IP®EVIEW - Skadden

Skadden, Arps, Slate, Meagher & Flom LLP
and its affiliates provide this newsletter for
educational and informational purposes only
and it is not intended and should not be construed
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IP® EVIEW
Welcome to the Skadden IP Review
Winter 2009
Our latest edition includes two cover stories: a look at a recent Sixth Circuit ruling likely to affect IP license transfers in statutory
mergers; and a follow-up report on how the U.S. Supreme Court’s potential adoption of the Federal Circuit’s “machine-or-transformation”
test in its 2008 Bilski decision may impact the validity of patents and the claims of current applicants. We also cover topics
such as the use of social media to promote FDA-regulated products and recent developments in FTC safe harbor enforcement, and
discuss patents, trademarks, privacy and other issues.
We welcome your comments and suggestions. A list of Skadden’s Intellectual Property and Technology contacts appears on page 18.
Mergers and the Transfer of IP Licenses
A recent ruling by the U.S. Court of Appeals for the Sixth Circuit
prohibiting the transfer of an intellectual property license agreement
in the context of what was, in effect, purely an internal corporate
restructuring could have broad implications for many corporate transactions.
In Cincom Systems Inc. v. Novelis Corp., 1 the court found
that the defendant had violated the nontransferability provision of a
license agreement because an entity other than the original licensee
ended up holding the license (as a result of a statutory merger in
which the original licensee was the nonsurviving entity). Although
only binding in the Sixth Circuit, given the court’s broad ruling and the
dearth of authority on the issue of transferring intellectual property
licenses in statutory mergers, the case could have a broad impact.
Background
In 1989, Cincom Systems Inc. licensed Alcan Rolled Products Division
the right to use certain Cincom software on a particular computer
located in Oswego, N.Y. The license, which was governed
by Ohio law, specified that it was not transferable by Alcan without
Cincom’s prior written approval. 2 In 2003, Alcan’s parent corporation
conducted a corporate reorganization pursuant to which Alcan
was merged into a sister entity incorporated in Texas and Alcan
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The Reign of Bilski: One Year After the
Machine-or-Transformation Test
On November 9, 2009, the U.S. Supreme Court heard oral
argument on the proper test for patent-eligible subject matter
under 35 U.S.C. § 101 and will subsequently determine, barring
unforeseen circumstances, whether the Federal Circuit’s
en banc decision in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008),
cert. granted, 129 S. Ct. 2735 (2009), applied the correct legal
standard. Notwithstanding the pending review, a large number
of decisions addressing patent eligibility have been rendered
in the year since Bilski was decided. As highlighted below, the
application of Bilski to issued patents and pending applications
portends that Supreme Court adoption of the Federal Circuit’s
“machine-or-transformation” test could significantly impact
the scope of patent-eligible subject matter and the validity of
patents that were issued prior to Bilski. Should the Supreme
Court approve the Federal Circuit’s test, patent applicants will
need to modify their pending claims accordingly, and patent
owners will need to review their existing patent portfolios for
compliance with the “machine-or-transformation” test (with the
concomitant filing of reissue applications in order to modify the
scope of claims that fail to pass the test).
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Mergers and the Transfer of IP Licenses_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ p a g e 1
The Reign of Bilski: One Year After the Machine-or-Transformation Test _ _ _ _ _ page 1
FDA Conducts Public Hearing on the Use of the Internet and
Social Media in the Promotion of FDA-Regulated Products _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ page 2
Recent FTC Enforcement of Safe Harbor Has
Broad Implications for Privacy Policies _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ page 3
Federal Circuit Allows Hidden Unwitting Assignment by Employee
Inventor to Defeat Standing to Sue for Patent Infringement _____________ page 5
First Sale Doctrine Under Attack _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ page 6
Federal Circuit Issues Two Key Decisions
Clarifying Rights of Patent Licensees _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ page 8
ISPs Immunity From Contributory Infringement Not Absolute _ _ _ _ _ _ _ _ _ _ _ _ page 9
SEC Imposes $100,000 Fine for Firm’s Failure
to Safeguard Customer Information ____________________________page 10
Skadden Contacts _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _page 18

( continued from page 1 )
Mergers and the Transfer of IP Licenses
ceased to exist. After further corporate restructuring and multiple
name changes, 3 Novelis Corp. emerged as the holder of the Cincom
license. Nonetheless, the Cincom software continued to be used by
the same business unit that was using it since 1989 and on the same
designated computer in Oswego, N.Y. Novelis did not seek or obtain
Cincom’s written consent to any portion of the reorganization. 4
Cincom filed suit, alleging that the transfer of the license to Novelis
violated that agreement’s anti-assignment clause, and that Novelis
was infringing Cincom’s copyright by using the software.
