Friday fantasies

Here's a reminder for readers who quite properly concern themselves with such trivia as whether they are giving (or taking) legal advice that comes from a reliable source.  The Official Journal of the European Union has published on a number of occasions the following Notice to Readers:

Council Regulation (EU) No 216/2013 of 7 March 2013 on the electronic publication of the Official Journal of the European Union 

In accordance with Council Regulation (EU) No 216/2013 of 7 March 2013 on the electronic publication of the Official Journal of the European Union (OJ L 69, 13.3.2013, p. 1), as of 1 July 2013, only the electronic edition of the Official Journal shall be considered authentic and shall have legal effect. 

Where it is not possible to publish the electronic edition of the Official Journal due to
unforeseen and exceptional circumstances, the printed edition shall be authentic and shall
have legal effect in accordance with the terms and conditions set out in Article 3 of
Regulation (EU) No 216/2013.

Bangladesh: do brand owners contribute
to the problem -- and can they help to part
of the solution?

Around the weblogs. Class 46 announces that MARQUES's Rapid Response seminar on the latest EU trade mark reform proposals this coming Monday is now so popular that it's going to be webinared too. The same blog carries a request for feedback on the excellent draft paper on the unitary nature of the Community trade mark presented by Lukasz Zelechowski at the INTA Meeting in Dallas earlier this month.  On the copyright-focused 1709 Blog, John Enser wonders whether the leaked news an expected outbreak of site blocking orders against internet-based copyright infringers is likely to perturb rights holders, while the ever-inspirational Ben Challis takes a look at the latest developments concerning copyright trolls in that vast and increasingly interesting jurisdiction of Canada -- and indeed further south. The fifth Brave New World post in Don McCombie's series for PatLit delves into the mechanics of some of those dull but necessary things that make patent enforcement a reality in the new Europe, such as provisional injunctive relief, freezing of assets and orders preventing the destruction of evidence. Finally, shifting from Europe to Bangladesh, Neil Wilkof treats IP Finance readers to his thoughts on what it means for brand owners to be known to have sourced their high-value products from the factory complex in which so many workers so tragically died.

This Kat is delighted to learn that his friends at Edward Elgar Publishing -- which publishes loads of intellectual property books including the Research Handbooks in Intellectual Property Series (which this Kat edits: see eg here) --  has won the 2013 award for Independent Academic, Educational and Professional Publisher of the Year at the annual industry awards hosted by the Bookseller in London this Monday.  Congratulations, says this Kat, who adds that the folk from Edward Elgar are fun to deal with.

Next Wednesday, 22 May, if you are in London and have nothing better to do (and it may well be that there is nothing better to do), the Competition Law Association holds its second session on procedural rights -- a subject which should be of interest to IP experts too. The full title of the event is "Legal principles for disclosure in the antitrust context" and the speakers are Kassie Smith QC and Eddy de Smijter. The venue is the London office of Arnold & Porter UK LLP, International Financial Centre, 25 Old Broad Street [note for US readers: this street is not named after any old broad ...], London EC2N 1HQ Click here for details.

Professor Hovenkamp
in visionary mode

Spanning two sets of dates (12 to 13 and 18 to 19 June), University College London's Faculty of Law  has a CPD course coming up on "Innovation, Competition Law and IP Rights". This course has been put together by UCL's Centre for Law, Economics and Society and it is taught by Professor Herbert Hovenkamp (University of Iowa). The 16 CPD points come at a price --you have to take 16 hours of tuition in order to get them.  The course analyses the value of competition law in addressing a variety of practices used in innovation-intensive markets. These include the interconnection of networks, ‘duties to deal’, the licensing and distribution of IP rights (standard setting organisations and patent pools) and reverse settlements as adopted by firms active in the manufacturing and delivery of services or non-practising entities, drawing from examples in both EU and US law. You can get further details and register here.  Best of all, if you quote your VIP Katcode of  ipkat2013hovenkamp, you can enjoy a full 10% discount off of the standard ticket price.

If the judges are like this, what
must the enforcers be like?

Tipple Dine with TIPLO? The Intellectual Property Lawyers Organisation (TIPLO) is hosting its next dinner on Tuesday 6 June. The subject? "The Enforcement Directive comes of age, its effect on IP remedies including: Damages after Boehringer II and Hollister, Final injunctive relief, Punitive damages, Blocking injunctions and Publicity orders after Apple v Samsung".   This promises to be a seriously internationally event, since there will be a discussion of the English and Scottish experience led by Mr Justice Birss and Lord Glennie.  Lord Justice Floyd is chairing the event, no doubt to add a touch of sobriety to the proceedings. Further particulars and registration here.

"What's in it for us?"

As if this wasn't enough, the lions and the lambs -- or at any rate their biped equivalents -- are lying down together.  The UK's Chartered Institute of Patent Attorneys (CIPA) and the Institute of Trade Mark Attorneys (ITMA) are commendably holding a joint seminar on "The 2013 Intellectual Property Bill -- What's in it for us [how lovely, says Merpel, to hear that question, so often camouflaged with euphemisms, actually asked directly!] and our clients?"  This is actually an extremely cogent and relevant half-dayer, manned and womanned by a strong team of practitioners drawn from not only the lions and the lambs but also from the ranks of the solicitors. It would be a shame to miss it even though 7 June does look suspiciously like a Friday afternoon. Click here for information, inspiration and registration.

Framing of videos: Court of Justice to rule

Merpel sniffs the water for
signs of pollution*

Yesterday the First Civil Senate of the German Bundesgerichtshof (BGH) -- one of the most active and influential national intellectual property courts you can ever hope to find in the new Europe -- referred a question regarding the framing of video content to the Court of Justice of the European Union. What the BGH wants to know is this: does the operator of a website who integrates copyright-protected third party video content, which is publicly available via another website, into his own website by way of so-called framing, infringe copyright of that content in the sense of Article 3(1) of the InfoSoc Directive?

What happened in this case was that the plaintiff in the national proceedings, who made and sold water filtration system, created a promotional video ("The Reality") on the topic of water pollution and owned the copyright in the video. This video was also available on YouTube, without the applicant’s consent. The two defendants, independent sales representatives of a competitor, each ran websites on which they advertised their products. In summer 2010, they let visitors to their websites retrieve the plaintiff's video by framing it: consumers could click on to a link that retrieved the video in question, which was then played from YouTube.

The plaintiff considers that the defendants made its video publicly available in the sense of Article 19a of the German Copyright Act and, alleging infringement, demanded damages. The trial court agreed and ordered the defendants to pay damages of €1,000), but this decision was reversed on appeal. The plaintiff then appealed to the BGH, seeking restoration of the trial court's judgment.

According to the BGH's press release, the BGH states that the appellate court had correctly assumed that the mere linking of content available on a third part website by way of framing is not a “making publicly accessible” within the meaning of Article 19a of the German Copyright Act, since it is the owner the third party website who decides whether the content remains accessible to the public. However, the BGH wondered whether this type of framing could fall under Article 3(1) of the InfoSoc Directive and therefore also under Article 15(2) of the German Copyright Act (which provides for an “unnamed exploitation right"), which must itself be interpreted and applied in the light of Article 3(1) of the Copyright Directive. The BGH therefore asks the CJEU whether this type of framing is a “making available to the public” in the sense of Article 3(1) of the InfoSoc Directive which states: 

“Right of communication to the public of works and right of making available to the public other subject-matter: 

1. Member States shall provide authors with the exclusive right to authorise or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them”.

