The paper discusses how the statutory language of awarding damages has changed over time and the evolution of injunction relief.  Below I will quote the historical statutes from the paper.  But before I do that I want to point out three problems with the presently available relief for patent infringement.

1. Injunctions Are Optional Upon a Finding of Infringement

2. No Enhanced Damages for Purposeful Negligence.

3. Reasonable Royalties are Never Adequate Compensation.

1. Injunctions Are Optional Upon a Finding of Infringement

The patent right is the right to exclude.  It is the height of absurdity to win a patent lawsuit and not obtain an injunction.  If I win a lawsuit then I should be able to enforce my right, which is the right to exclude.  You cannot exclude someone from trespassing on your property in the past.  Thus the right to exclude means the right to exclude in the future or an injunction.

Unfortunately, this bit of illogic is brought to you by the statute 35 USC 283, which states that injunction may be granted in accordance with the principles of equity.  This means in theory that you can win a patent lawsuit and still not be able to enforce your right to exclude.

The law should be changed so that an injunction should issue as part of any suit in which a patent is found to be infringed.

2. No Enhanced Damages for Purposeful Negligence.

The treble damages provision for patent infringement is only for ‘willful’ infringement.  This means that companies can practice purposeful negligence and the worst case outcome for this is to pay the patent holder the damages they caused.  See point 3 below.  In addition, the In re Seagate Techs., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc) overturned the longstanding principle that an infringer must exercise a duty of due care.  As a result, the enhanced damages provision has become meaningless.  An infringer has no duty of care to not infringe and can then defeat any charge of willfulness by purposeful negligence.  The threat of enhanced damages is now almost meaningless and provides no deterrent effect to keep people from infringing patents.

The law should be changed so that enhanced damages should be available in the case of negligent infringement.  This is the only way to protect our inventors for technology thieves.

3. Reasonable Royalties are Never Adequate Compensation.

In any lawsuit there is a non-zero chance that you will win even if you are guilty.  If the damages are found to be a reasonable royalty, then the logical choice is always to negligently infringe a patent.  In the worst case the infringer will only pay what they would have had to pay the patent holder if they had negotiated a license and there is a chance they may win the lawsuit incorrectly and pay nothing.  Now, you may object that if they are forced to pay lost profits as damages this is a real deterrent.  This is true, but the reality is that it is very hard to prove lost profit and the patent holder must show that ‘but for’ the infringing activity they would have made the sale.  In the case of a large company infringer and a small company patent holder, the patent holder is likely to end up with even less damages under the lost profits calculation.  As a result, many large companies pursue a policy of efficient infringement.  This policy is morally reprehensible, but it does make economic sense.

The law should be changed so that the minimum damages is reasonable royalty plus some percentage amount such as 20% to provide an adequate protection for America’s inventors.

Below are some of the interesting highlights from the excellent paper PATENT DAMAGES by Bill Cochran.

Act of 1790

The first patent act, the Patent Act of 1790 provided that an infringer must:

…forfeit and pay to the patentee such damages as should be assessed by a jury, and moreover, to forfeit to the person aggrieved the infringing machine.

 

Act of 1793

Three years later, this was changed in the new Act of 1793, §5.  It was a significant departure from the Act of 1790, and a significant departure from the common law of torts.  This new Act (§)5 provided:

That if any person shall make, devise, and use or sell a thing so invented, the exclusive right of which has been secured to any person by patent, without the consent of the patentee . . . the person so offended shall forfeit and pay to the patentee a sum that shall be at least equal to three times the price for which the patentee had usually sold or licensed to other persons the use of said invention.

 

Act of 1800

The Act of 1800 removed the requirement that the patentee had to be selling a product and recognized the value of maintaining exclusivity and not just liability.  Thus, the new Act of 1800 returned to the concept of damages, requiring the infringer to:

…forfeit and pay to the patentee a sum equal to three times the actual damages sustained  by such patentee.

 

The Act of 1819 §(c) read:

. . . that the Circuit Courts of the United States shall have original cognizance, as well in equity as at law, of all actions, suits, controversies, and cases arising under any law of the United States, granting or confirming to authors or inventors the exclusive right to their respective writings, inventions, and discoveries; and upon any bill in equity, filed by any party aggrieved in any such cases, shall have authority to grant injunctions, according to the course and principles of courts of equity, to prevent the violation of the rights of any authors or inventors secured to them by any law of the United States, on such terms and conditions as the said courts may deem fit and reasonable

This appears to be the first instance that an “injunction” could be obtained against an infringer.