The Sixth Circuit’s Opinion
The Sixth Circuit began by citing the fundamental principle that, under
federal law, intellectual property licenses cannot be assigned without
express consent. According to the court, without such a prohibition,
a licensor would effectively lose control of its intellectual property
asset. Therefore, while state law can govern the interpretation of an
intellectual property license, it cannot be used to reverse the federal
prohibition against the unauthorized transfer of intellectual property
licenses. According to the court, since Ohio merger law operated to
transfer the license from Alcan to Novelis, Novelis had breached the
nontransferability provision of the license and was using Cincom’s
copyrighted software without permission.
The court cited its 1979 decision in PPG Industries, Inc. v. Guardian
Industries Corp. 5 to support its holding. In that case, PPG had
granted Permaglass a nontransferable patent license. Permaglass
then merged into Guardian, a competitor of PPG. Under Delaware
and Ohio law, which governed that merger, Permaglass’ licenses
automatically transferred to Guardian. The Sixth Circuit held, however,
that state law could not override the presumption that intellectual
property licenses were nonassignable without express consent, and
therefore Guardian was in breach of the license. 6
Novelis attempted to distinguish PPG on the grounds that the surviving
entity in that case was a competitor of the licensor. The court
acknowledged that the primary purpose of the federal law prohibiting
unauthorized transfers was to prevent a license from falling into the
hands of a competitor. However, the court stressed that this federal
law applies in all circumstances, not just those in which there is a
transfer to a competitor.
Novelis next argued that the court should reconsider its holding in PPG
given that the Ohio merger statute had been modified since 1979 and
now appeared to clarify that a merger did not effectuate a transfer of
all agreements. Specifically, when PPG was decided, Ohio’s merger
law stated that all assets of the nonsurviving party in a merger were
“deemed to be [t]ransferred to and vested in” the survivor. 7 Ohio subsequently
adopted a new merger statute which states that all assets
of the nonsurviving party to a merger are “vested in” the survivor. 8
Novelis argued that the deletion of the word “transferred” from the
statute indicates that a merger under Ohio law is no longer a transfer.
Therefore, when Novelis became the licensee under the Cincom
license, it was not because a “transfer” had taken place. 9
The court rejected this argument, noting that the vesting of a license
in a new entity could only occur if it was transferred from the old
entity. More importantly, the court stated broadly that “in the context
of a patent or copyright license, a transfer occurs any time an entity
other than the one to which the license was expressly granted gains
possession of the license” (emphasis in original). 10 Moreover, the
IP® EVIEW
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court indicated that even if the license is silent as to transferability, the
federal rule would prohibit transfer without consent.
Practical Implications
Although Cincom is binding only on courts in the Sixth Circuit, given
the dearth of case law in this area, licensors seeking to challenge a
transfer will likely urge courts in other circuits to follow the logic of
the Cincom court. This case could therefore be the basis of a new
de facto standard in which licensor consent is required even in the
context of statutory mergers. This could increase transaction costs
(if the licensor seeks compensation for its consent) and could delay a
signing or closing (while consents are obtained).
Ultimately, the greatest challenge for licensors and licensees may
be determining the full reach of the Cincom decision. Read literally,
the court’s somewhat ambiguous holding — that a transfer of an
IP license has occurred any time a new entity “gains possession”
of the original licensee — easily could encompass sales of stock
and other corporate transactions that generally are not thought of
as requiring consent from IP licensors. Although it seems unlikely
that the court intended such a result, it is difficult to discern a clear
boundary from its reasoning or holding. Until such time (if any) that
Cincom is further clarified, parties should carefully analyze proposed
corporate transactions in light of their existing IP licenses and the
holding in Cincom.
Finally, Cincom turned on the fact that the license included a broad
prohibition against transfer. When negotiating license agreements
going forward, licensees should be sure to seek the right to transfer
the license without consent in the context of a merger or other
change of control events. �
1 2009 U.S. App. LEXIS 21172 (6 th Cir.).
2 Id. at *2.
3 The Sixth Circuit is somewhat unclear about the specifics of these other steps,
stating that the Texas entity merged into itself and three of its subsidiaries. Id. at *4.
