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Archive for August, 2011


What do Keynesians and the Flat Earth Society Have in Common?

Both of them are impervious to facts – in others words, it is a religion.  The Flat Earth Society maintains that the Earth is flat instead of spherical despite overwhelming evidence, starting with Eratosthene’s measurement of the circumference of the Earth in 276 BC.  Keynesians continue to insist that government spending stimulates the economy.  If this were true, then  theft should also stimulate the economy.  For instance, Keynesians assert that “food stamps” (now the SNAP program) create economic growth.  If this were true,  why not just steal, since the recipient of the food stamps does not provide anything of value for the food they receive.

Perhaps this is just too theoretical for the true believers, such as Paul Krugman, who are mentally and reality challenged?  Perhaps the empirical results are ambiguous and I am just being too tough on them?  Well it turns out that a number of studies have looked at this issue.  For instance, the study The Size and Functions of Government and Economic Growth, shows that for ODEC countries the growth rate is inversely proportional to percentage of GDP spent by the government.[1] Below are pair of charts from this study.

This bar chart shows the average growth rate of a country versus its spending as a percentage of GDP.

This is a scatter plot that shows the growth rate over ten years of a country versus its spending as a percentage of GDP at the beginning of the decade.

Based on these two charts it appears that the United States’ growth rate is lower than the average for ODEC countries with similar amounts of spending.  My guess is that this is due to  the hidden tax of regulatory burdens and regulatory attacks on property rights.

Austerity Programs

These charts make it unambiguously clear that austerity programs do stimulate growth. However, raising taxes is not an austerity program.  Raising taxes is like a family tightening their budget by asking their boss for a raise or a company cutting expenses by raising prices.  A company that raises it prices as a way to meet its budget during an economic downturn, is likely to see less revenue overall.  In the case of taxes, the government is likely to see less revenue and less economic activity.  The source of economic growth are  increases in our levels of technology.  When people see less of a return or their ideas stolen when creating a new technology, or a business around a new technology, or just investing in new technology for their existing business, they are less likely to undertake this endeavour.

However, the TRUE BELIEVERS of Keynes and Socialism are not interested in evidence. As a result, you can expect President Obama to suggest that more government spending is necessary to grow the economy in his jobs summit/plan  speech in September.  See Biden Say U.S. Needs More Stimulus.


[1] Gwartney, James; Lawson, Robert; Holcombe, Randall, The Size and Functionsof

Government and Economic Growth, Joint Economic Committee, 1998, http://www.house.gov/jec/growth/function/function.pdf .

 
Cybersource v. Retail Decisions: 101 Judicial Activism

This case is another example of the courts ignoring the statutory language and not understanding basic technical and patent concepts.  Cybersource invented a process for determining if credit card fraud was likely in an online transaction based on the relationship between the IP (Internet Protocol) information’s past association with the credit card.  They sued Retail Decisions for infringement of their patent 6,029,154 and Retail Decisions counter that the claims were unenforceable because they were not directed to statutory subject matter.

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.

 

 
The Great Patent Debate: The Untold Story

There are zillions of stories complaining about how some innocent multinational company is being sued for patent infringement by some evil company that does not even make a product.  However, you never hear of the story of the start-up company that has filed for a patent, gotten the run around by the Patent Office and could not raise funding because their patent has not issued.  Well here is one of these stories, which are much more numerous than the supposed lawsuit problem.

This company was founded in 2003 by a cardiothoracic surgeon and two engineers.  Their invention is a product and service that could save the U.S. as much as a $1 Billion a year in heart related procedures.  The inventors filed a patent in 2004 probably spending as much as $10K of their limited capital.  They then performed various experiments including arranging animal trials with a major veterinarian university.  The animal trials were overwhelming successful and most cardiothoracics surgeon would have thought their results impossible.  In 2007, the company filed a continuation-in-part to incorporate their new information.  The company waited two years for the patent office to finally examine their patent application.  The patent office’s rejection showed that they did not understand the basic concept behind the invention.  Despite numerous interviews with the examiner and the supervisor, they continued to cite even more outrageous prior art references that taught away from the company’s invention or were just plain irrelevant.  A key insight of the invention is that it did not cauterize or damage the tissue near a puncture.  Every other reference showed this feature.  The patent office provided absurd definitions for words in order to reject the claims.  For instance, they suggested the word “punch” meant rotation.

