschalk v. Benson (1972), the Court used an expanded articulation of the exception when barring a claim to conversions of numeric representations in computers, stating that “[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work” (emphasis added). Thus, the exception was not limited to inherent natural phenomena, but rather expanded to additionally cover specific techniques devised by human inventors. And in Parker v. Flook (1978), the Court further held ineligible a patent application involving use of a formula, even though the claims did not wholly preempt the formula. The Court’s approach may be characterized as pragmatic rather than philosophical, attempting to carry out the Article 1, Section 8 goal of “promot[ing] the progress” of science by denying patents where it feels that patenting would tend more to impede science than to promote it.

Another possible explanation for the exclusion of discoveries from patent eligibility could lie in the Patent Act’s use of the word “new.” A new insight into a phenomenon that had previously been occurring naturally (e.g., a property or consequence of a natural process) might be deemed not to constitute a “new” discovery of a process since the process was already taking place. In contrast, a discovery of a process that does not occur without human action (e.g., the mixture of two manufactured chemicals), even if inadvertent, could be deemed to involve a “new” process. Viewed in this way, the patentee’s invention did not involve a “new” process, since the invention involved an additional insight into the natural, pre-existing reaction to a particular treatment of human bodies having a particular dysfunction, rather than (for example) inducing a new type of reaction.

Unfortunately, the district court's decision in INO v. Praxair, like many others before it addressing the patent eligibility of discoveries, does not include detailed explanation for what particular portion of Section 101 is believed to be unmet by the claimed subject matter. It would be helpful for future courts to be explicit in providing such analysis. Without it, decisions can appear to be arbitrary and even contrary to the statutory provisions.

DOJ Highlights Criminal Enforcement of Trade Secrets Theft

By William Brenc, Vikram Iyengar and Patrick E. Premo

At the Cambridge Cyber Summit in October 2017, Deputy Attorney General Rod Rosenstein discussed ways in which the Department of Justice has increased its vigilance when it comes to protecting American companies from cybercrime, noting that the DOJ's emphasis is on protecting “the ideas that make our nation strong and competitive in the marketplace.” In 2015, leaders from the G20 nations highlighted the need to protect trade secrets, and Rosenstein indicated that the DOJ has honored that commitment by stepping up efforts to criminally indict trade secret thieves.

Although the DOJ has jurisdiction to prosecute trade secret theft, trade secret disputes traditionally have been handled by private parties through civil litigation. The federal Defend Trade Secrets Act of 2016 and an array of state statutes allow victims of trade secret misappropriation to seek injunctions and monetary damages. But, under the Economic Espionage Act, knowingly stealing a trade secret or knowingly receiving a stolen trade secret is a federal crime.

Prosecution of trade secrets misappropriation appears to be on the rise, particularly in the area of financial technology (fintech), which broadly describes the technological backing for financial firms. In April 2017, Joon Kim, Acting U.S. Attorney for the Southern District of New York, announced two charges of theft of financial trade secrets. The DOJ alleged that Zhengquan “Jim” Zhang used his access to the source code of his employer, a financial services firm, and hacked into other portions of the firm’s systems to install a program that would send data to a third-party site. By alerting and cooperating with the FBI, Zhang’s employer was instrumental in uncovering his alleged theft.

In another fintech case, Dmitry Sazonov was charged with attempted theft of trade secrets from his employer, Susquehanna International Group. On the morning of a meeting discussing his future with the firm, Sazonov allegedly attempted to smuggle out the firm’s trading code by camouflaging code within seemingly harmless PDF files, such as tax and immigration documents. Both cases are pending in the Southern District of New York.

These fintech trade secret prosecutions are among a number of criminal trade secret investigations in the technology sector. In one high-profile case, Anthony Levandowski, co-founder of the self-driving truck company Otto, faces potential criminal charges for allegedly bringing trade secrets from Google’s self-driving car project to his startup, which was later acquired by Uber. Although Levandowski has not been charged, the potential indictment has led him to invoke his Fifth Amendment privilege against self-incrimination. As a result, he has been unwilling to cooperate in discovery in the pending civil suit. That suit, of which Levandowski is not a named party, is set to go to trial in early December 2017.

In another matter, on May 23, 2017, federal prosecutors filed a criminal complaint against seven individuals for allegedly stealing military manufacturing trade secrets from a U.S. business for a Chinese firm. Although the case is still in its early stages, the district court granted restraining orders against two defendants.

These pending cases suggest that the DOJ is, in fact, using criminal prosecution of trade secret theft as a tool to protect the valuable intellectual property of American companies. ​​​​​​​​​