The Act of 1836, §14, read as follows:

Whenever in an action for damages for making, using, selling the thing patented . . . a verdict shall be rendered for the plaintiff, it shall be in the power of the court to render judgment for any sum above the amount found by the verdict as the actual damages sustained by the plaintiff, not exceeding three times the amount thereof.

 

Act of 1870

 

. . . and the court shall have power, upon a bill in equity filed by any party aggrieved, to grant injunctions according to the course and principles of courts of equity, to prevent the violation of any rights secured by patent, on such terms as the court may deem reasonable; and upon a decree being rendered in any such case for an infringement, the claimant [complainant] shall be entitled to recover, in addition to the profits to be accounted for by the defendant, the damages the complainant has suffered thereby, and the court shall assess the same or cause the same to be assessed under its direction, and the court shall have the same powers to increase the same in its discretion that are given by this Act to increase the damages found by verdicts in actions upon the case…

 

The Patent Act of 1922 stated:

. . . and upon a decree being rendered in any such action for infringement the complainant shall be entitled to recover, in addition to the profits to be accounted for by the defendant, the damages the complainant has sustained thereby, and the court shall assess the same or cause the same to be assessed under its direction.

If on the proofs it shall appear that the claimant has suffered damage from the infringement or that the defendant has realized profits therefrom to which the complainant is justly entitled, but that such damages or profits are not susceptible of calculation and determination with reasonable certainty, the court may, on evidence tending to establish the same, in its discretion, receive opinion or expert testimony, which is hereby declared to be competent and admissible, subject to the general rules of evidence applicable to this character of testimony; and upon such evidence and all other evidence in the record the court may adjudge and decree the payment by the defendant to the complainant of a reasonable sum as profits or general damages for the infringement…

 

 

The Act of 1946 reads as follows, now being numbered as 35 USC §70:

[after authorizing injunctions, the first paragraph continues] …and upon a judgment being rendered in any case for an infringement the complainant shall be entitled to recover general damages which shall be due compensation for making, using or selling the invention, not less than a reasonable royalty therefor, together with such costs, and interest, as may be fixed by the court.  The court may in its discretion award reasonable attorney’s fees to the prevailing party upon the entry of judgment on any patent case.

The court is hereby authorized to receive expert or opinion evidence upon which to determine in conjunction with any other evidence in the record, due compensation for making, using, or selling the invention, and such expert or opinion evidence is hereby declared to be competent and admissible subject to the general rules of evidence applicable thereto.

The court shall assess said damages, or cause the same to be assessed, under its direction and shall have the same power to increase the assessed damages, in its discretion, as is given to increase the damages found by verdicts in actions in the nature of actions of trespass upon the case; but recovery shall not be had for any infringement committed more than six years prior to the filing of the complaint in the action.

This is the first statement about reasonable royalties.

Act of 1952

Section 284 states:

 

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

 

When the damages are not found by a jury the court shall assess them.  In either event the court may increase the damages up to 3 times the amount found or assessed.

 

The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

 

However, the decision in In re Seagate overturned a longstanding principle that an infringer must exercise a duty of due care.

 

Present statute

§283.  Injunction

 

The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.

 

As stated by the Federal Circuit in Smith International, Inc. v. Hughes Tool Co., 718 F.2d 1573 (Fed. Cir.), cert. denied, 464 U.S. 996 (1983):

Without this injunctive power of the courts, the right to exclude granted by the patent would be diminished, and the express purpose of the Constitution and Congress, to promote the progress of the useful arts, would be serious undermined.  The patent owner would lack much of the “leverage,” afforded by the right to exclude, to enjoy the full value of his invention in the market place.  Without the right to obtain an injunction, the right to exclude granted to the patentee would have only a fraction of the value it was intended to have, and would no longer be as great an incentive to engage in the toils of scientific and technological research.

In eBay v. MercExchange, L.L.C., 547 U.S. 388 (2006) , the Supreme Court made it clear that obtaining injunctions in patents is no different from obtaining an injunction is any other civil matter relying upon equitable relief.  The plaintiff must prove four factors:

1. The Plaintiff will suffer irreparable harm without an injunction.
2. The remedies at law, which are money damages, are inadequate to compensate for the injury.
3. Considering the balance of hardships between the plaintiff and the defendant, an injunction is warranted.
4. The public interest would not be disserved by issuing an injunction.

 

 

In Mayo v. Prometheus, the Supreme Court is again addressing patentable subject matter. During oral arguments, Justice Breyer came-up with a hypothetical invention to help him draw the line on patentable subject matter.

