Evaluating § 101 Case Law After Alice, U.S. Global IP Positioning, Improvements to PTAB Practice, and Other Key Takeaways from a Recent Fireside Chat with USPTO Director Iancu

Article co-written by Yuri Levin-Schwartz, Ph.D., a law clerk at MBHB.

We live in an age where IP is important, so we need to focus on how we use it to our greatest benefit.” – Andrei Iancu, USPTO Director, February 19, 2019, Chicago, IL.

MBHB recently co-sponsored a fireside chat between USPTO Director Andrei Iancu and MBHB managing partner Grantland Drutchas [video here]. Director Iancu addressed the current state of § 101 case law, the new 2019 Revised Patent Subject Matter Eligibility Guidelines, the U.S.’s competiveness in the global IP market, and the impact of the Supreme Court’s decision in SAS on PTAB practice. From the outset, however, one thing was immediately clear: Director Iancu has an immense passion for protecting intellectual property, wants to ensure that the U.S. remains hyper-competitive in a global economy, and is driving ahead with a proactive vision and plan for getting us there. One of the most important results of his efforts on this front: the USPTO’s January 7, 2019 Guidance to patent examiners applying 35 U.S.C. § 101, in the wake of Alice and its progeny, the 2019 Revised Patent Subject Matter Eligibility Guidance. A few key takeaways are unpacked below:

The Importance of § 101 and the Need to Address It (and Correctly Apply It)

At the forefront of Director Iancu’s focus, both in his time as Director and for this event specifically, are the difficulties of applying § 101 case law during prosecution and post-grant proceedings, alike. Director Iancu had the USPTO conduct a year-long synthesis of the most current § 101 jurisprudence. That endeavor resulted in the 2019 Revised Patent Subject Matter Eligibility Guidance.

As the “most important issue, substantive issue, in patent law,” right now, Director Iancu reiterated the importance of clarifying the current state of the law and ensuring its practical application across the hundreds of thousands of patent applications and post-grant challenges the USPTO and PTAB face every year.[1]

On the practical application front, Director Iancu articulated that the courts have found three types of subject matter under Alice step one to be abstract: (1) mathematical expressions (“Just math by itself, courts don’t like math apparently. So, no patents on math.”); (2) methods of organizing human activity (“like fundamental economic activity—principals, escrow accounts, hedging transactions and the like”); and (3) mental steps (“mental steps, things you do in your head, we are not going to have litigation over thinking”). Put simply, “those are the categories [of ineligible subject matter], and we said, ‘If you’re not in one of these categories there is no 101 problem.’”

Even if you do find yourself in one of these categories, however, “you don’t stop there,” because there may be a practical application of the concept that renders the claim otherwise eligible under Alice step two. Specifically (and encouragingly), Director Iancu reiterated:

You go back a couple hundred years the courts have always said, “While we do not give patents on principles of nature, for example, we do give patents on the application of those principles.” That was the whole point of the patent system—human beings harnessing nature, or harnessing mathematical concepts and the like, and applying them to useful ends. So if you’re applying those, you do get a patent on that. Many cases from going back to the 1800s to the present and our Guidance cites them, and quotes them, and finds the practical application is the way out, of these prohibited areas.

And for those of us who have spent so much time arguing against § 101 rejections that are really only thinly-veiled § 103 rejections, perhaps the most promising piece of Director Iancu’s commentary was the acknowledgement and stern criticism of this practice:

A lot of folks have been concerned about claims and want to reject claims, probably under 101, because it is the use of something old that has been done a lot in the past, but now it’s done on a general purpose computer or on a computer. So it’s the combination of something that has been done in the past with a general purpose computer, that combination, and that’s where people find a 101 problem. But that is really difficult to do under a 101. So if you take old technology and you automate it on a computer, how do you approach that 101 analysis? There are no guidelines. There is no test. But we really do have a good test that has been worked out for the past 50 some 60 some years, actually since 1952. Under 103, we have the four-part Graham factors and the like, the combination of old technology on an automated system, we know how to do that analysis. So do that. Now, reserve 101 issues like in Alice and Bilski for issues that are per se problematic. Like fundamental economic principles. Reserve 101 for that. Because for that alone, 103, 112, 102 may not suffice.