Decision of 16 May 2013 - reference I ZR 46/12

Further reading: here

* Photo by Magnus Manske

The IP Lawyer's Nightmare: "But Everyone Else Does It"

This blog is about one of the most dreaded moments in the life of any IP attorney. You have been asked by your client whether it can take some action, such as use of certain content taken from the internet or adoption of a trade mark "based" on the mark of another person. You review the situation and advise the client that it would be better if it demurred from making use of those contents or adopting that mark. Then comes the client's retort—"But everyone else does it." The mettle of an IP lawyer is often measured by your response to that comment.

Before we weigh up a possible reply, however, let's consider a bit of cultural background. One of the most widely-used slogans of the past decade is "the wisdom of the crowd". While there is inherently nothing new about the concept per se, what is interesting is the apparent change of perception in the role of the broader collective as a source of knowledge, if not confirmation and validation of such knowledge. This Kat remembers preparing for his State of Ohio bar examination over 30 years ago. Before entering into the exam room, we were told by those who sought to prepare us—"Don't discuss the questions with your fellow examinees during the break. It will only depress you. After all, you collectively are always smarter than you are individually." Yes, the crowd might be a source of wisdom, but that wisdom was not necessarily benign.

Indeed, we were all supposed to be a little like Will Kane, standing out there on our own, firm in our principles. Will Kane was the iconic character played by Gary Cooper in the classic 1952 movie, "High Noon", here here. Marshall Kane is ultimately forced to stand up alone in the middle of dusty town in the American Wild West against ex-con Frank Miller and his murderous henchmen. Kane prevails (with a little help from his new bride, played by Grace Kelly) and the message that "High Noon" sent to generations of viewers was clear. When the chips are down, and the issue at hand is about what really matters, you can only rely on yourself. The crowd is transient, unreliable and fickle—as for wisdom, you have to look elsewhere.

Things have certainly changed. "But everyone else does it" is now a form of prima facie validation, designed to enable the client to obtain the result that it prefers, even at the price of challenging, if not undermining, the authority of one's IP counsel (not that this Kat is suggesting that any of his clients is akin to Frank Miller). The ubiquity of digital content makes it easy to determine what information is out there and, e.g., to identify quickly any number of examples of competing websites that contain similarly accessed contents or make use of seemingly confusingly similar marks. Faced with such factual examples taken from the collective, what is the IP lawyer to say in response? After all, weren't we trained to respect facts and fashion our conclusions accordingly (as attributed to John Maynard Keynes, "When my information changes, I alter my conclusions. What do you do, sir?" ).

So what will it be for the IP attorney, a change of view in light of the wisdom of the crowd, or a resolute stand of his position, as in the case of Will Kane? Indeed, this Kat wonders how many of us have altered, if even slightly, our legal advice, having been confronted with the wisdom of the crowd. Do we reply by saying that "I agree that the legal issue may not be totally black and white, but my view remains unchanged"? Or do we rely on the dynamics of the fait accompli—"Whatever the ultimate legal right and wrong here, you have already made the decision and you can at least enjoy the legal certainty that goes with it"? Or do we fall back on the unique factual circumstances of each instance—"I don't know about the facts in these other cases"? Or do we emphasize risk analysis—"The fact that 'they' are also doing it does not make it all right, but it only shows that the rights-holder cannot go after everyone. It's your call." Whatever the response, you can then can only pray that the client does not threaten to take the matter up with the senior attorney.

No doubt the wisdom of the crowd in the digital age has yielded some palpable benefits, such as crowd-funding sources of the ilk of Kickstarter, here. But enabling one's client to challenge one's legal IP advice by claiming that "everyone does it" is not one of them.

More on "The Wisdom of Crowds" here.

Carry-on over Cariou: when works are transformative 'as a matter of law'

In a world of fluctuating intellectual property law, we are used to seeing trends of judicial thought drifting first in one direction and then in another, as courts struggle to maintain the balance between rights owners and their competitors and between the rights of consumers and individuals and the rights and expectations of businesses. But there may be few more fascinating, and regularly shifting, areas of judicial juggling than that of the application of the doctrine of fair use under United States copyright law.  In the piece that the IPKat publishes below, Katfriend and guest blogger Philippa Malas takes a look at a recent US decision in which the dynamics of the see-saw between user liability and user entitlement are clear for all to see: the ruling in Cariou v Prince.  As Philippa explains:

Mr Jones by Cariou ...

Late last month, the US Court of Appeals for the Second Circuit handed down judgment in Cariou v Prince.  As some readers may be aware [particularly if they spotted Iona's post on the 1709 Blog, here], the photographer Patrick Cariou brought an action for summary judgment against artist Richard Prince for copyright infringement in 2008 (Cariou v Prince, 784 F. Supp. 2d 337, 349 (S.D.N.Y. 2011)).  The original proceedings found in Cariou´s favour.   Permanent injunctive relief was granted and the defendants were ordered to “deliver up for impounding, destruction, or other disposition, as [Cariou] determines, all infringing copies of the Photographs, including the Paintings”.  The injunction covered sold and unsold pieces from Prince´s Canal Zone series in the defendants´ possession.  On appeal, Prince and co-appellant the Gagosian Gallery (and its proprietor Larry Gagosian) argued that the District Court used the wrong legal standard when it held that the fair use defence was not available because Prince´s work did not “comment on, relate to the historical context of, or critically refer back to the original works”. A number of parties acted as amici curiae (including the Andy Warhol Foundation, the Whitney Museum of American Art, the Guggenheim, and the American Society of Media Photographers) and the issues raised are likely to be of interest to those working in the visual arts. 

... and as he is treated by Prince

Patrick Cariou published a collection of photographic works called Yes Rasta in 2000.  The photographs were products of a six-year period Cariou spent living with Rastafarian communities in Jamaica.  7,000 copies of Yes Rasta books were printed with sales at just over $8,000.   Prince´s Canal Zone series was exhibited during 2007 and 2008, including a high profile exhibition at New York´s Gagosian Gallery.  The first piece, Canal Zone (2007), consisted of photographs torn out of Yes Rasta, attached to a plywood board, which Prince then painted over.  Prince obtained further copies of Yes Rasta and the resulting series Canal Zone numbered thirty-one works, with the majority incorporating images from Cariou´s book.  By 2010, sales of works from Canal Zone totalled more than $10 million.      

Under the US Copyright Act of 1976, 17 U.S.C. § 107, four criteria must be satisfied in order for a court to uphold fair use: 

´[T]he fair use of a copyrighted work […] for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for non profit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copy-righted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copy-righted work.´

The Appeals Court began by reminding that the US defence (broader than UK fair dealing) required ´open ended and context sensitive inquiry’.  After considering how Cariou’s work had been used (the first statutory element) and therefore, whether it was ´transformative´, the court concluded that ´[t]he law imposes no requirement that a work comment on the original or its author in order to be considered transformative, and a secondary may constitute fair use even if it serves some purpose other than those […] identified in the preamble to the statute.´  In the opinion of the majority of the Appeals Court, the District Court was also wrong to place too much emphasis on Prince´s deposition testimony in which he said that he did not have any interest in Cariou´s original intent.  Instead, ´what is critical is how the work in question appears to the reasonable observer’ (following Campbell v Acuff-Rose Music, Inc., 510 U.S. 569 (1994) and Leibovitz v Paramount Pictures Corp., 137 F.3d 109, 113-14 (2d Cir 1998).  It was held that twenty-five out of the works ´were transformative as a matter of law´.    