JUSTICE BREYER: Suppose I discover that if … someone takes aspirin … for a headache and, you know, I see an amazing thing: if you look at a person’s little finger, and you notice the color [indicates that] you need a little more, unless it’s a different color, you need a little less. Now, I’ve discovered a law of nature and I may have spent millions on that. And I can’t patent that law of nature, but I say: I didn’t; I said apply it. I said: Look at his little finger.

MR. SHAPIRO: Sure.

JUSTICE BREYER: Okay? Is that a good patent or isn’t it?

MR. SHAPIRO: No … Well, because you — you’ve added to a law of nature [to] just a simple observation of the man’s little finger.

First of all taking aspirin is not a law of nature.  The law of nature would be how the body reacts to aspirin, but the process of taking aspirin is not a law of nature.   If you use this information to observe whether someone is taking too much or too little aspirin, then you have applied that “law of nature” to a human problem.  Namely, how to know how much aspiring one should take for a headache.

The Supremes struggled to find a hypothetical to understand 35 USC 101 according to the reports.  Here is a simple 35 USC 101 test that even they should be able to apply correctly.

Anything that man creates to solve an objective problem is an invention.  If a device/service is not found in nature separate from man then it is an invention.  For example, the ability to create fire or harness it is an invention of man.  No other animal has the ability to create or harness fire.  Man did not have some sort of inherent knowledge of how to create or harness fire, so creating fire is an invention.[1]

Applying this information to the above hypothetical, aspirin is created by man.  It does not exist separate from man, so this hypothetical is clearly within 35 USC 101.  Taking aspirin is not a part of nature.  Observing the effects of taking aspirin is not a part of nature.

Mayo’s argument in this case boils down to patents should not exist, or at least should not be apply to Mayo.

The patents claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases.  Thus, the questions in this case are whether determining optimal dosages of thiopurine drugs to treat autoimmune diseases exists in nature separate from man and whether this solves an objective problem?  Clearly, determining optimal dosages does not exist in nature for any drug and the patent solves the objective problem of determining the optimal dosages of thiopurine drugs for autoimmune diseases.  CASE DISMISSED.  This case is straight forward and should never have been granted certiorari by the Supreme Court. I have previously written about this case at Mayo v. Prometheus – Supreme Court Grants Cert (Again).

I consider it bad news that the Supreme Court granted certiorari in this case, because they have gotten so many patent cases wrong in the last five years.  Their understanding of patent issues would make a first year patent associate blush.  However, the last patent case they decided, Stanford University v. Roche Molecular Systems, showed some signs for hope.

Mayo has attempted to obscure the issues, by blurring the differences between section 101 & sections 102 & 103.  For instance “Mayo argues that the claims’ physical steps should be disregarded because they are old in the art.” (p. 1 Prometheus Brief)  Whether these steps are new or old is totally irrelevant to the 101 question.  This question is only relevant to the question of novelty and non-obviousness.  But even with respect to the question of novelty and non-obviousness this statement is non-sense.  It is a violation of both logic and legal precedent.  Every invention ever created is a combination of known elements (steps) because of conservation of matter and energy – you cannot create something from nothing.  From a legal precedent point of view, this is an attempt to reinstitute the point of novelty test, which was always nonsense because it violates conservation of matter and energy.

Mayo also attempts to argue that Prometheus has patented a law of nature.  This is absurd – the optimal dosage for an individual human being of thiopurine drugs, is a law of nature?  Admittedly, I am not an expert in pharmacology but there is no way that determining an individual dosage for a specific person is a law of nature.  Mayo knows this is non-sense, so they attempt to make the argument respectable by again disregarding parts of the claims.  A law of nature would be something like the absorption rate of a drug into a cell is based on certain factors.  An application of that law of nature, for instance to tailor a drug so it has a faster or slow absorption rate is an invention.

Mayo then puts forth the fraudulent argument that every patent should be evaluated by the courts as to whether it “promotes science and the useful arts.”  First, of all the preamble to Article 1, Section 8, Clause 8 is not limiting and never was meant to be limiting.  It is standard knowledge to every patent attorney that preambles are not meant to be limiting.  The Constitutional clause uses the word “RIGHT” and by right the Founding Fathers meant “natural rights”, which are not subject to some utilitarian purpose. The right to Life, Liberty, and the Pursuit of happiness are not subject to some utilitarian goal, they are unalienable – inherent in being a human being.  The fraudulent nature of this argument can be seen in the fact that its proponents never suggest that every trashy novel, movie, or painting should not receive copyright protection because it does not advance science and the useful arts.