The company raised these issues with the examiner, the examiner’s supervisor, and the head of the group art unit.  None of these people was willing to listen to reason.  Finally, the company filed four affidavits.  Two were from medical doctors who treat heart conditions, one was a veterinarian who performed the experimental surgery and one was from a professor of communications who specializes in technical and scientific communications.  All the doctors stated that the company’s invention was revolutionary, was not at all like the prior art, and likely to lead to tremendous improvements in heart procedures.  The professor of communications explained that the patent office’s interpretation of the terms in the patent did not pass the laugh test.  Finally, the examiner relented and allowed four of the claims, while citing new prior art against the other claims. This new art was introduced after two years and five responses and one preappeal, which cost the company its start-up capital and lost time.

The human cost to this bureaucratic inefficiency (ineptitude) included the fact that one of the people the company hired to find financing died of a heart attack while waiting on the patent office.  The surgeon-inventor’s daughter, who had helped out with the company, died in surgery while waiting on the patent office, and the surgeon had a couple of heart related procedures.  If the surgeon could have substituted his invention for the standard treatments, he would not have had to undergo multiple procedures.  However, this just scratches the surface of the cost of this bureaucratic nightmare.  If this company had received its patent efficiently and timely, it would have created tens of hundreds of jobs and saved the lives of thousands of heart patients and saved millions of dollars spent on medical care.

This is just one example of the problems created by underfunding the patent office and politicizing the patent process.  There are hundreds of thousands of these stories – at least ten times as many as the legitimate complaints about frivolous patent lawsuits.  These cases are much more damaging to our economy, but the press and open source anarchists have captured all the attention.  We need to focus on the real problems with the patent system, which includes underfunding the patent office and a non-objective standard for what is patentable.  That is untold story of the Great Patent Debate.

 

 

 

 
Google, Motorola Mobility and the Patent Wars

Google agreed to acquire Motorola Mobility for $12.5 billion.  Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications.  The comments on this deal encompass all the insanity around the  Patent Wars.  Below I will discuss some of these issues

Business Deal

Is this a good deal for Google?  Does it make economic sense?  In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception.  The biggest risk is that Motorola is bit bureaucratic.  They were slow to develop CDMA phones in the 90s and never completely recovered.  Motorola has been hardware focused, when the industry is clearly being driven by software advances now.  The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Andriod market space.

Innovation and Paying for Patents

There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products.  Actually, spending money on patents IS spending money on engineers.  Engineers created the inventions and the patents just provide legal title to the inventions.  When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers.  If inventions are not protectable, companies do not spend more on engineers they spend less.  They just take other people’s inventions, rather than paying for internal or external development.  In fact, you can trace engineering salaries and employment to strong patent laws.  Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.

New products are the result of inventions.  Increases in our level of technology are what make us wealthy.  When people pay for patents (inventions) it encourages other people to innovate, it does not discourage innovation.

Too Many Overly Broad Patents being Issued

There has been a lot of wailing about too many over broad patents being issued.  This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges.  Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?

All objective measures of patent quality have been increasing for years.  For instance, the GDP per patent, R&D dollars per patent, and number of citations per patent have all been on the increase.  For more information see Patent Quality Nonsense.

Do some bad patents get issued?  Absolutely and some of my clients have been affected by this.  However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims.  They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.

Litigation Explosion

Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed.  However, the facts do not support this point of view.  Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.

 

Solutions

Are there any problems with our patent system?  Absolutely.  The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent.  But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights.  I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers.  For more information see Patent Wars a Market Solution.

Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

 

 
8 Millionth U.S. Patent Issues

According to the USPTO website, 8,000,000 patent issued today, August 16, 2011.  The patent is entitled “Visual Prosthesis” and the inventors are Greenberg, Robert J. (Los Angeles, CA, US), Mcclure, Kelly H. (Simi Valley, CA, US), Roy, Arup (Valencia, CA, US).  The patent is assigned to Second Sight Medical Products Inc.  The patent took almost four years from filing, October 18, 2007, until issuance.  Hopefully, this company did not need this patent to secure funding, which is common.  This illustrates one of the major problems with our patent system – namely the absurd length of time it takes to get a patent issued.  A patent is a property right and if it took you four years to obtain title to a car or house or stock you bought you would think you were living in a third world country.