On the bio side, Director Iancu noted that although “the Guidance mentions that there is absolutely the fourth category [of patent ineligible subject matter], which is the life sciences issue—natural phenomenon and things like that,” it does not provide substantive guidance for § 101 bio analysis because “based on our experience at the PTO [] our examiners and our judges can recognize fairly consistently if [they] see a natural phenomenon in the claim.” However, Director Iancu did note that there will be life sciences examples in the next iteration of § 101 Guidance.

On its implementation and the USPTO’s ability to consistently apply the new Guidance, Director Iancu spoke candidly about the rollout and plan for consistent application and extensive, targeted training:

[W]e trained all 8,500 of the examiners, with very few exceptions—if an examiner was out sick or something. . . . Same on the PTAB side, all the judges are trained. And there are different levels of training. You can imagine there are some art units that don’t see 101 really all that often, some don’t see it at all whereas other art units, like crypto-currency, they see it in every other case. So there are different depths.

With all of these thoughtful and proactive measures taken to improve § 101 analysis and application by the USPTO, it is hard not to be both impressed and encouraged by Director Iancu’s vision for the U.S. patent system—particularly when considered in view of its impact on the global IP market.

The Importance of the U.S. Fostering Innovation in the Global IP Market

Another key takeaway from the conversation (and potentially the impetus for his proactivity on improving § 101 affairs) was Director Iancu’s clear directive to ensure that the U.S. fosters innovation and is as competitive in a global economy as possible. At the outset, Director Iancu acknowledged that in 2016 and 2017, the U.S. had “slipped” from number one to number twelve in the Global Intellectual Property Center’s annual global economic IP survey based largely on two issues: IPRs and § 101 subject matter. But, he noted, the U.S. has now risen back to number two in the world, after the City-Nation Singapore.

On the first issue, Director Iancu credited the “number of changes” propagated throughout the post-grant system this year (discussed in more detail below) for the U.S.’s recent ascent in the survey. On the second point, he recognized “that the 101 issues are not solved yet and that’s why we’re still tied for number two, we still have work to do.” On this point, specifically, Director Iancu again stressed the importance of clarifying § 101 subject matter and its impact at a global level:

Folks seem to have lost sight of Justice Thomas’s careful statement in the Alice case itself that you have to tread carefully here because otherwise these exceptions can swallow the whole patent system. And unfortunately I am afraid we have marched down that path.

I cannot overemphasize how important this issue is. This issue of patentable subject matter in section 101 goes to the heart of the patent system because it tells you, up front, “What are the areas of technology that the United States values for investment of time and money and for the future, so that we award and protect with a patent?” And we are in a huge globally competitive war. The competition for the technologies of the future is unlike what we have seen ever in the past. Everybody is innovating, from the smallest countries to the largest countries. Some of those countries have gotten past this issue. And while we are twisting ourselves into a pretzel here, on almost every case, and we don’t have clarity on to what is and what is not patent eligible here, the other countries are marching forward full steam ahead, to develop things like 5G, artificial intelligence, biotechnology, some of the diagnostic techniques that have somehow found to be ineligible would certainly be eligible in Europe, China, and Japan for example. And I think that as a nation we need to put this issue to bed ASAP so that we can compete on a global level.

To say the least, again, Director Iancu’s comments remain encouraging for the future of the U.S. patent system and the U.S.’s ability to remain a global IP thought leader and bulwark moving forward.

Improvements to PTAB Practice

The final group of topics Director Iancu addressed concerned improvements the USPTO has made to PTAB practice under his tenure. Aware of the longstanding criticism that the PTAB may be a “death squad” for patents, Director Iancu identified three important changes to the PTAB that he believes will help assuage these concerns.

First, Director Iancu addressed the change of claim standards in PTAB proceedings (previously broadest reasonable interpretation) to the same one used in district courts and ITC proceedings currently, as articulated in Phillips v. AWH Corp.,[2] and its progeny. Director Iancu believes this change “will go a long way to where it increases predictability and increasing the efficiency, holistically, for the patent system,” as “more than 85% of the patents we have at the PTO for IPR proceedings have parallel litigation.”