Mayo then puts forth another argument made by every parasite – namely that patents are a monopoly.  This is just nonsense.  Patents are a property right not a monopoly. The statute defines patents as a personal property right and patents meet all the tests of a property right.  Namely, 1) Does the right arise because the person created something?  Creation is the basis of all property rights.  The law is just recognizing the reality that the person is the creator and without that person the creation would not exist.  This is consistent with Locke’s Natural Rights and Ayn Rand’s Objectivism. 2) If someone else was the creator would they have received the right in the creation? This ensures that the right does not arise from political favoritism. 3) Is the right freely alienable?  Freely alienable means that right can be sold, transferred, divided, leased, etc.  This is a key feature of property rights. Patents fit all three criteria and are property rights.

Mayo then puts forth the PATENTABLY absurd argument that the patent system could be replaced by government funding of inventions.  The absurdity of this argument can be summed up in one word – SOLYNDRA. First of all, the Supreme Court does not have the authority to make the decision to scrap the patent system and replace it with government funding.  This argument by Mayo borders on delusional.  Even Congress does not have the right under the Constitution to eliminate patents that would require a Constitutional Amendment.

Mayo has neither the facts or the law on its side so its approach is to purposely confuse the issues and to outright lie.  Mayo should be ashamed to have its name associated with the parasitic attempt to rob the invention of others.

This article was written by Gary Lauder is Managing Director of Lauder Partners, a Silicon Valley-based venture capitalist and co-inventor of a dozen patents. More info on this issue can be found on his Web site.

“[I]nventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act.” Research Corp., 627 F.3d at 869.

The digital computer may be considered by some the greatest invention of the twentieth century, and both this court and the Patent Office have long acknowledged that “improvements thereof” through inter-changeable software or hardware enhancements deserve patent protection. Far from abstract, advances in computer technology—both hardware and software—drive innovation in every area of scientific and technical endeavor.

The eligibility exclusion for purely mental steps is particularly narrow. See Prometheus Labs., 628 F.3d at 1358 (noting that claims must be considered as a whole and that “the presence of mental steps [in a claim] does not detract from the patentability of [other] steps”).

Perhaps this is the beginning of a resurgence of rationality with respect to 35 USC 101 and software.

It is easy to take for granted what we have in America.  Even with a terrible economy and crazy politicians, we are still better off than other countries.  Consider how many people try to get to America.  No other country has its equivalent of the “American Dream.”  What is it that makes America different?

When every nation on earth was run by aristocracies, a few great men stood up and said we will create a nation where the every person has rights and the individual is empowered with responsibility for his government and his society.  Furthermore, we will grant him the rights to that which he creates and will take away the barriers that other countries have for those who innovate.  At the time in England, only the privileged could afford to invent.

The patent system that our Founders created was revolutionary at the time, and continues to be significantly different and more favoring of the creative individual than the systems of other countries.  Other patent systems favor large companies and vested interests, and that is one reason that America has out-innovated the rest of the world so significantly.

So, why would large companies that seem to benefit from a good patent system want to radically change it for the worse?  Bill Gates said it best in an interview years ago with Ken Auletta:  “The thing I worry about is some guy in his garage inventing something I haven’t thought of.” Once a company becomes large and has vested interests, it innovates less and tries to protect the income streams it is already receiving.  The vested interest cannot help but try to impede innovation that will become competition.

The America Invents Act was written by the top attorneys of two of the key, large, multinational companies that are behind this bill.  They weren’t thinking about you and me when they wrote it.  In fact, fee diversion wasn’t even mentioned in the first version that was brought to the Senate (!) – it was added in an amendment.  How could anyone who cares about our patent system not even address fee diversion?  The answer is that they have different motives.

Up until now, our patent system has protected and supported the individual inventor, as our Founding Fathers intended.  The America In vents Act changes that.  If you are not aware of the issues, see the attached document.  The bottom line is that a big part of what our Founders provided for us, and that is part and parcel to the success of this great nation, is about to be ripped away.  The America Invents Act could face a final vote next week.  If you care about this country, about freedom, and about the value of the individual, please call your senators and tell them you are against this bill.  For talking points, use last night’s email or go to www.SanePatentReform.org.   Please call tomorrow, Friday.  For your senators contact information, go to CongressMerge.com/onlinedb.  Every man, woman, and child who has ever hoped to pursue the ”American Dream” is depending on you.  Please help in this critically important matter.