A notable part of the judgment was the reasoning of why the works were transformative: Prince ´presented images with a fundamentally different aesthetic´.  The majority observed that side-by-side, Prince’s images gave Cariou’s photographs a ‘new expression, and employ new aesthetics with creative and communicative results’ and were therefore transformative.  The extent to which legal scrutiny borders on factual and artistic interpretation is certainly an interesting feature of the appeal judgment.  Judge Wallace was troubled by the degree to which his colleagues embraced an artistic commentary.  In his dissenting opinion, he noted that ‘after correcting an erroneous legal standard employed by the district court, we would remand for reconsideration’.  He also dismissed the majority’s application of Brownmark Films v Comedy Partners, 682 F.3d 687 (7^th Cir.2012) that ‘transformative’ could be determined on a side-by-side analysis of the artworks and argued that the court’s inquiry should not be limited to ‘our own artistic perceptions of the original and secondary works’. 

Judge Wallace might have a point.  The court only applied the defence to twenty-five out of the thirty works and surmised that Prince’s works ´sufficiently differ from the photographs of Cariou´s that they incorporate for us to confidently make a determination about their transformative nature as a matter of law´.   Reader note: ‘as a matter of law’.  However, in relation to five of Prince’s creations, the majority found that ´although the minimal alterations that Prince made […] moved the work in a different direction from Cariou´s classical portraiture and landscape photos, we can not say with certainty at this point whether those artworks present a “new expression, or message”’ (as in Campbell).   Wallace J noted: ‘…while I admit freely that I am not an art critic or expert, I fail to see how the majority in its appeallate role can “confidently” draw a distinction between the twenty-five works that it has identified as constituting fair use and the five that do not’.  In his mind, the entire case (all thirty works) should have been remanded for further proceedings in the district court after the point of law had been clarified. 

Some argue that the case does not offer much on how ‘transformative’ should be assessed in the future.   It was said in Mattel, Inc. v Walking Mountain Productions, 353 F.3d 792, 802, n. 7 (9th Cir.2003), that the court does “not make judgments about what objects an artist should choose for their art.”   The decision in Prince avoided creating a rule that any cosmetic change to a photograph would constitute fair use.  Is not transformative surely better judged on a case-by-case basis?  Yet a few days after Prince was handed down, the difficulties of the area reappeared when the Los Angeles District Court concluded that Thierry Guetta had infringed Dennis Morris’s copyright by painting a copy of Morris’s photograph of Sid Vicious on to a wall.  Whether this discrepancy was created in light of the original finding in Prince is yet to be seen and, while both cases fall within the US jurisdiction, the art market is an international market and such cases could have implications for European artists transacting in the US.

The IPKat, who can't help feeling just as puzzled after the Court of Appeals' decision as he was before it, hopes that the substantial publicity generated by this litigation will have generated sufficient further sales of Cariou's and Prince's works to cover the cost of their legal fees.

Merpel wonders whether the judiciary are any better equipped by their qualifications to rule on matters of applied aesthetics of this nature than artists are able, by virtue of their skill and training, to rule on matters of law.

From Alice to Apple: patentable subject matter crosses the Atlantic

The theme of patentable subject matter, as laid down by statute and as interpreted by the courts, was the subject of a careful and detailed analysis by Professor Norman Siebrasse in his guest post yesterday on CLS v Alice.  By way of contrast with the treatment of this issue in the United States, Norman takes a look at a very recent decision of the Court of Appeal for England and Wales in HTC Europe Co Ltd v Apple Inc [2013] EWCA Civ 451 (Kitchin, Richards and Lewison LLJ var’g [2012] EWHC 1789 (Pat) Floyd J). Writes Norman:

In yesterday’s post I suggested that US case law relating to patentable subject matter is chaotic because the USSC has attempted to create field-specific exclusions to patentability using the rule against abstract claims. The only way out is legislative amendment. But not any legislation will do, as is demonstrated by EPC Art 52, which prohibits patenting of “discoveries, scientific theories and mathematical methods. . .methods for doing business, and programs for computers,” but only when claimed “as such.” The “as such” caveat implies that if the invention is claimed as a practical application in a computer system, it is patentable; but if that is so, it means that computer programs are effectively patentable, and the exclusion is rendered meaningless. Thus, Art 52 legislatively enacts the same judicially created contradiction that is responsible for the morass of US law. Unsurprisingly, UK law is doctrinally equally confused. However, the English judiciary appear to be less ideologically divided among themselves and, if the law is still lacking in doctrinal clarity, some practical regularity appears to be emerging. In particular, it seems from the recent decision of the Court of Appeal for England and Wales (EWCA) in HTC v Apple [2013] EWCA Civ 451 that computer programs will generally be patentable. In contrast, from earlier decisions, in particular Aerotel / Macrossan [2006] EWCA Civ 1371, it seems that business methods will generally not be patentable.

Making a technical contribution?
a computer that thinks like a cat ...

European law has attempted to resolve the contradiction in Art 52 by an appeal to the question of whether the invention has made a “technical contribution” to the art [44]. As Lewison LJ laments in his concurrence at in HTC v Apple at [143] “[i]nstead of arguing about what the legislation means, we argue about what the gloss means.” And as Kitchin LJ forthrightly acknowledges in the lead opinion, “it is not possible to define a clear rule to determine whether or not a program is excluded” [45]. While there are a variety of signposts identified by Kitchin LJ, two in particular point to a fairly generous approach to software patents. One is that a technical contribution may lie in the solution to a technical problem “whether that problem lies inside or outside the computer” [49]. A second point, newly affirmed at the EWCA level in HTC v Apple, is that a program is likely to be patentable if it “makes a computer a better computer in the sense of running more efficiently and effectively as a computer” [51]. Together, these guideposts suggest that almost any invention that can surmount the inventive step and utility hurdles will be patentable subject-matter.

On the facts of the case, the question of subject matter was raised in respect of patent 2 098 948, in which the inventive concept is to use a flag in the operating system of a touch-sensitive device, such as a smart phone, to allow the touchscreen to ignore or accept multiple touches, thus sending a simplified signal to an application which did not use multiple touches. The main advantage of this invention is to make it much simpler to write applications for an operating system that embodies the invention [53]. The invention is to be implemented in software. The representative claim 1 was drafted in general terms: “A method for handling touch events at a multi-touch device, comprising: displaying. . . executing. . . associating. . . ” [31]. This claim was held to be invalid by Floyd J at first instance as being directed to a computer program as such [Pat 99]. The EWCA reversed on this point, saying the problem of how to deal with multiple touches is essentially technical [56], and it is of practical benefit in providing an improved interface for application programmers [58].