However, there were stipulated facts filed with the district court that described the
corporate restructuring efforts. In effect, the licensee was merged out of existence.
4 Id. at *3.
5 597 F.2d 1090 (6 th Cir. 1979).
6 The license agreement at issue in PPG was terminable by the licensor if the licensee
became controlled by a competitor of the licensor.
7 Ohio Rev. Code Ann. § 1701.81(A)(4)(1955).
8 Ohio Rev. Code Ann. § 1701.82(A)(3)(2009).
9 Cincom at *15.
10 Cincom at *16 – *17.
FDA Conducts Public Hearing on the Use of
the Internet and Social Media in the Promotion
of FDA-Regulated Products
On November 12 and 13, 2009, the United States Food and Drug
Administration (FDA) held a public hearing and request for comments
to discuss issues related to the promotion of FDA-regulated
products (e.g., prescription drugs, prescription biologics and medical
devices) using the Internet and social media tools. 1 Comments will
be accepted until February 28, 2010.
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Background
In the official notice announcing the hearing, the FDA recognized that
the Internet has become a widely used medium for FDA-regulated
companies (e.g., manufacturers, packers and distributors of regulated
products) to disseminate information about their products. The FDA
also acknowledged that the second generation of Web development
and Web design (Web 2.0) has led to the emergence of a variety of
social networking tools (e.g., blogs, podcasts, social network sites,
video sharing, widgets and wikis) that have raised questions and concerns
over how to apply existing FDA regulations to these newer media.
As a result, the FDA has been evaluating the extent to which existing
laws, regulations and policies concerning advertising and promotional
labeling of regulated products should be applied on the Internet.
To date, however, the FDA has not issued specific regulations or
guidance on Internet promotions, despite the industry’s continued
request for such guidance. Instead, the FDA has continued to
apply its “print-based” media rules to online promotion, essentially
ignoring the special characteristics of Web 2.0 and other
emerging technologies.
Past FDA Enforcement Activity Relating to Online Promotion
Sponsored Links
In April 2009, the FDA issued Untitled Letters 2 to 14 pharmaceutical
companies for violations relating to sponsored links on search
engines. 3 Sponsored links are links or ads that are purchased to
appear when a certain search term is entered. In this case, companies
paid for their links to appear when searches were run for either
the brand names of drug products or disease conditions. In each
Untitled Letter, the FDA generally cited violations of the Food, Drug
and Cosmetic Act (FDCA).
Specifically, the FDA asserted that the sponsored links misbrand
the drugs because they include representations and/or suggestions
about their efficacy without communicating any risk information.
Furthermore, the FDA stated that providing a link to the product’s
Web site, where consumers could get more information about drug
risks, did not mitigate the misleading omission of risk information.
The Untitled Letters also claimed that the sponsored links failed adequately
to communicate the drugs’ indication (i.e., what the drugs are
used for) or, in some instances, broadened the indication by failing
to disclose limitations to the indication, such as the appropriate
patient population or disease stage. Finally, the FDA asserted that
the sponsored links do not provide the drugs’ full established names
in accordance with FDA regulations. In other words, the sponsored
links refer only to the drugs’ proprietary names without also providing
their established names (also known as “generic names”).
YouTube Videos and Banner Ads
Although the majority of the FDA’s online enforcement activities
have focused on companies’ practices on official product Web
sites, the FDA has also issued Warning Letters addressing the use
of videos posted on third-party Web sites, and Untitled Letters
addressing the use of “online banners.”
For example, in August 2008, the FDA sent an Untitled Letter to
Novartis Pharmaceuticals, objecting to the company’s use of online
banners promoting Diovan. The FDA claimed that the banner ads
presented efficacy claims but failed to communicate required risk
information, thereby misbranding the drug.
IP® EVIEW
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Issues for Discussion
According to the notice, the FDA is interested in comments on any
aspect of Internet promotion in general. However, the FDA identified
the following five categories for discussion at the November public
hearing, based in large part on the specific types of issues frequently
raised by interested parties.
• For what online communications are manufacturers, packers or
distributors of regulated products accountable?
• How can manufacturers, packers or distributors fulfill regulatory
requirements in their Internet and social media promotion?
• What parameters should apply to the posting of corrective information
on Web sites controlled by third parties?
• When is the use of links appropriate?
