TOM ENGELLENNER Pepper Hamilton, LLP IP in Japan Committee Meeting AIPLA Mid-Winter Institute, La Qunita, CA January, 2016 Update on Patent Eligibility in the US 1

Patent Eligibility in the U.S. Recap of Supreme Court Decisions USPTO Guidance 2014 USPTO Updated Guidance 2015 Recent Cases Presentation Overview 2

A long time ago in a galaxy far, far away... 3

4 Recap of Supreme Court Decisions Bilsky v. Kappos 2010 The machine – transformation test was a useful tool but not the only test. “The Court's precedents provide three specific exceptions to [the patent statute’s] broad patent- eligibility principles: ‘laws of nature, physical phenomena, and abstract ideas.’” A method of hedging losses in one segment of the energy industry by making investments in other segments of that industry is an abstract idea and, hence, not eligible for patenting.

5 Recap of Supreme Court Decisions Bilsky 2010 (continued) Although unanimous in the outcome, the Bilsky court was deeply fractured. Four judges opined that all business methods were unpatentable. Four judges concluded that not all business methods were ineligible for patent protection – but Bilsky’s method was because it was so abstract. Judge Scalia concurred in the result and wrote his own opinion.

6 Recap of Supreme Court Decisions Mayo v. Prometheus 2012 Court unanimously held that the discovery of a correlation between a marker (6–TG blood levels) and a patient condition (an over/under thiopurine dosage) was patent ineligible because it is an unpatentable law of nature.

7 Recap of Supreme Court Decisions Mayo 2012 (continued) “The relation is a consequence of the ways in which thiopurine compounds are metabolized by the body—entirely natural processes. And so a patent that simply describes that relation sets forth a natural law.”

8 Recap of Supreme Court Decisions Mayo 2012 (continued) Would additional steps have made the Prometheus subject mater patent eligible? The claims also recited (1) administering thiopurine to a patient and (2) determining the blood level of 6–TG. The court found the “administering” and “determining” steps are merely necessary “ data- gathering steps ” and the final step – the “warning” was only a mental step.

9 Recap of Supreme Court Decisions Assoc. Mol. Pathology v. Myriad 2013 The Court ruled that the isolation of naturally occurring DNA sequences was unpatentable, even if the Myriad inventors were the first to realize these sequences were associated with aggressive forms of breast and ovarian cancers in patients. The Court concluded that the DNA sequences (known as the BRCA1 and BRCA2 genes) were ineligible for patent protection because they were products of nature.

10 Recap of Supreme Court Decisions Myriad 2013 (continued) The Court found that cDNA claims were patent eligible because they were structurally different. (The introns had been removed leaving only exons.) The Fed. Cir. later ruled that a synthetically created composition that was the same as a naturally occurring sequence was notpatent eligible. Fed Cir. also subsequently found method claims invalid as “a patent-ineligible abstract idea of comparing BRCA sequences and determining the existence of alterations.”.

11 Recap of Supreme Court Decisions Alice v. CLS Bank 2014 “a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk.’” 3 patents with method and system claims. DC District found the subject matter unpatentable. Fed. Cir. reversed and found the claims eligible for patent protection as more than an abstract idea.

12 Recap of Supreme Court Decisions Claim 33 of Alice Corp.’s ‘479 patent A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of: (a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions; (b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record; (c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these [sic] transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and (d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

13 Recap of Supreme Court Decisions Alice 2014 (continued) Fed. Cir.: “It can, thus, be appreciated that a claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.” 出る釘は打たれる

14 Recap of Supreme Court Decisions Alice 2014 (continued) Supreme Court: “the claims at issue here amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer,” The Court reiterated the two-part test of Mayo: (1) Is the claim directed toward an abstract idea? and (2) do the recited claim elements add an “inventive concept” sufficient to transform the abstract idea into a patent-eligible application?

15 USPTO Guidance 2014

16 Criticism of the 2014 PTO Guidance The Guidance did not address how an examiner would determine whether something was an abstract idea. The Guidance didn’t explain what a markedly different characteristic was. There was a lack of examples – especially examples of claims that were patent eligible!