HTC v Apple is not formally inconsistent with Fujitsu Ltd's Application [1997] RPC 608 (CA) and Gale’s Application [1991] RPC 305 (CA), but those cases might very well be decided differently today. For example, Gale’s Application claimed an improved method for calculating square roots, to be implemented in ROM. In holding this to unpatentable, Nicholls LJ stated at 327 that “his program makes a more efficient use of a computer's resources. A computer, including a pocket calculator with a square root function, will be a better computer when programmed with Mr. Gale's instructions. So it may. But the instructions do not embody a technical process which exists outside the computer.” The latter point is now irrelevant, and the former point is now an important guidepost in favour of patentability.

The EWCA decision in HTC v Apple provides an instructive contrast with the US Federal Circuit decision in CLS Bank. “Device” in the ‘948 claim presumably ties it to a physical device, but it is nonetheless at least as general as the system claim at issue in CLS Bank, which was held invalid by five members of the panel. Moreover, in HTC v Apple neither level of court made much of the restriction to a “device.” As in Lourie J’s decision, the focus was on the substance of the invention concept, but while Lourie focused on whether that substance was abstract, the EWCA focused on whether it was a technical contribution. This is a fundamental difference, and the approach of the EWCA, as well as being more logical (in my view), is also more favourable to patentability of software. Thus the tides have turned. The US Federal Circuit has long extended the boundaries of patentable subject matter, but now it is retreating, while the English courts were initially more cautious, but have gradually developed the case law to a more accommodating stance. 

The IPKat gets Spicy - more detail on the Indian Supreme Court Glivec Decision

This Kat was delighted to be contacted by Katfriend Prashant Reddy of the most excellent Spicy IP blog (the place to go for masterful analysis of Indian IP matters) following his earlier post here, which rather criticised the novelty analysis of the Indian Supreme Court decision denying the patentability of the beta crystalline form of imatinib mesylate (Glivec).  Prashant kindly invited this moggy to contribute a guest piece to the blog.  This Kat found it very useful to revisit the issue, and address aspects of the issues that the first post did not cover.  Readers who were interested in the first post (and even those who were not)  may care to visit the Spicy IP blog and read it here.  Both Merpel and Prashant look forward to your comments.

Readers will note that Prashant is inviting further guest posts on the topic, so aspirant bloggers (or established bloggers wishing to expand their horizons) take heed!

Bowman v Monsanto: the US Supreme Court rules on patent exhaustion and replication of patented seeds

Yesterday, the Supreme Court of the United States delivered its long-awaited judgment in the case of Bowman v Monsanto Co. et Al., unanimously ruling that 'patent exhaustion does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder's permission'. The Court affirmed the decision rendered by the Court of Appeals for the Federal Circuit (which the AmeriKat analysed in detail here), observing that, if purchasers were allowed to replicate the invention, there would be a 'mismatch between invention and reward' and the patent would afford little protection to the inventor. Nonetheless, the judges warned that the doctrine of patent exhaustion might apply differently in relation to other self-replicating products. What follows is a recap of the facts of the case and the Supreme Court's decision.

Monsanto invented and patented (US Patent Nos. 5,352,605 and RE39,247E) 'Roundup Ready' soybean seeds, genetically engineered to survive exposure to N-phosophonomethylglycine (glyphosate) - based herbicides, including Monsanto’s Roundup® herbicide. Monsanto, directly or through licensed producers, sells the seeds to growers, under a special licensing agreement ('Monsanto Technology Agreement') which allows them to consume the resulting crop or sell it to local grain elevators or agricultural processors as a commodity. The agreement, however, allows growers to plant the seeds in one (and only one) season and prohibits the use of crop or second-generation seeds for replanting, or their sale to a third party for that purpose. 'These restrictions', explains the Supreme Court, 'reflect the ease of producing new generations of Roundup Ready seed', as the harvested soybeans inherit the glyphosate resistance embedded in the seeds' genetic material, a characteristic which would make it possible for growers to produce their own Roundup Ready seeds.

Vernon Hugh Bowman, a farmer from Indiana, purchased Roundup Ready seeds for several years, using them for his first crop of the season, in accordance with the licensing agreement. For the second crop of the season, instead, he purchased commodity soybeans, intended for human or animal consumption, from a grain elevator, and planted them in his fields, in order to avoid paying the premium price of Monsanto's seeds for a crop that the farmer considered 'riskier'. Bowman admittedly anticipated that, since most of the local farmers also used Roundup Ready seeds, many of the purchased soybeans would be second-generation, glyphosate-resistant, seeds, containing Monsanto’s patented technology. Bowman saved seeds from that crop to use them in the following year's late-season planting, and did so for eight consecutive years. Monsanto, after investigating the farmer's planting activities and confirming that the second-generation seeds contained the patented technology, sued Bowman for patent infringement. The farmer argued that, since Monsanto's agreement authorised local farmers to sell their crops to the grain elevator, from which he bought the seeds, he was protected by the doctrine of patent exhaustion. The Southern District of Indiana rejected the argument, and awarded damages of $84,456 to Monsanto. The Federal Circuit affirmed the judgment, observing that, even if Monsanto's patent rights in the commodity seeds are exhausted, 'once a grower, like Bowman, plants the commodity seeds containing Monsanto’s Roundup Ready technology and the next generation of seed develops, the grower has created a newly infringing article'. The patentee, in the Federal Circuit's view, retained the exclusive right to make the article. Citing Monsanto Co. v Scruggs et Al., the court held that the purchaser of a patented technologies which can replicate itself is not authorised to use replicated copies of it, as this practice 'would eviscerate the rights of the patent holder'.

The Supreme Court noted that, under the doctrine of patent exhaustion, 'the initial authorised sale of a patented item terminates all patent rights to that item' (Quanta Computer Inc. v LG Electronics Inc.): the rationale behind this rule is that, once a patentee has received his reward through the sale of the patented item, he has no further right to restrain the use or enjoyment of it (United States v Univis Lens Co.). However, the doctrine only applies to the 'particular article' sold and does not interfere with the patentee's exclusive right to use and manufacture the invention in relation to other items. In other words, the right to make new copies of the patented items remains with the patentee, as 'the patent holder has "received his reward" only for the actual article sold, and not for subsequent recreations of it'. Applying this principle, the Court found that:

Under the patent exhaustion doctrine, Bowman could resell the patented soybeans he purchased from the grain elevator; so too he could consume the beans himself or feed them to his animals. Monsanto, although the patent holder, would have no business interfering in those uses of Roundup Ready beans. But the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission (either express or implied). And that is precisely what Bowman did. He took the soybeans he purchased home; planted them in his fields at the time he thought best; applied glyphosate to kill weeds (as well as any soy plants lacking the Roundup Ready trait); and finally harvested more (many more) beans than he started with. That is how “to ‘make’ a new product,” to use Bowman’s words, when the original product is a seed... Because Bowman thus reproduced Monsanto’s patented invention, the exhaustion doctrine does not protect him.

If purchasers of the patented technology were allowed to replicate it, 'Monsanto's patent would

The IPKat would gladly replicate them...

provide scant benefit', as other companies could soon reproduce the product and market it to growers. Moreover, the farmers themselves could, after buying an initial round of seeds, multiply them and use later generation seeds in their fields, 'each time profiting from the patented seed without compensating its inventor'. This would create, in the Court's view, a mismatch between invention and reward.