According to the Patent Office’s press release the patent explains:

In a healthy eye, the photoreceptors (rods and cones) on the retina convert light into tiny electrochemical impulses that are sent through the optic nerve and into the brain, where they are decoded into images.  If the photoreceptors no longer function correctly, the first step in this process is disrupted and the visual system cannot transform light into images, causing blindness.

The system awarded patent number 8,000,000 is designed to bypass the damaged photoreceptors altogether.  A miniature video camera housed in the patient’s glasses sends information to a small computer worn by the patient where it is processed and transformed into instructions transmitted wirelessly to a receiver in an implanted stimulator.  The signals are then sent to an electrode array, attached to the retina, which emits small pulses of electricity.  These electrical pulses are intended to bypass the damaged photoreceptors and stimulate the retina’s remaining cells to transmit the visual information along the optic nerve to the brain.

Of course, I am sure that the patent critics will complain that this patent is an example of how the Patent Office issues bad, overly broad, patents for inventions that were created years ago.  This is clearly obvious in light of modern electronics and an understanding that the brain is really just electrically signals.  What is unique about converting light signals into electrical signals anyway?  It really all boils down to wiggling electrons, which has been done since man first harnessed fire.  I am sure that the critics will point out how this patent does not encourage innovation and is just legal title to sue and waste resources that would be better spent on engineers????????????????????????????????

 

 
IPBiz on Mark Cuban’s Comments on Patents

Mark Cuban, owner of the Dallas Mavericks, has been weighing in on patents and patent deform (America Invents Act).  Lawrence Ebert, who writes IPBiz, has an excellent analysis entitled, Mark Cuban on patent law: who wants to make lawyers happy anyway ?.  According to IPBiz, Cuban argues

Pick any country that is currently doing well, China is a perfect example. In China the Intellectual Property Laws are so weak that someone thought it was a good idea to completely replicate Apple retail stores. Compare their economy to ours. As much as I hate to compare other economies to ours, it’s worth taking a look .

Ebert’s  response is right on: S

Sure, free riders can have a great run, up to the point that they run out of creators to steal from.

Mark Cuban made his money being reseller of software.  He has no experience in trying to create an invention and then market the invention and then have another person steal your inventive effort.  Mr. Cuban might feel different if I broadcast his Dallas Mavericks without paying him a licensing fee.  Intellectually and morally it would be exactly the same position and think of all the money I would make.

 

 
Welcome to the Global Financial Meltdown

With the roller coaster ride of the stock market as well as the S&P downgrade of U.S. government debt there are a variety of pundits weighing in on the direction of our economy and the stock market.  For instance, Steve Forbes on FOX news suggested that U.S. economy and stock market is poised to explode, especially after the 2012 elections.  There have been a number of pundits suggesting or speculating whether the present situation is analogous to the market crash in 1987.  Others have suggested that since the debt crisis of 2008 we have just kicked the can down the line.  They use the analogy of a hurricane and suggest 2008 was the leading edge of the storm and that we have been in the eye of the storm recently, but we are about to enter the trailing edge of the storm.  Most of these pessimists see this trailing edge of the storm as likely being worse than the leading edge.  So who is right, the bulls or the bears?

First, it is clear that we have not dealt with our debt problems.  The initial solution to the 2008 debt crisis in most countries was to nationalize the debts of major banks and provide no cost loans to multinational companies from the central bank.  The follow up solution in the U.S. was to increase government spending by 50% in a single year and use this as the new baseline.  As the debt crisis spread to the PIGS of Europe, the solution has been to provide more debt to struggling countries.  This debt has really been used to shore up German and French banks that loaned money to the PIGS.  So far all this spending has failed to result in meaningful economic growth or job creation.             Second, it is clear that the U.S. does not have the political will to cut spending or entitlements that are driving spending.  Optimists point to the fact that the U.S. had a similar debt to GDP ratio in 1946.  However, in 1946 we did not have eight decades of increasing entitlement programs and unfunded liabilities.  Our unfunded liabilities exceed our assets.  Total U.S. government spending as a percentage of GDP has grown from around 21% at the end of World War II to almost 40% today.  No country has been able to spend this much of their GDP and have sustained, vigorous growth.