Second, in an effort to avoid any concerns of impropriety, Director Iancu addressed the issuance of new standard operating procedures for empaneling PTAB judges. Although circumspect about any real instance of “panel stacking,” “for full transparency, we changed the process” and now have “a standard operating procedure that tells the public precisely how we panel the judges and how under what circumstances we would change a judge . . . basically eliminat[ing] the enlargement of panels.” Restating that under the new procedure “we’re always going to have three judges,” Director Iancu also addressed the formation of the new Precedential Opinion Panel, which “includes the Director, the Chief Patent Judge, and the Commissioner of Patents,” and allows dissatisfied parties to seek review of a panel opinion.

Third, in the wake of SAS,[3] Director Iancu addressed the new PTAB practice of instituting on all challenged claims, as well as on all asserted bases. Recognizing that some might believe this view is broader than the actual holding of SAS, Director Iancu noted “[d]epending on how you read the SAS decision . . . it should include all challenged bases . . . [f]or example the majority said that the petitioner is the master of the case. Period.” On a more practical (and policy-based) note, Director Iancu stressed the burden of piecemeal challenges on the PTAB:

[M]ore importantly, from a policy point of view, really if you look at the system holistically, and again, more than 85% of our IPRs are involved in parallel litigation, you know, a petitioner, when they file an IPR, chooses the IPR forum at that point. And the statutes say … post grant proceedings should be an alternative to district court litigation. So if the petitioner chooses to have the dispute as they frame it, litigate it in this forum at the PTAB, let’s do it there as opposed to the piecemeal approach. And I think that is what the Supreme Court had in mind as well. And, probably holistically for the system, it is more efficient.

Director Iancu also discussed the impact this goal for improved efficiency may have on other PTAB practices moving forward, particularly when a PTAB board is determining: (1) whether to allow follow-on petitions under the General Plastics factors (“At some point you have to ask, how many petitions suffice on the same patent at the same time. . . . I mean, you know, why is it in the interest of the United States to devote so much resources to address every single ground for invalidity?”); and (2) how much weight to give events in parallel district court proceedings (e.g., claim construction, “So I think our judges are instructed to look at [district court claim construction orders], to consider very carefully, nobody wants to duplicate work, and if the issues are fairly presented in a parallel case we should obviously look at it very carefully and consider it.”). Put simply, “the overall goal for the U.S. Patent system, would be to be as efficient holistically, as possible.”

© 2019 McDonnell Boehnen Hulbert & Berghoff LLP

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It is difficult to know how much impact Director Iancu’s time as Director of the USPTO will have on the U.S. patent system in the future; but it is easy to appreciate the impact it is having now. His ability to thoughtfully unpack complex issues under § 101 (and elsewhere) and proactively forge effective solutions is undeniable.[4] Here’s to hoping there’s even more positive change to the U.S. patent system on the horizon.

[1] The quotes herein, unless indicated otherwise, are all taken from comments Director Iancu made during the February 19, 2019 fireside chat in Chicago, IL.

[2] 415 F.3d 1303 (Fed. Cir. 2005) (en banc).

[3] SAS Institute Inc. v. Iancu, 138 S. Ct. 1348 (2018).

[4] The opening exchange of the conversation was telling in this regard:

Grantland Drutchas:
You know, a couple of years ago, you were a successful litigator and the managing partner of a leading law firm of the United States. You were well respected and yet you made the decision to accept the position as the Director of the PTO—all during a time when the PTO is fighting for funding from Congress, and, frankly, patents seemed under attack from Congress, the Supreme Court, sometimes even the executive on the pharma side, and in some ways the public itself. What were you thinking?

Andre Iancu:
For a lot of the reasons you mentioned, I wanted to get in and try to make a bit of a difference, if possible. The IP system, which we all love quite a bit, especially on the patent side, has been pushed and pulled, and as you indicated, significant issues have developed, at least over the past decade or maybe even more. So instead of talking about it, I thought I could throw my hat in the ring and try to do something about it.