Best Regards,

Randy Landreneau, President

Complete Product Development

www.CompleteProductDevelopment.com

727-744-3748

The Senate is about to take up the America Invents Act.  It is possible that this act will be the first thing addressed when they return to work Tuesday next week, September 6^th.  A motion for cloture has been filed, which means a very limited debate if the motion gets a three fifths vote.  In this event, we could see the final vote on the bill take place next week.  Here’s the short version of what is wrong with the bill.

1. The America Invents Act Will Increase The Time It Takes To Get A Patent: The biggest problem of the patent office, some say the only problem, is the time it takes to get a patent – 3 years plus on average and increasing.  Held-up patents mean held-up jobs, business ventures, and dreams.  At a time when the patent office needs every penny it receives in fees to improve its ability to handle its workload, fees are being stolen by Congress ($100 million this year alone!).  The only thing in the bill that would have helped reduce the backlog was the original Senate version’s guarantee that all of the fees paid by inventors to the patent office would be only available to the patent office.  The current House version put the Appropriations Committee back in charge, the same group that has been responsible for taking inventors fees.  In the face of current deficits, fee diversion will undoubtedly continue.  The only thing that would have helped reduce the patent backlog is gone now.

The change from First-to-Invent to First-to-File will create a rush to file that will increase the patent backlog, further increasing the time it takes to get a patent.  This belief is borne out by what happened in Canada after a similar change.

1. The America Invents Act will Reduce Job Creation: Census data has shown that net new job creation in the US over the last 30 years comes from startups.  Large companies tend to export jobs.  If you compare the US to Europe, you know that the US has had more entrepreneurial activity than Europe.  The US has produced more groundbreaking technologies.  The First-to-Invent Patent System of America supports entrepreneurship and the First-to-File systems of Europe do not.

In a First-to-File system, the risk of another person filing for the patent before the initial inventor causes inventors to have to greatly reduce any communication with outside parties regarding their inventions.  Individual inventors, who are the greatest source of real innovation, usually need to work with others in research, development, funding, and marketing prior to filing for a patent.  Large companies, on the other hand, can often do everything needed within their walls.  In America, historically, an individual inventor could work toward making an invention successful without having to be nearly as secretive as a European inventor.  In First-to-File countries, inventors have a great incentive to not disclose an invention to anyone prior to a patent application being filed, leading to under-researched, under-developed inventions, and weaker patent applications.  Putting such burdens on individual inventors greatly reduces innovation.  This is a big reason why America has had a multitude of new technologies and new companies while Europe has been dominated by old companies and vested interests.

A friend who was an engineer at a large, well-known electronics company in America told me that if any employee came up with an invention that was too good, it got shelved.  The reason was that it would upset current product lines that are profitable.  Vested interests do not want someone coming up with an invention that will compete with them.  This is why large companies have been trying to change our patent system for many years.  The irony is that many of the large companies supporting this bill can be traced back to one innovative individual who was supported by the American First-to-Invent Patent System in his pursuit of the American Dream.  If innovation and job growth are the goal, changing from First-to-Invent to First-to-File makes no sense at all.

1. There is much more.  Corporate attorneys will have an additional expensive procedure to use to challenge issued patents and will use it to wear down and defeat potential competition.  Past requirements that attorneys and inventors act “without deceptive intent” are repealed in the bill (!).  Companies will be able to keep trade secrets for as long as they want, hiding the information from the rest of the world, but still retain the right to keep making or using the product if someone else patents the invention, and will even be able to get a patent on the Trade Secret at any point in the future.  Harmonization is not only not accomplished with the bill, but there are situations where the bill creates disadvantages for American inventors relative to inventors from other countries (prior art cutoff date for obviousness).  Section 18 sets up a special procedure for challenging the validity of business method patents, under a weaker standard than any other kind of patent (a gift to big banks so they don’t have to worry about the valid patent of Claudio Ballard – if you don’t know the story, look it up and prepare to be outraged).  If you want more, go to www.SanePatentReform.org.  If all of the above weren’t enough, Thomas Jefferson, himself, opposed a similar change to First-to-File over 200 years ago, and many legal experts have stated that the proposed change is unconstitutional.

As usual, the odds are against us.  But that has been the case with virtually every decent effort any man or woman ever embarked upon.  Many saints were viciously killed by their numerous detractors.  Since we’re inventors, how about Galileo?  For publicizing his discoveries, he was tried for heresy by the Inquisition, threatened with torture, sentenced to house arrest for life, and not even absolved of his “crimes” until 1992!  You may not know that in our American Revolution, only about 1/3^rd of the colonists were even for it.  The odds were phenomenally bad.  We won only through the efforts of heroic individuals, and we can win again here.