The decision also follows the Supreme Court's teaching in J. E. M. Ag Supply Inc. v Pioneer Hi-Bred Int’l Inc., where the judges examined the relationship between the Plant Variety Protection Act and the Patent Act, establishing that inventors should be rewarded with a patent and explaining that only a patent holder could prevent purchasers of a protected seed from saving harvested seeds for replanting. Reasoning a contrario, the Court observed that, '[i]f a sale cut off the right to control a patented seed’s progeny, then (contrary to J. E. M.) the patentee could not prevent the buyer from saving harvested seed'. Thus, applying the patent exhaustion doctrine in the manner suggested by the petitioner would have contradicted the Supreme Court's earlier decision.

Although Bowman argued that seeds are meant to be planted and, therefore, that he merely used them 'in the normal way farmers do', the Court thought otherwise. It recognised that reproducing an article implies using it, but highlighted that reproduction falls, as held in previous case law (Cotton-Tie Co. v Simmons), beyond the boundaries of the exhaustion doctrine:

That is because, once again, if simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention. The undiluted patent monopoly, it might be said, would extend not for 20 years (as the Patent Act promises), but for only one transaction. And that would result in less incentive for innovation than Congress wanted. Hence our repeated insistence that exhaustion applies only to the particular item sold, and not to reproductions.

The Supreme Court noted that its interpretation of the patent exhaustion doctrine allows farmers to benefit from Roundup Ready, by planting, harvesting and consuming or selling the soybeans for consumption, while rewarding Monsanto for its innovation. This non-replicating use of the seeds, added the Court, was standard fare among farmers, as admitted by Bowman, who conceded that the beans sold by the grain elevator were intended for consumption, and that he knew of no other farmers who planted second-generation seeds bought from the grain elevator. Further, the judges criticised Bowman's 'blame-the-bean' defense, which argued that soybeans naturally self-replicate 'unless stored in a controlled manner', stating that the farmer 'was not a passive observer of his soybeans’ multiplication; or put another way, the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops'. It was Bowman, therefore, who controlled the reproduction, for eight consecutive generations, of the seeds protected by Monsanto's patents.

A cautious approach, perhaps sensitive to the concern expressed by some commentators, was exhibited towards the applicability of the exhaustion doctrine in relation to other self-replicating products. In concluding that, in the case in hand, patent exhaustion provided 'no haven' for Bowman's conduct, the Supreme Court added:

We recognize that [inventions related to self-replicating products] are becoming ever more prevalent, complex, and diverse. In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be a necessary but incidental step in using the item for another purpose. Cf. 17 U. S. C. §117(a)(1) (“[I]t is not [a copyright] infringement for the owner of a copy of a computer program to make . . . another copy or adaptation of that computer program provide[d] that such a new copy or adaptation is created as an essential step in the utilization of the computer program”). We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.

This closing statement addresses some of the criticism voiced against the Federal Circuit's decision. In an interesting paper entitled 'Self Replicating Technologies', Professor J. Sheff highlighted that 'not all self-replicating technologies are identical, and a categorical rule exempting them from exhaustion doctrine is unwarranted'. Although the Supreme Court did not go as far as identifying a criterium for modulating the patent exhaustion doctrine, as suggested in the paper (according to which, 'the application of the exhaustion doctrine should depend on the patentee’s ability to charge supracompetitive prices in its primary market where consumers are able to substitute secondary-market embodiments'), its final clarification appears to be a step in the right direction. Further, this Kat believes that focusing on the 'mismatch between innovation and reward' is a wise, yet frequently neglected, perspective to assess any patent case. When the reward is too low, as would be the case if the patent exhaustion doctrine applied in this case (and in many other situations, including unpatentable drugs and dormant therapies, as suggested by a well-educated reader - the IPKat plans on writing about this soon), courts and legislators are challenged with the task of strengthening protection; when the reward becomes too high, it is usually competition law that steps in. It seems, however, that investing in innovation might yield even greater benefits, for innovators, than legal battles: back in 2010, Neil highlighted that Monsanto was already 'refocus[ing] its strategic focus with respect to its patent portfolio from the first generation of bio-engineered seeds, which are close to expiration, in favor of promoting new versions of gene-modified products', letting its current patents 'expire without a fight'.

Wake up and smell the coffee: Arnold J gets real with consumables and indirect patent infringement

What happens when coffee and Kats
combine - something too cute to drink

The AmeriKat loves many things. Fresh lemonade. Kittens' paw pads. Summer thunderstorms. Napping. And Section 60(2) of the Patents Act 1977. It's true. There is something about the indirect infringement provisions, the scope of which is always up for debate between feuding parties and evidence in support somewhat ethereal, that makes the AmeriKat giddy with excitement. So when a decision about her beloved provision scurried into her inbox a few weeks ago, the AmeriKat rubbed her paws together. But, as always, more pressing matters got in the way. It was only this weekend she managed to get her whiskers immersed into Mr Justice Arnold's decision in Nestec v Dualit (see earlier post by Kat colleague Darren on this decision).


The case involved the famous Nestec Nespresso machines and specifically the coffee cartridges/capsules that are inserted into the machines to make that cup of legally addictive stimulants beloved by lawyers everywhere. Nestec is the owner of European Patent 2,103,236 which relates of a system comprising of a capsule extraction device which simply and inexpensively facilitates the insertion and the positioning of the capsule in the device. Nestec alleged that Dualit infringed its patent by supplying coffee capsules compatible with the Nespresso machines. As summarized by Darren, Arnold J held that none of the Nestec's claims were entitled to priority and as a result all the claims were anticipated by virtue of various prior art. " All well and good", says the Merpel, "but let's get to the meat that is the infringement claim."

Nestec argued that Dualit infringed its patents pursuant to section 60(2). Section 60(2, which is meant to have the same effect as Articles 26 of the Community Patent Convention, reads as follows:

(2) Subject to the following provisions of this section, a person (other than the proprietor of the patent) also infringes a patent for an invention if, while the patent is in force and without the consent of the proprietor, he supplies or offers to supply in the United Kingdom a person other than a licensee or other person entitled to work the invention with any of the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances, that those means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom.

(3) Subsection (2) above shall not apply to the supply or offer of a staple commercial product unless the supply or the offer is made for the purpose of inducing the person supplied or, as the case may be, the person to whom the offer is made to do an act which constitutes an infringement of the patent by virtue of subsection (1) above.

For more information of the historical origins of section 60(2), see a beast of a judgment from Jacob LJ in Grimme Landmaschinefabrik BmbH v Scott [2010] EWCA Civ 1110.

There were four meaty issues for Arnold J to tackle.  These were:

The means relating to the essential
element of the invention

1. Was a consumer of the Nespresso machine a "person other than a licensee"?

Dualit argued that the answer to that question was obviously "no", because the owner of the Nespresso machine was impliedly licensed to use the machine in any way he or she pleased, including using it with compatible capsules. Nestec do not impose any legal restrictions on purchasers of Nespresso machines. Because there was no restrictions on the use of the Nespresso machines, Counsel for Dualit cited the much-quoted speech of Lord Hoffman in United Wire [2001] where he stated that "a person who has acquired the product with the consent of the patentee may use or dispose of it in any way he pleases…". The user can do so by virtue of an implied licence (Betts v Willmot (1871)) or, in European patent systems, by the principle of exhaustion of rights after the first sale of the product. "The difference in the two theories", held Lord Hoffmann, " is that an implied licence may be excluded by express contrary agreement or made subject to conditions while the exhaustion doctrine leaves no patent rights to be enforced."