17 PTO Guidance 2015 A December 2014 Update on Laws of Nature and July 2015 Update on abstract ideas included appendices with a new expanded list of examples and a summary of all of the recent Supreme Court and Federal Circuit decisions on patent eligibility. See regulations/examination-policy/2014-interim- guidance-subject-matter-eligibility-0 for a complete list of guidance, examples and examiner training materials. regulations/examination-policy/2014-interim- guidance-subject-matter-eligibility-0

18 PTO Examples – Natural Products A kit for preparing goat milk yogurt comprising: Streptococcus thermophilus and Lactobacillus alexandrinus. Ineligible A yogurt starter culture comprising: goat milk mixed with Streptococcus thermophilus and Lactobacillus alexandrinus. Patent Eligible

19 PTO Guidance 2015 – Abstract Ideas

20 PTO Examples – Abstract Ideas Managing a stable value protected life insurance policy by performing calculations and manipulating the results. Ineligible A computer-implemented method for protecting a computer from containing malicious code by: receiving an electronic communication containing malicious code; storing the communication in a quarantine sector of a memory of a computer, extracting, via file parsing, the malicious code from the electronic communication to create a sanitized electronic communication; transferring the sanitized electronic communication to the non-quarantine sector of the memory; and deleting all data remaining in the quarantine sector. Patent Eligible

21 Recent District Court Decisions

22 Federal Circuit Scorecard

23 Recent Fed. Cir. Decisions Ariosa Diagnostics v. Sequenom (June/Dec. 2015) Claim 1: A method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female, which method comprises amplifying a paternally inherited nucleic acid from the serum or plasma sample and detecting the presence of a paternally inherited nucleic acid of fetal origin in the sample. Claims found patent ineligible by panel in June 2015 En banc rehearing denied in December 2015

24 Recent Fed. Cir. Decisions Ariosa Diagnostics v. Sequenom (June/Dec. 2015) Inventors discovered the existence of cell-free fetal DNA (cffDNA) in maternal blood which originated in trophoblasts that make up the placenta. The majority of the Fed. Cir. felt bound by the Mayo test: “Where claims of a method patent are directed to an application that starts and ends with a naturally occurring phenomenon, the patent fails to disclose patent-eligible subject matter if the methods themselves are conventional, routine, and well understood applications in the art.”

25 Recent Fed. Cir. Decisions Ariosa Diagnostics v. Sequenom (June/Dec. 2015) Judge Linn: [T]he breadth of the second part of the test was unnecessary to the decision reached in Mayo. This case represents the consequence – perhaps unintended – of that broad language in excluding a meritorious invention from the patent protection it deserves and should have been entitled to retain. Judge Newman: whereas the Mayo claims recited a previously known medicinal product and its metabolites, the Sequenom claims recite a “new diagnostic method [that] is novel and unforeseen.”

26 Recent Fed. Cir. Decisions DDR Holdings v. Hotels.com (Dec. 2014) The case involved two patents for retaining website visitors. To avoid having visitors click on a hyperlink and instantly be transported away another website, the software instead directs visitors who click on links to an “outsource provider” having a web server which directs the visitor to an automatically-generated hybrid web page that combines visual “look and feel” elements from both the host website and the third-party merchant’s website and provided a path for the visitor to return to the original website.

27 Recent Fed. Cir. Decisions DDR Holdings v. Hotels.com a computer server at the outsource provider, which computer server is coupled to the computer store and programmed to: (i) receive from the web browser of a computer user a signal indicating activation of one of the links displayed by one of the first web pages; (ii) automatically identify as the source page the one of the first web pages on which the link has been activated; (iii) in response to identification of the source page, automatically retrieve the stored data corresponding to the source page; and (iv) using the data retrieved, automatically generate and transmit to the web browser a second web page that displays: (A) information associated with the commerce object associated with the link that has been activated, and (B) the plurality of visually perceptible elements visually corresponding to the source page.

28 Recent Fed. Cir. Decisions DDR Holdings v. Hotels.com According to Judge Chen, the claims “do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead, the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” Dissent by Judge Mayer: just an abstract idea! Hard to square with the same court’s holding in Ultramercurial v. Hulu (Fed. Cir. Nov. 2015)?

THANK YOU 29 TOM ENGELLENNER Pepper Hamilton, LLP High Street Tower, 19 th Floor 125 High Street Boston, MA