The America Invents Act is an example of the worst of politics and influence.  The result of its passage will be less innovation, fewer jobs, and a worse future for America.  But amazingly, many of the politicians who are about to vote on it know very little about it.  Their large company supporters are saying to vote for it, and the few of us fighting it are being drowned out.  The only way we can stop it is to call our Senators and educate them.  I am convinced that most of our Senators are sane enough to understand the issues if someone tells them.  Please call your senators and communicate the truth to them.  You can make a difference.  Do it because it is right.  Help defeat this bill.  Call this week (to find your Senators, go to http://congressmerge.com/onlinedb/).  Don’t wait, it could be too late.  Thank you.

Best Regards,

Randy Landreneau, President

Complete Product Development

www.CompleteProductDevelopment.com

Zach Carter observed in the Huffington Post:

Today, the patent bill looks like a scorecard tallying points for powerful corporations: a win for pharmaceutical companies whose monopolies are driving up Medicare costs; a win for Wall Street’s battle against check-processing patents . . . .

Left out of the tally is the public, even as the economic landscape for American families grows darker. Historian Richard Hofstadter famously observed that Congress during the Gilded Age busied itself with dividing the nation’s spoils among the rich and powerful. But as the current patent struggle suggests, the spoilsmen are back and Washington is once again an arbiter of who lands the lucre.

Here is just part of what the so-called “American Invents Act” will do if it becomes law and what you can do to stop it.

What the Proposed Bill Does:

Imagine this: you have a dispute with a large corporation and decide to sue. Then you find out that the winner of the law suit will be decided by, of all things, a race. Whoever wins the race to the courthouse steps wins the law suit. Sound ridiculous and farfetched. Think again.

Under the present system, the one who invents first gets the patent. What this means is that an inventor can’t be stopped because a huge corporation can beat the inventor to the door of the Patent Office. Under the so-called “reform” it will be whoever wins the race to the steps of the Patent Office will get the patent!

The repercussions are much broader than the obviously dishonest idea of giving a patent to someone who wins a race to the door of the Patent Office. To develop inventions takes time, effort, and money. By awarding patents to first inventors, the current system encourages development. Going to a first to file system, as called for in the proposed law, will discourage developments. More than that, it would increase the likelihood that patent applications would be defective because they would be filed too early in the development stage. But this is precisely the barrier to independent inventors that large corporations, who oppose startup competition, crave. Given such a situation, it would be no surprise that investors will be disinclined to support startups.

The current Patent Act encourages inventors by providing a grace period for filing a patent application. During this period small companies can go to the marketplace, seek financing, find manufacturing and marketing partners, or decide whether or not to file a patent application.

Under the proposed act, the grace period would be eliminated. Go out and promote your invention and you lose the right to file. This means that small businesses will have to file first and then find out if they should commercialize an invention afterwards. The proposed act would cause small businesses to incur additional and unnecessary expense, and thereby discourage innovation, development and job creation.

Under the present system, if a new method of doing business (say, a great way of delivering music on the Internet) is created, it can be patented.

The new act, if it passes, eliminates business method patents. There is not a single other industry that has a special patent provision to protect it, not one.

The present law gives competitors the right to have the Patent Office review an issued patent. The proposed law would give competitors more weapons to have patents reviewed and re-reviewed, in order to delay inventions and innovations and upwardly spiral an inventor’s costs. So to the cost of patenting an invention add the cost of defending it again and again and again. This ups the price and the risk for small companies and puts them into expensive (very expensive) litigation, litigation they might not want, may not be able to afford and may not be ready for. The mere existence of these procedures will be another way of closing out the small inventor and small businesses.

Under current law, a company must file a patent within one year of putting the invention into commercial use, whether or not the public is aware. The new act would changes the rules. A company will be able to use an invention in secret for years and then file a patent application years later. This undermines one of the major objectives of patent law – to bring the benefits of innovation to the public as quickly as possible. After all, the Constitution provides Congress the power to enact laws that “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

Today, it’s one patent for one invention. The new act permits the filing of multiple applications for the same invention. Issue multiple patents for the same invention and thereby create a legal thicket which will be used to block startups and competition.

This one’s a beaut. Today an inventor must disclose the best method of making the invention. Under the proposed act, a large company can keep the best method secret so long as they can show some other way of practicing the invention. The whole idea of the patent system is to require the inventor to provide for the public benefit the best way of making the invention so that when the patent ends, everyone can make the invention. Now, large businesses can hold the best methods and processes secret, thus the defeating the purpose of our patent system.