In the seamless logic often exhibited by Arnold J, the judge held that the purpose of the Nespresso machine is to make coffee.

"[T]o use the machine for this purpose, the purchaser must insert capsules into the machine. It follows, that the purchaser must be impliedly licensed to obtain and use capsules within the machine. Otherwise, it would be useless. In the absence of any restriction upon the purchaser preventing him from obtaining capsules from third parties, the purchaser is entitled to do so."

This position would make no difference even if as a result of the drafting of the claim, the purchaser of the machine makes a system falling within claim 1 as soon as he acquires a capsules.

"What matters is the substance of the invention, rather than the precise form of the claims. In the present case, the substance of the patented invention concerns the design of the machine. The specification of the Patent makes it clear that the invention does not lie in the design of the capsule. On the contrary, the specification proceeds on the basis that the capsule is of a pre-existing design. Indeed the invention does not even depend upon the design of the capsule, save to the limited extend that claim 1 requires the capsule to have a guide edge in the form of a flange." You know, the flange…

The judge added that analyzing the position in terms of exhaustion of rights makes the position even clearer:

" By consenting to the manufacture and sale of Nespresso machines, Nestec have exhausted their rights under the Patent to restrict purchasers' freedom to use such machines in accordance with their normal function. Their normal function is to make coffee form capsules. Accordingly, Nestec have exhausted their right to rely upon the patent to control the source from which purchasers acquire such capsules."

2. Did the Dualit capsules constitute a "means relating to an essential element of the invention"?


The means relating
to the essential element
of the Nestec decision

With no English authority directly on point, Mr Justice Arnold did what any European patent judge does nowadays and referred to decisions of courts of European countries that implemented Article 26 CPC, namely Germany and the Netherlands. The judge helpfully summarized some absolutely impenetrable dicta from the German Federal Court of Justice in Impeller Flow Meter [Case X ZR 48/03] and Pipette System (Case X ZR 38/06). These cases held that the means in question must contribute to implementing the technical teaching of the invention. The means, however, does not have to be novel in its own right. That is to say, the "fact that the element was known in the prior art did not prevent it being an essential element of the claim", but if "a feature was of completely subordinate importance for the technical teaching of the invention it could be regarded as a non-essential element."

Unfortunately, the Dutch Supreme Court came to the opposite conclusion and held in Sara Lee v Integro (Case C02/227HR) that an essential element must be one which distinguished the invention from the prior art. However, Arnold J held that the German approach was "more consonant" with the purposes of Article 26(1) of the CPC which was that third parties should not be allowed to benefit form the invention by supplying the means the market for which has been created by the invention.

It followed that the Dualit capsule does constitute a means relating to the essential element of claim 1 of the Patent because it (i) does contribute to the implementation of the technical teaching of the invention and (ii) is not of completely subordinate importance.

"Although the invention takes the capsule as a given, and claim 1 only requires the capsule to have a guide edge in the form of a flange, the flange of the capsule plays a significant role in the way in which the claimed invention works."

3. Are the Dualit capsules staple commercial products?

The only European authority on "staple commercial products" cited was a Patents County Court decision in Pavel v Sony Corporation where HHJ Ford stated that a "staple commercial product is a commodity or raw material". The judge held that for a product to be a staple commercial product it must be "ordinarily one which is supplied commercially for a variety of uses". The Dualit capsules were designed for no other repurpose but to use in the Nespresso machines. They were therefore not staple commercial products.

4. Are the Dualit capsules "means suitable for putting the invention into effect"?

The means related to the essential
element of the AmeriKat's naps

The final issue was whether a person who puts a Dualit capsule into the relevant Nespresso machine "makes" a system falling within claim 1 of the Patent. After summarizing the law set out in the Supreme Court decisions in United Wire and Shutz v Werit, Arnold J applied the multi-factoral approach recently laid down by the Supreme Court in Shutz. He held:

1. The capsule is an entirely subsidiary part of the system because

(i) Nespresso machines sell for hundreds of pounds, where as the capsules sell for 20-30p each;

(ii) the machines are intended to last for many years;

(iii) the capsules contain coffee which is perishable so have to be used by a defined time;

(iv) the functioning of the machine is not altered by the presence or absence of the capsule; and

(v) the presence or absence of the capsule dose not effect the economic value of the machine.

2. Both the machines and the capsules have an independent commercial existence. Indeed, there is a market for second-hand Nespresso machines.

3. Because the capsules are consumables, purchasers of machines would assume that they are entitled to obtain capsules to use with the machine from whatever source they pleased. Although it must be assumed for this purpose they are not impliedly licensed under the patent, even so it is clear from Lord Neuberger's reasoning in Shutz v Werit that this consideration is relevant.

4. The capsule does not embody the inventive concept of the patent. Although the flange of the capsule plays a significant role in the way the claimed invention works. However,

"[I]t remains the case that the invention takes the capsule as a given and the specification explicitly states that the invention can be used with any type of capsule….The fact the claims require the presence of a capsule is an artefact of clever claim drafting. In my view it may be inferred that the reason why the granted claims require the presence of the capsule (whereas the claims in the Priority Document did not) is precisely in order to enable Nestec to argue that the mere supply of capsules constitutes an infringement and thus to enable Nestec to continue to control the market in capsules even though EP 148 [the patent protecting the capsule itself] has expired."

5. The owner of the machine is not repairing or making the product. The judge, now on a roll with lambasting this argument concluded.

"Only in the world of patents could it even be suggested that a person "makes" a "product" merely by purchasing a consumable for use with a machine (i.e. before they have even used the consumable in the machine, here making a cup of coffee)."

So, the owners of the relevant Nespresso machines did not "make" the claimed system when they purchased the Dualit capsules.

The means relating to an essential
element of the AmeriKat's lemonade

So concludes the English chapter of the coffee wars, which has also seen the Higher Regional Court of Düsseldorf proceed down similar reasoning holding that a supplier of compatible cartridges was not liable for indirect infringement for selling compatible Nespresso cartridges. Of course its hardly surprising that the outcome of Arnold J's decision is consistent with the German approach given his reliance on German s.60(2) case-law.

But despite the nitty gritty of the interpretation of section 60(2), the underlying message from the UK courts following Shutz and Nestec is that they are unlikely to find indirect infringement where the product relates to consumables, not least because of the unspoken policy reasons. It also seems that, following Arnold J's comments, no clever claim drafting will save a patentee in these circumstances.    While Merpel may be muttering under her breath about how something can simultaneously be an entirely subsidiary part of a system but yet also contribute to the technical teaching of the invention, the AmeriKat purrs contentedly to herself.  The decision seems entirely sensible (for now…).

Autocomplete: can Google turn bad news into good profit?

If you thought autocomplete was about putting
cars together, think again!