Third, the proposed solutions by the present political leaders is based on Keynesian ideas of spending more government money and additional loans to prop up failing governments/banks.  These ideas have been tried not only for the last three years in the U.S., they have been tried around the world at least since the 1930s and they have failed every time they are tried.  Keynesians point to World War II, but the reality is that Roosevelt changed course on his economic policies when he saw WWII coming.  He appointed pro-business advisors and quit attacking businesses.

In order to achieve sustained growth, we need to not only cut government spending, but we need serious regulatory reform.  The present regulatory structure is completely biased towards more regulation and more intrusive regulation.  We need a mechanism that changes this bias if we are going to have sustained growth.  One potential solution would be a Regulatory Bill of Rights.

All real per capita growth is the result of increases in our level of technology.  In the U.S. this means we have to create new technologies.  There are a number of things inhibiting start-ups that created new technologies.  First Sarbanes Oxley and Dodd Frank make it almost impossible to go public today.  It is easier to gamble away your money in Vegas than invest in a technology start-up company.  Second, we have consistently weakened our patent laws, which are property rights in technology.  As a result, it takes years to obtain a patent and then your rights are much less secure than 15 years ago.  As a result, the major asset of technology start-ups has been weakened.  Third, we have one of the highest marginal and effective corporate tax rates in the world.

Last, we have a completely dysfunctional tax system.  The total federal revenues being collected from all sources at the federal level is about 14% of GDP.  We have over 3000 pages of tax laws with mind numbing complexity to collect this small percentage of GDP.  Clearly, a number of politically favored people pay almost nothing, while the rest of us are taxed at exorbitant rates.  Arthur Laffer has proposed that a 12.1% flat tax would bring in the same revenue as all our federal taxes.  This would save trillions in compliance costs.

 

1987 or 1930?

Is the better analogy for today 1987 or 1930?  Well our fate is not foreordained, but we have huge number of problems to overcome.  In 1987 the U.S. was following basically sound economic policies.  Warren Buffet made a fortune buying stocks in companies in the late 70’s and early 80’s, but if Reagan and the country had not changed course, Buffet might have just as easily looked to be the biggest sucker instead of a brilliant investor.

The odds are much more likely that 1930 is the better analogy for where we are today.  A global financial meltdown is likely to start in Europe or Japan and spread to the U.S.  The U.S. is in no position to weather this storm and is unlikely to take serious measures to withstand the meltdown even if fiscal conservatives were to have majorities in all branches of the federal government.  The most likely situation is a global financial meltdown before the U.S. can get its act together.

Welcome to Global Financial Meltdown!

 

 
Patent Wars: A Market Solution

There have been numerous articles complaining about patent lawsuits such as those being filed against Google and the Andriod apps developers.[1] For instance, see Mobile Computing Giants in Patent Free-for-All, in the Silicon Valley MecuryNews.  These articles often complain about the cost and time involved in litigating patents.  In this article, I will propose a market oriented solution to resolving these issues.

The solution involves creating a voluntary association of manufactures and inventors involved in a market space, such as the Andriod marketplace, that will quickly and inexpensively clear patent rights.  The Association would operate somewhat like a Standards Organizations, such as the IEEE P1394 (Firewire) Working Group that covers the IEEE 1394 High Speed Serial Bus.  These standards organizations often divide patents into various groups such as “essential” and “nonessential.”  The term essential patents usually means a patent that contains one or more claims that are necessarily infringed to practice the standard.  The members of the standards organization generally have to agree to license all essential patents on fair, reasonable, and nondiscriminatory terms to all members or to anyone.

The Association would also divide all patents of the members into “essential” and “nonessential.”  All members of the Association would be able to license the essential patents for the Andriod marketplace for a fixed percentage of their sales, such as 6%.  The Association would then rate the essential patents and each member of the Association who had essential patents would receive a portion of the royalties received based on the number and value of patents that are part of the essential pool.  The Association would also keep a list of nonessential patents and the terms that members were willing to license them under.  Members would be strongly encouraged to license all patents or fair, nondiscriminatory terms, under the theory that they will generally make more money emulating the VHS model than the Betamax model.