What Can Be Done About It:

Congress is in recess but they will take up the bill when it returns in early September. As complicated as the America Invents Act is, opposition is straight forward. If you agree that the proposed bill is wrong, you can:

Telephone your Representative and Senators right away and tell them to vote against the America Invents Act. You can find the name and phone number of your representative at this link. You can find your Senators’ contact information at this link.

Philip Furgang, a noted New York patent law practitioner. Philip is the author of the forthcoming book, “Patent Prosecution” (Oxford University Press.)

Perhaps President Barack Obama is preparing for the day when he can sign the bill into law. That day is likely to bring woe to patent practitioners and users of the patent system alike, and particular woe to small inventors and startup businesses that collectively drive our nation’s economy.

As perchance an omen of tumultuous times ahead, Obama was seen holding a copy of Aldous Huxley’s Brave New World at the Bunch of Grapes book shop during his recent summer idyll on Martha’s Vineyard. Written in 1932, Huxley’s tome depicts a distorted social order, ushered in by the darkness of the Holocaust, in which science, technology and the media are collectively used to control human behavior.

U.S. patent law is rooted in incentivizing inventors to innovate in, among others, the fields of science and technology. The current patent reform initiative is steeped in media jargon promising job creation for America at a time when jobs are desperately needed. Unfortunately, there’s no data to support this promise. Indeed, all empirical evidence points to the likelihood that this patent reform will result in job destruction.

It goes without saying that Congress has the power, working in concert with the president, to reform or deform the patent system as we know it. In short, its members can change the patent laws of our nation in a manner that would reframe the social order pertaining to patents for better or for worse.

Giles S. Rich and Paul Rose, co-authors of the 1952 Patent Act governing our nation today, opined on the differences. They concluded that patent reform should be adopted if, and only if, the proposed changes increase the incentive force associated with our patent system.

A key incentive provided by our patent system is the incentive for inventors to disclose their invention in a patent application in exchange for the possibility that they may achieve a patent grant in return. The subsequent publication of the patent application serves to inform the public about the invention, and thus enables others, including competitors, to build upon it. The net result of this incentivization is to promote “the Progress of the Useful Arts” as mandated by Article 1, Section 8, clause 8 of the Constitution.

Certain provisions of the patent reform bill will have the ill effect of disincentivizing small inventors and startup companies from using the patent system in the first instance. One provision would award the patent to the first person to file a patent application on the invention, rather than the one who is actually the first to invent. Another provision would eliminate the “grace period” that has traditionally provided a safe haven to allow an inventor to get his or her invention “off the ground” without forgoing the opportunity to patent it. The net result is to change the social order for patenting in a manner that selectively demotivates small inventors and startups.

There is no reason to believe that such changes will benefit society as a whole. To the contrary, the proposed changes will work to society’s detriment by disincentivizing inventors who fear that they can’t possibly win a race to the patent office and can’t properly vet their invention with others before filing. In short, these changes will discourage these inventors from disclosing their invention in a patent application.

Discouraging disclosure of inventions undermines a key incentive of our patent system, namely the incentive to disclose, and thereby undermines the patent system as a whole by inhibiting third- party access to information about those inventions, thus slowing down the rate of innovation.

Another proposal in the patent reform bill would adopt the European-style opposition protocol–ambiguously described in the bill as “post-grant review.” Such a protocol is analogous to the inter partes re-examination form of post-grant review that is already available under the existing U.S. patent law. The fact that a European-style opposition procedure was adopted by Japan, China and South Korea two decades ago, and was subsequently abolished in each of those countries within a decade, should be enough to give Congress and Obama pause.

The call for the United States to adopt a European-style opposition procedure is not new. It was bandied about back in the late 1980s during the Reagan era, as a bargaining chip in trilateral talks among Europe, Japan and the United States in an effort to “harmonize” their patent systems. The United States chose not to harmonize and did not adopt such a system then. Unfortunately for Japan, it did. Our nation needs to recall that history now.

At this critical juncture in the patent reform debate, the salient questions are: Why would a country that is a world leader in inventiveness change its patent system to comport with that of a European protocol that has been tried and shown to fail elsewhere? Why adopt “first to file,” and eliminate the “grace period” for filing, in the absence of evidence that doing so will improve the inventiveness of our nation’s inventors, which it clearly won’t?

So far, Obama’s term in office has been unremarkable, to say the least. The reasons, for what can be described as an abject failure of leadership, are set forth in Drew Weston’s Aug. 7, 2011 opinion piece in The New York Times entitled “What Happened to Obama?”