The IPKat has just this minute learned of a ruling, hot off the press, from Germany's very own Bundesgerichtshof in BGH Case VI ZR 269/12 of 14 May 2013). That country's top appellate court has decided today that Google love-it-or-loathe-it autocomplete can in certain situations constitute a personality right infringement under Articles 823(1) and 1004 of the German Civil Code, when that provision is taken in combination with Articles 1 and 2 of the German Basic Law. This was the case on the facts leading to this appeal, where the unfortunate claimant discovered that, when internet users keyed his name into google.de, Google's autocomplete suggested the term "fraud".

Better news for Google is that, according to the BGH press release, Google is legally liable only once it is aware of an infringing autocompletion of this nature -- but not before. This appears to suggest that there should now some corresponding legal right to demand from Google, at least in Germany, that it remove any such information that causes infringement of one's personality right in this manner.

The IPKat is fascinated by this. If autocomplete can do damage like this to people's surnames, it can presumably offer words like "fraud", "sucks" and "malodorous" in respect of registered trade marks too -- many of which are people's names or surnames.  Merpel senses here that, in countries where the use of autocomplete carries no risk of legal liability, Google can develop a promising market for the sale of anti-keywords, where one can pay the company large sums of money for the privilege of suggesting poor quality, bad value for money or other undesirable characteristics in regard to a competitor's brands.

See also "Is Google Afraid of the Big Bad Wulff? No", here.

The wrong tool for the wrong job: time to keep the US courts away from patentable subject matter?

Like many of this weblog's readers, this Kat has long nurtured a fascination and deep admiration for the United States Federal judiciary.  Unlike the judges of the Court of Justice of the European Union, who rarely appear to be qualified to deal with regular commercial law issues and are generally quite reticent to articulate their views in public, their US counterparts -- from the Supreme Court downwards -- give the impression of being not merely qualified but indeed required to display their legal virtuosity, their deep understanding of the underlying issues and their cogent grasp of authority on every subject that ever there was.  It must be conceded that, collectively if not individually, they are mightily good at it too, for they are very convincing, particularly when there is no-one to argue with them.

This guest post, which makes no apology for its length (which patent enthusiasts will greatly appreciate), is premised on the proposition that, whatever else the US Federal judges may be good at, they should be kept from being allowed to interpret and thereby determine the scope of patentable subject matter. The author of this post is no mere sniper, taking pot-shots at a sitting target: he is Professor Norman Siebrasse, one of the most respected commentators on patent law anywhere in the continent of North America, a blogger in his own right (see Sufficient Description) and, most importantly from our point of view, a much-loved former guest Kat.  The subject of Norman's guest post here is the recent US decision in CLS Bank Int’l v Alice Corp 2011-1301 (Fed Cir 2013) en banc aff’g 768 F Supp 2d 221 (D.D.C. 2011). He writes:

The en banc decision of the US Federal Circuit in  CLS Bank v Alice Corp has showcased a fractured court, with five different opinions, three different approaches to assessing patentability, and a 5 - 5 split on whether the key claims are patentable subject matter. Judge Newman’s dissent provides an acerbic assessment of its practical implications: “With today’s judicial deadlock, the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel.” [the IPKat suggests that readers stop at this point and think about the repercussions of this statement -- for business, for investment, for the efficacy of the patent system as a whole] This confusion is not surprising. I have argued that the US Supreme Court approach to patentable subject matter is hopelessly confused because it is wielding the wrong tool for the job; the USSC has consistently attempted to exclude fields of endeavour which it views as problematic, such as life forms (Funk Bros 333 US 127 (1948)), computers (Benson 409 US 63 (1972), Flook 437 US 584 (1978) and Diehr 450 US 175 (1981) ), and business methods (Bilski 130 S.Ct. 3218 (2010)), by using the rule that abstract ideas cannot be patented. The difficulty with this argument, as first pointed out by Frankfurter J, disagreeing with the majority reasoning in Funk Bros at 135, is that  “[e]verything that happens may be deemed ‘the work of nature,’ and any patentable composite exemplifies in its properties ‘the laws of nature.’ Arguments drawn from such terms for ascertaining patentability could fairly be employed to challenge almost every patent.” The consequence is arbitrariness, as patentability turns on whether a particular judge characterizes the invention as turning on an idea (as all inventions ultimately do), or as being a practical application of that idea (as in any well drafted claim).

At issue in CLS Bank were four related patents related to “a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate ‘counterparty’ or ‘settlement’ risk.” (Lourie p 3). Method, system and product claims were at issue. The method claims were the most general, encompassing “A method of exchanging obligations. . . comprising the steps of: (a) creating a shadow credit record . . .(b) obtaining from each exchange institution. . .” (Claim 33 of the ‘479 patent, quoted by Lourie p. 23). The system claims captured the same concept, as implemented by computer: “A data processing system. . .comprising: a data storage unit . . .and a computer. . .” (Claim 1 of the ’720 patent, Lourie p 32). The product or media claims were in the so-called Beauregard format, to “computer readable storage medium having computer readable program code embodied” which would carry out the invention on a computer (Claim 39 of the ’375 patent, Lourie p 29).

Judge Lourie wrote for five members of the Court, setting out his approach to the problem, and concluding that all claims were invalid as being directed to abstract ideas. A collective opinion for four other members of the Court – Chief Judge Rader, along with Judges Linn, Moore and O’Malley, set out a different approach, and held the system claims to be patentable subject matter. Chief Judge Rader and Judge Moore, applying the approach from the collective opinion, held the method and product claims not to be directed to patentable subject matter, agreeing with Judge Lourie in the result, though for different reasons. Judges Linn and O’Malley, applying the same method from the collective opinion, but construing the claims differently, held the method and product claims were patent-eligible. Judge Newman advanced a third approach, and held that all the claims were patentable subject matter. (A fifth opinion by Judge Moore, with Chief Judge Rader, and Judges Linn and O’Malley concurring, further explained why the system claims should be considered patentable; this was essentially a concurrence with that part of the collective opinion.) So, by the numbers, the Court was equally divided on the system claims, and held the method and product claims invalid by a 7 - 3 majority.

The result in this case was that all claims are invalid, as the equal division resulted in an affirmation of the decision below. More importantly for the law, there was no consensus on the proper approach.

The debate centred on three judicially created exceptions to the broad scope of patentable subject matter set out in §101: “‘[L]aws of nature, natural phenomena, and abstract ideas’ are excluded from patent eligibility.” (Lourie p 8). These exceptions to patentability, and particularly the rule against patenting of abstract ideas, have long been at the heart of the debate over the patentability of computer programs. The logic is that an algorithm is an abstract idea, and so if the inventive concept lies only in the algorithm, and there is no invention in implementing it on a general purpose computer, then claiming a program amounts to claiming an abstract idea.

Justice Frankfurter’s observation that all inventions turn on abstract ideas is now well-recognized (see eg Prometheus v Mayo 132 S.Ct. 1289, 1293), so the challenge is how to limit this principle that abstract ideas cannot be claimed. One approach, and the correct approach in my view, was succinctly stated by the Supreme Court of Canada in Shell Oil [1982] 2 SCR 536 summarizing a long line of English authority:

A disembodied idea is not per se patentable. But it will be patentable if it has a method of practical application.

