The MTTLR Blog

The United States Court of Appeals for the Federal Circuit (CAFC), on October 30, 2008, decided In re Bilski (545 F.3d 943), which had serious implications for the future of business method patents. The eleven members of that court found that a method of hedging risk in the field of commodities trading was ineligible subject matter and soundly rejected the broad “useful, concrete and tangible result” test of State Street Bank and Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). Instead, the nine judges of the majority opinion adopted the “machine or transformation test” as the exclusive test to determine if a claimed invention qualifies as a “process” under 35 U.S.C. § 101.  Under this test, a claimed process qualifies only if it: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” (545 F.3d at 954). Under this test, the vast majority of business patents were in danger of being disqualified.

On June 28, 2010, the Supreme Court of the United States handed down Bilski v. Kappos (08-964), affirming the CAFC’s decision. The Court, however, rejected the CAFC’s assertion that the “machine or transformation” test is the sole test for determining if an invention is an eligible process under § 101. The Court, citing concerns that the “machine or transformation” test causes uncertainty in software and other high-tech patents, determined that although the test is “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101”, but the CAFC was free to develop “other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.” The majority opinion, written by Justice Kennedy, declined to “define further what constitutes a patentable process, beyond pointing to the definition of that term provided in § 100(b) and looking to the guideposts in Benson, Flook, and Diehr. “

Thus, the majority decision in Bilski is remarkably unhelpful in determining the bounds of § 101 eligibility. The court specifically states that business method patents are eligible subject matter, but offers no guidelines beyond referring to thirty year old precedents – precedents decided before business method patents were seriously considered. Kennedy writes that there is a need to protect innovation relating to the “information age”, but only states that the bar for eligibility needs to be high enough to prevent the patent office from being flooded with claims that would chill “creative endeavor and dynamic change.” Yet, while the court endorses the “machine or transformation test”, it very noticeably refrains from commenting on the validity of the State Street Bank “useful, concrete, and tangible” test.

Despite the inscrutable majority opinion, hints as to the future of the State Street Bank “useful, concrete, and tangible” test can be found in the two concurring opinions. Justice Stevens’ concurrence, joined by Breyer, Ginsberg, and Sotomeyer, would have categorically barred all business patents. It is very likely that Stevens could not garner the necessary support from Justice Scalia to make such a broad shift in patent law. Scalia did join in a short, separate concurrence written by Breyer that rejects the “useful, concrete, and tangible” test. Thus, at least five members of the Supreme Court view the State Street Bank test unfavorably.

The failure of the court to make any real distinctions on the eligibility of business method patents may spur congress into action. Kennedy’s opinion relied on 35 U.S.C. § 273, which grants a defense of prior use against business method infringement claims, to come to the conclusion that Congress “left open the possibility of some business method patents.” However, Senator Leahy, chairman of the judiciary committee, recently posted a short note on his website criticizing Bilski for “needlessly [leaving] the door open for business method patents to issue in the future” and stating that it was now “time for Congress to act.”

While the CAFC Bilski decision in 2008 may have temporarily closed the door on business method patents, it would be a fallacy to think that this Supreme Court decision opens the door wide again. A majority of the Justices on the Court, nearly all of the CAFC judges, and important members of congress are highly skeptical of business method patents.  Furthermore, by relying on a quirk of statutory interpretation to preserve the technical validity of business methods instead of making a substantial argument for or against, the Court is making it clear that they lack the will to act decisively on the matter.

Under State Street Bank rule, most business methods were eligible for patentability. After the CAFC Bilski decision, the vast majority of business methods were not eligible. Now, in the wake of Bilski v Kappos, there is only uncertainty. Those seeking to obtain patents on business methods will need to proceed cautiously and with full awareness of all developments in the area.

On May 12, 2009, the ACLU and the Public Patent Foundation filed a lawsuit on behalf of four scientific organizations – the Association for Medical Pathology, the American College of Medical Genetics, the American Society for Clinical Pathology and the College of American Pathologists challenging the constitutionality of USPTO’s grant of gene patents of the BRCA 1 and BRCA 2 gene sequences. The defendants include the US Patent and Trademark Office, directors of the University of Utah Research  Foundation and Myriad Genetics and Laboratories, a for-profit organization which is a co-owner of one of the patents-in-suit and holds exclusive licenses for the remaining ones.