If a non-member of the Association asserted a patent against any of its members that was determined to fit in the essential category, the Association would undertake an independent analysis of the claim.  If it were determined that the asserted patent covers an essential part of the standard and is valid, then the Association would undertake to license the patent for all members and/or the Association would start developing a design around.  If the asserted patent was believed to not be infringed by practice of the essential part of the standard, but it was asserted that the patent does cover the essential part of the standard, then the Association would undertake the defense of against asserted patent.  The Association would also begin an effort to design around the asserted patent.  If practice the patent is not alleged to be essential, then the Association would only undertake a defense if a significant number of the members would be affected if they were found to infringe the patent.

If there is a patent contention between two members of the Association about a patent(s) mainly related to the Andriod market space, then the members would agree that the case would be resolved based on limited discovery rules, limited defenses, literal infringement only, limited times to present your case, and strict timeframes (3-6 months) in which a ruling is made.  The panel adjudicating the case would be made up of 3-5 judges selected from members/employees of the Association.  The judges will include both technical people and patent attorneys.  All technical people serving as judge will have to take a course in the basic principles of patent law.  The judges would only decide whether infringement existed, not damages.  The parties could appeal the decision in federal court, but members would have to agree not to retry issues unless new evidences was presented and a strong presumption would apply to the Association decision.

Other functions of the Association would include performing basic clearance searches and opinions for members, providing technical advice on how to implement the standard, helping Members explain the technical aspects of their non-essential patents.  The technical employees of the Association would also create interoperability guidelines so that software and hardware inventions can easily be integrated in with existing products.  This should increase the speed at which new inventions are integrated into the marketplace.

The Association would be funded with a one-time membership fee and with a percentage of the royalties collected.  For instance, the Association might keep 1% of the 6% charged for the essential patents.  As a result, the Association would have only a minor impact on the cost structure of the market at worst and most likely would reduce the overall costs of Association members.  The Association would also charge fees for adjudicating patent disputes between members.

This article provides an outline for a market oriented solution to the patent wars in the wireless market place.  Clearly, the details of how the Association would operate would have to be further defined.  However, this outline clearly shows that a market oriented solution to reduce the costs and time associated with patent disputes can be achieved.

 


[1] I have written on this issue before, but this post was inspired by my interview with Maisie Ramsay, Associate Editor, Wireless Week, on the patent wars in the wireless space.

 

 

 
Association of Molecular Pathology v. USPTO

The CAFC opinion in this case was issued on July 29, 2011.  This case has alternatively been known as ACLU v. Myriad or the Myriad gene patent case.  In a 2-1 decision, the Court of Appeals for the Federal Circuit (CAFC), stated that patents to isolated genes are patentable subject matter (35 USC 101), they found the comparing and analyzing method claims were not directed to patentable subject matter, and found Myriad’s method claims to screening potential cancer therapeutics via changes in cell are patentable subject matter.

Isolated Genes Claims

The opinion explains, “It is undisputed that Myriad’s claimed isolated DNAs exist in a distinctive chemical form—as distinctive chemical molecules—from DNAs in the human body, i.e., native DNA.  Native DNA exists in the body as one of forty-six large, contiguous DNA molecules.”  p. 41  Since isolated DNA is distinct and man made, it is patentable subject matter.

Moore in his concurring opinion points out:

In contrast, mere purification of a naturally occurring element is typically insufficient to make it patentable subject matter.  For example, our predecessor court held that claims to purified vanadium and purified uranium were not patentable subject matter since these were naturally occurring elements with inherent physical properties unchanged upon purification.  See In re Marden, 47 F.2d 958, 959 (CCPA 1931)

He distinguishes these cases as, “Isolation of a DNA sequence is more than separating out impurities:  the isolated DNA is a distinct molecule with different physical characteristics than the naturally occurring polymer containing the corresponding sequence in nature.” P. 11 Moore He further states, “I decline to extend the laws of nature exception to reach entirely manmade sequences of isolated DNA, even if those sequences are inspired by a natural template.” P. 14 Moore.  He further explains the difference between this case and purified vanadium or uranium as, “Given the chemical differences highlighted by Judge Lourie’s opinion and discussed  supra, the mere fact that the larger chromosomal polymer includes the same sequence of nucleotides as the smaller isolated DNA is not enough to make it per se a law of nature and remove it from the scope of patentable  subject matter.  The actual molecules claimed in this case are therefore not squarely analogous to unpatentable minerals, created by nature without the assistance of man.” P. 15 Moore.