That is, the only prohibition is on patenting of abstract ideas; there is no objection to an invention which rests on an abstract idea – as all inventions ultimately do – so long as it is claimed as a practical application of that idea. The difficulty with this position, at least in the US, is that it is not consistent with decisions such as Benson and Flook, which held claims to programs to be unpatentable notwithstanding that they were claimed as a practical application.

The policy rationale advanced in Benson is that it is would be wrong to allow a claim to “wholly pre-empt the mathematical formula,” as “in practical effect [this] would be a patent on the algorithm itself.” This, it is said, would impede innovation rather than promoting it. The legal difficulty with that argument is that it is inconsistent with a vast number of cases, stretching back to the nineteenth century litigation over Neilson’s patent for a hot blast furnace in which the rule against abstract claims was originally developed. (See here for a discussion of the origin of the rule.) Lord Justice Clerk Hope in a direction ultimately approved by the House of Lords, directed the jury that “a patent will be good, though the subject of the patent consists in the discovery of a great, general, and most comprehensive principle in science or law of nature, if that principle is by the specification applied to any special purpose, so as thereby to effectuate a practical result and benefit not previously attained” ((1843) 1 WPC 673, 683. Lord Hoffmann has more recently affirmed the same point in Kirin-Amgen [2004] UKHL 46 at [77]: 

Of course a patentee may in some cases be able to frame his claim to a product or process so broadly that in practice it will be impossible to use the information he has disclosed, even to develop important improvements, in a way which does not infringe.

The policy objection to the Benson reasoning is that the scope of the reward should be commensurate with the scope of the contribution.  As the US Supreme Court remarked in The Telephone Cases, if it were true that Bell’s patent granted him a practical monopoly, this would “show more clearly the great importance of his discovery, but it will not invalidate his patent” 126 US 1, 535.

The result of the inconsistency between the practical application test and the pre-emption reasoning has been arbitrariness. A court inclined to strike down a patent can emphasize the abstract nature of the underlying idea (Funk Bros, Benson, Flook),  while a court inclined to uphold it will emphasize the practical application, as in Diehr. The position of the Federal Circuit, picking up on Diehr, and exemplified by In re Alappat, 33 F 3d 1526 (Fed Cir 1994) (en banc) has been to apply the practical application test, leading to liberal granting of software patents, as well as to decisions such as State Street. (The USSC Bilski decision did nothing to clarify this mess, as it approved all the prior case-law, and the claims at issue were arguably invalid under either approach.)

The surprise in CLS Bank is that half the Federal Circuit, in Judge Lourie’s opinion, has finally come around to the USSC’s way of thinking. In his approach, subject matter patentability “turns primarily on the practical likelihood of a claim preempting a fundamental concept” (Lourie p 9; and see also p 15). A claim will avoid this objection only if there are “meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application” (p 16). That the claim is directed to the invention as implemented by a computer is not a meaningful limitation if it is in such general terms as to cover every practical implementation. The difficulty with this, both as a practical matter for claims drafters and as a matter of policy, was pointed out by the Supreme Court of Canada in Burton Parsons [1976] 1 SCR 555: “If the patent is to have a practical value, it must cover all [implementations of the invention] which can yield the desirable result . . . [I]f, in order to guard against possible invalidity, some area is left open between what is the invention as disclosed and what is covered by the claims, the patent may be just as worthless as if it was invalid. Everybody will be free to use the invention in the unfenced area.”

In contrast to Judge Lourie’s opinion, the collective opinion carried on the Federal Circuit tradition of emphasizing the practical application test. Relying heavily on Diehr, the USSC decision most sympathetic to that position, the collective opinion notes at 28 that “it would seem that a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea.” The opinion deals with the USSC’s heavy reliance on pre-emption by asserting in effect that when an invention is claimed as a practical application, it will rarely, if ever, pre-empt the idea itself (p 20, 21). Consequently, a claim to a general purpose computer programmed to implement an idea, as in this case, will normally be patentable, though Chief Judge Rader and Judge Moore felt that the method claims were unpatentable as claiming the abstract idea as such. If the collective opinion was to prevail, computer implemented inventions would continue to be generally patentable.

Judges Linn and O’Malley disagreed with Chief Judge Rader and Judge Moore only as to the proper interpretation of the method claims. They held that on the record, the computer-implemented limitations that were explicit in the system claims should also be read in to the method claims. Though they did not expressly address the point, it seems that if they had construed these claims as not being subject to these limitations, they also would have held them to be invalid as claiming abstract ideas (See p 10).

Judge Newman would apparently entirely reject the judicially created limitation on patenting of laws of nature, natural phenomena, and abstract ideas. “The court should return to these basic principles [of novelty, unobviousness, enablement, specificity, etc.], and abandon its failed section 101 ventures into abstraction, preemption, and meaningfulness.”

As Judge Moore noted at p 3, “Our court is irreconcilably fractured over these system claims.” Judge Lourie attempted to create an appearance of consensus, saying “seven of the ten members, a majority, of this en banc court have agreed that the method and computer-readable medium claims before us fail to recite patent-eligible subject matter. In addition, eight judges, a majority, have concluded that the particular method, medium, and system claims at issue in this case should rise or fall together in the § 101 analysis” (Lourie fn 1). To the extent that this is intended to imply that the system claims must be invalid because there is agreement that they must stand or fall with the method claims, which a majority held to be invalid, this is disingenuous. Judge Lourie held that the claims stand or fall together as a matter of principle: “we must look past drafting formalities and let the true substance of the claim guide our analysis” (Lourie p 30). Judges Linn and O’Malley did not hold that the substance of the invention was determinative of patent-eligibility; on the contrary, they emphasized that the question turned on a proper construction of the claims. The result was the same for all the claims only because, properly construed, they all embodied “the same meaningful limitations” (Linn & O’Malley p 2). And Judge Newman held that all stand or fall together because she entirely rejected the analytical premise of the Lourie opinion. The collective opinion accordingly concluded that “Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.” The judgment itself, per curiam, was two sentences holding only that the method and product claims are not patentable subject matter, and “An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.” In other words, the Court is so hopelessly divided that it could not even agreed on what has been decided.

The key to escaping from the resultant morass is found in the dissenting opinion of Judges Linn and O’Malley at 13, responding to the concern raised by amici that software patents inhibit innovation:

We do not discount Amici’s concerns, we just disagree with what they ask us to do to quell them. Congress can, and perhaps should, develop special rules for software patents. . . .  While Congress may, this court may not change the law to address one technological field or the concerns of a single industry. Thus, whatever the merits of such concerns, the answer is not to rewrite the law by broadening the abstract ideas exception to § 101.

It may be that innovation is impeded by software patents – or business method patents or gene patents – but that question is one for the legislature, not the courts. (I make this argument in a recent article).

The lesson here, as I see it, is that the question of patentable subject matter can no longer be left to the courts, or at least not to the US courts. At one time it was reasonable to suppose that a satisfactory resolution might be achieved through the common law method of incremental judicial decision. After both the USSC Bilski decision and now CLS Bank, which have created more confusion, rather than less, it seems evident that this strategy has failed.

Katnote: a follow-up post, taking in the recent decision of the Court of Appeal for England and Wales in HTC v Apple, will be posted tomorrow evening.