The lawsuit, Association for Molecular Pathology, et al. v. United States Patent and Trademark Office, et al. reopens the age old debate on patentability of human genetic material, but unlike other federal circuit cases which attacked the breadth and vast scope of rights granted to the holders of these patents, it challenges the very right to even hold such patents.

This ‘frontal attack‘ approach of ACLU is especially daring considering that almost 20% of the human genome is currently patented. But as far as choosing a candidate and the timing of this lawsuit, the raging debate over healthcare costs combined with a high visibility disease such as breast cancer definitely work in the plaintiff’s favor.

The National Cancer Institute reports that women in the general population have about a 12% lifetime risk of developing breast cancer, whereas women carrying the mutated BRCA gene face a five times larger risk – almost 60%. Their chances of developing ovarian cancer is more than ten times that of the average population. The cancers these women develop are also more aggressive and likely to metastisize rapidly. Prevention, therefore, is vital for survival odds and options such as prophylactic surgery or chemoprevention are exercised by patients. Of course, before preventative treatment can begin, a genetic test must be conducted to confirm that the patient is indeed a carrier of the mutation. This is where Myriad comes in – as the holder of the exclusive licenses, it is the sole clinical provider of the full sequencing of the BRCA genes in the US. These tests, which run upwards of $3000 may not be covered by insurance. Perhaps more than this, what has really gotten the medical and scientific communities’ back up has been Myriad’s insistence that ONLY Myriad’s labs have the right to conduct any ‘commercial’ tests but Myriad’s definition of “commercial” has included sending cease-and-desist orders to University laboratories (researchers at UPenn, Yale and Georgetown being a few).

And it is perhaps this denying of information to researchers that could potentially lead to the development of newer, better tests which has lead to ACLU’s bold strategy. The defendants moved to dismiss the case based on three grounds – (1) that the court lacked subject matter jurisdiction over the Plaintiff’s claims; (2) that the court lacked personal jurisdiction over the UURF and (3) that the plaintiff’s failed to sufficiently plead a claim. In his opinion, District Judge Robert Sweet allowed the Plaintiff’s claim against the USPTO to meet the ‘redressability requirement saying that,

Included in this prayer for relief is a request that the Court declare unconstitutional the USPTO’s policies and practices with respect to the challenged claims and similar classes of claims. Granting Plaintiff’s request for relief would serve to render the claims-at-issue definitionally [sic] invalid. As a result, the Plaintiffs would be allowed to engage in conduct currently prohibited by Myriad’s patents, and the alleged injuries would be redressed.

Considering that the USPTO’s policies regarding the grant of patents related to human genes have been upheld in court long enough to generate thousands of patents covering 20% of the human genome, it is hard to decide which is more more surprising: that an unconstitutionality claim against these policies has been filed so late in the day or that it has survived dismissal on grounds of failure to state a claim.

Does the lawsuit’s survival in court despite a long history of patentability of biological material hail the end of theDiamond v. Chakraborty era? Are the public policy concerns and the crushing weight of sky-rocketing healthcare costs making it imperative that the proliferation of commercialization of healthcare related innovation be curbed? If so, what of other such gene patents in existence and the businesses built around them? A sweeping judgment against the policies of the USPTO as applied to gene patents might well prove economically detrimental to the biotechnology industry as investors would scramble to withdraw support from these risky ventures which are entirely reliant on their patent portfolios to provide any measure of economic return. Broad availability of research could well lead to a ‘problem of the commons’ that because everyone has access to the technology, no one would want to invest further to develop clinical applications of the same. On the other hand there are tests which have been commodified (such as X-Rays and MRIs) and still companies continue to build equipment to conduct these tests and seem to make adequate profit to boot. Whether a long due overhaul of inadvisable patent policy or an improper flaunting of precedent, this case raises critical questions which need addressing in order for the biotech industry to stand on solid ground