Moore further takes on the red herring[1] debate about whether these sort of patents result in promoting science and the useful arts.  He points to David E. Adelman & Kathryn L. DeAngelis, Patent Metrics:  The Mismeasure of Innovation in the Biotech Patent Debate, 85 Tex. L. Rev. 1677, 1681 (2007), as clearly showing biotech patents have resulted in increase innovation.

Method Claims to Comparing and Analyzing

The courts stated, “We conclude that Myriad’s claims to “comparing” or “analyzing” two gene sequences fall outside the scope of § 101 because they claim only abstract mental processes.”  p. 50  This is clearly mistaken.  The step of comparing requires a physical and transformative process.  For instance, the process of sequencing a gene is a physical and transformative process it is not a mental process.  There is no other way to compare and analyze two gene sequences without the physical process of sequencing.  As explained by Myriad:

The steps of “extracting and sequencing DNA molecules from a human sample (is necessary)—before the sequences can be compared or analyzed.  According to Myriad, the district court failed to recognize the transformative nature of the claims by (1) misconstruing the claim term “sequence” as just information, rather than a physical molecule; and (2) erroneously concluding, in the alternative, that Myriad’s proposed transformations were mere data-gathering steps, rather than central to the purpose of the claims.  p. 49.

Method Claims to screening potential cancer therapeutics

The court in analyzing these claims states:

Starting with the machine-or-transformation test, we conclude that the claim includes transformative steps, an “important clue” that it is drawn to a patent-eligible process.  Bilski, 130 S. Ct. at 3227.  Specifically, the claim recites a method that comprises the steps of (1) “growing” host cells transformed with an altered BRCA1 gene in the presence or absence of a potential cancer therapeutic, (2) “determining” the growth rate of the host cells with or without the potential therapeutic, and (3) “comparing” the growth rate of the host cells.  The claim thus includes more than the abstract mental step of looking at two numbers and “comparing” two host cells’ growth rates. The claim includes the steps of “growing” transformed cells in the presence or absence of a potential cancer therapeutic, an inherently transformative step involving the manipulation of the cells and their growth medium.  The claim also includes the step of “determining” the cells’ growth rates, a step that also necessarily involves physical manipulation of the cells.  p. 53

The sad thing about the court’s analysis above is that it clearly applies to the method claims for comparing and analyzing.  You cannot compare and analyze without manipulating the cells.  Even if a non-mechanical method were found for sequencing a gene (e.g., an optical, x-ray of other analysis) this is clearly a physical process and transformative.  The court is being logically inconsistent between the method claims to comparing and analyzing and the method claims to screening potential cancer therapeutics.

While I do not agree with all the points made by Judge Lourie and Moore, these are thoughtful opinions by smart people who understand patent law and the underlying technology.  Note that both of these judges are patent attorneys and have advanced technical degrees.  Unfortunately, but not surprisingly, the same thing cannot be said about the dissenting opinion by Judge Byson.  Byson is neither a patent attorney and does not have a technical background.

Dissent

Judge Byson’s dissent boils the question down to, “whether an individual can obtain patent rights to a human gene.  From a common-sense point of view, most . . . observers would answer, Of course not.  Patents are for inventions.  A human gene is not an invention.”  This shows Judge Byson’s complete lack of understanding of the underlying technology.  Myriad did not patent a human gene, it patent an isolated human gene.  Isolated gene’s have value (utility) that non-isolated genes do not or the plaintiffs would not have filed this lawsuit.  Myriad did not patent a random segment of human genetic material, it patented a human gene that had diagnostic value.  Discovering that diagnostic value was the product of human intelligence.  An invention is a something created by man that has objective utility.  The isolated gene is created by man and it has objective[2] utility.  The dissent’s arguments show why the CAFC should be limited to patent attorneys.

 


[1] This is a red herring argument, because these same people do apply this standard to copyrights.  Do Disney movies really promote science and the useful arts?

[2] By “objective utility” I mean to distinguish this from a creation that only has aesthetic utility.

 

 

According to the excellent blog Gametime IP “The cloture vote will occur on Tuesday, September 6th after 5:30pm. Cloture will cut off debate and bring Patent Reform to a final vote.”  This is bad news for independent inventor, bad new for American innovation, and bad news for the U.S. economy.

 

 

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