Mindful of Huxley’s warning about our “new world,” we can only hope that Obama, if not Congress, will reflect upon the likelihood that a patent reform initiative that has been tried, and found to fail in other countries, should not be adopted because it is likely to fail here. Likewise, a patent reform initiative that demotivates inventors with limited means should not be adopted because it is the antithesis of the incentive system that our patent system was established to provide. Both initiatives would deform our patent system, rather than reform it.

If neither Congress nor Obama respond to the risk posed by the patent reform bill, Huxley’s apocalyptic vision of control over human behavior via manipulation of ownership of science, technology and the media may become a reality sooner than we think. Under those circumstances, history will have all the more reason to discredit Obama’s term in office.

Dale L. Carlson is a partner at Wiggin and Dana in New Haven, Conn., an adjunct professor of patent law at Quinnipiac University School of Law in Hamden, Conn., and immediate past president of the New York Intellectual Property Law Association, the largest regional IP law association in the country.

The court first examined claim 3, which had undergone a reissue examination.  Claim 3 is a method of first discovering the IP information normally used with the credit card and then determining if this indicative of a fraudulent transaction.

3.  A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

a) obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;

b) constructing a map of credit card numbers based upon the other transactions and;

c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The Court found this claim invalid under 35 USC 101, which states

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, subject to the conditions and requirements of this title.

Claim 3 is clearly directed to a process, but somehow the courts have decided to legislate from the bench and add additional requirements.  Here, the court argued that claim 3 did not meet either of the prongs of the machine or transformation test.  Which the court explained, “we held that a claimed process would only be “patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus; or (2) it transforms a particular article into a different state or thing.”  Step (a) requires obtaining information about other transactions on the internet associated with the credit card.  This is going to require a computer to access the internet and acquire this information and store it somewhere, probably on the computer.  In order for the computer to access the internet it needs a modem, which is an electronic circuit that generates voltage signals that are sent over the internet to another computer.  These are physical processes (transform voltages and currents) by machines.  A computer is a machine as is a modem.  This claim clearly meets both the machine and transformation prong of the test.

The court’s response that it would be possible for someone to just look at a previously compiled database of this information is inconsistent with the patent and reality.  The court ignores that a patent is presumed valid, which means that it MUST try to find an interpretation of the claim that is valid. Instead the court does the exact opposite.  A clear reading of the specification finds that a merchant will send credit card information to the internet verification system over the internet or at least over some communication system.  That means the method is tied to a machine, namely a computer and communication system comprising multiple computers.  It also means the computer is transformed.  The voltages stored in its memory change.  It makes no practical sense for this process to be undertaken by hand.  The merchant cannot have a customer wait for hours for a person to review a previously created written record (because if it is a database on a computer – it’s a MACHINE) to create the map of credit card numbers.  Then wait on the person to hand evaluate this information.  This process only makes sense when carried out by machines.  Retail Decisions is not arguing that they be allowed to carry the process out by hand to avoid the claims.  This line of reasoning is completely disingenuous.  This Courts’ reasoning makes a mockery of 35 USC § 282 and 35 USC § 101 and the machine or transformation test.

Claim 2 was a Beauregard claim—named after In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)—is a claim to a computer readable medium (e.g., a disk, hard drive, or other data storage device) containing program instructions for a computer to perform a particular process.  This case made it clear that you did not have to claim the computer to meet 35 USC § 101 requirements.  The Court just ignored this case and found claim 2 non-statutory for the same reasons as claim 3.  Whatever happened to stare decisis?  This is a clear case of Judicial Activism.

It is clear from the way the opinion was written that the judges felt the Cybersource patent was just too broad.  However, their reason for rejecting the claim was not on Novelty (102) or nonobviousness (103) it was lack of statutory subject matter.  The opinion seems to show a lack of understanding between the sections 101 and 102/103 of the code.

Non-Patent Attorneys on CAFC

This is another case that demonstrate that a requirement for being a judge on the CAFC should be that you were a practicing patent attorney, who actually prosecuted patent application.  In this case, none of the three judges are patent attorneys and Bryson and Dyk do not have a technical background.  The Court clearly did not understand how the invention worked.  They seem to believe that computer are not machines and perform mental processes.  They do not understand that computers are electrical circuits, the internet is made of computers, and all these computers are transforming voltages and currents, not unlike a transformer.  The judges showed confusion between different sections of the code and they ignored the previous ruling of their own Court.  Patent law is too important to be left to attorneys without the appropriate training.