• Questions specific to Internet-adverse event reporting, including:
How are entities with reporting responsibilities using the Internet
and social media tools with regard to monitoring adverse event
information about their products?
With the emergence of new Web 2.0 technologies, the regulation
of Internet and social media promotions will continue to present
considerable challenges for the FDA and the industry as a whole.
Therefore, it is important that all interested parties review the public
notice and consider sending comments in order to assist the FDA in
developing practical rules and regulations to accommodate a wide
range of online promotional tools. �
1 The Notice of Public Hearing: http://edocket.access.gpo.gov/2009/pdf/E9-22618.pdf.
2 Untitled Letters “cite[] violations that do not meet the threshold or regulatory
significance for a Warning Letter.” See FDA, Regulatory Procedures Manual at 4-2-1
(Mar. 2009). Such violations “may lead to enforcement action if not promptly and
adequately corrected.” Id at 4-1-1.
3 The 14 Untitled Letters can be viewed on the FDA’s Web site: http://www.fda.gov/
Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/
WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/
ucm055773.htm.
Recent FTC Enforcement of Safe Harbor Has
Broad Implications for Privacy Policies
On October 6, 2009, the Federal Trade Commission (FTC) announced
that it had settled charges brought against six different companies for
misrepresenting that they were in compliance with the U.S.-European
Union (EU) Safe Harbor framework (Safe Harbor). 1 These settlements
mark the second time within the last two months that the FTC has
settled a claim relating to the Safe Harbor, and may signal new scrutiny
by the FTC into Safe Harbor compliance — an area that the FTC
has not addressed since the framework was put in place 10 years ago.
The FTC’s actions also serve as an important reminder that companies
must be in compliance with all aspects of their stated privacy policies,
whether or not they certify to the Safe Harbor.
Safe Harbor Overview
The EU Directive on Data Protection, 2 which went into effect in
1998, generally prohibits the transfer of personal data to non-EU
nations that do not meet the EU standard of “adequate” privacy protection.
This presented a potential impediment for data transfers to
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the U.S. given the U.S. reliance on industry self-regulation to protect
many types of personal data. While companies may use so-called
“model contracts” (i.e., written agreements that specify the means
by which data will be protected), the U.S. Department of Commerce
sought to create a streamlined method by which U.S. companies could
meet the “adequacy” requirement of the directive.
The Department of Commerce and the European Commission therefore
negotiated a Safe Harbor framework which became effective
in 2000. 3 By certifying to the Safe Harbor, a company establishes
that it provides “adequate” data privacy protection as required under
the EU Directive, and may therefore lawfully transfer personal data
from the EU. In order to participate, companies must self-certify to
the Department of Commerce that they comply with seven specified
privacy principles — notice, choice, transfer to third parties,
security, access, data integrity and enforcement. Most importantly
for purposes of the recent FTC actions, participating companies
must state in their published privacy policies that they adhere to the
Safe Harbor, and must recertify each year if they choose to continue
relying on this framework for EU-U.S. data transfers. Companies
that fail to recertify are listed as “not current” on the Department of
Commerce Web site.
The FTC Enforcement Actions
At various points between 2001 and 2007, the six settling companies
had self-certified under the Safe Harbor. As required, each company
also included a statement in its Web site privacy policy that it was
participating in the Safe Harbor program and was adhering to the
Safe Harbor Privacy Principles. 4 Several of the companies recertified
at least once before ceasing to do so, while the remaining
companies never recertified. In all instances, the Department of
Commerce moved each company to its “not current” list, indicating
that the companies had failed to recertify.
Despite the fact that the companies had not recertified, each of them
continued to include a statement in their privacy policy that they
were Safe Harbor compliant. This erroneous statement remained
on each company’s Web site for periods ranging from approximately
six months to five years before the FTC brought its actions in the
summer of 2009. In each case, the FTC alleged that because of the
misleading statement regarding Safe Harbor compliance, each company
had committed unfair or deceptive acts or practices in violation of
Section 5(a) of the Federal Trade Commission Act.
On October 6, 2009, the FTC announced its settlement with all six
companies and issued proposed consent orders. 5 Pursuant to the
consent orders, each company agrees not to “misrepresent in any
manner, expressly or by implication, the extent to which [it] is a
member of, adheres to, complies with, is certified by, is endorsed by,
or otherwise participates in any privacy, security, or other compliance
program sponsored by the government or any other third party.” 6
For a period of five years, the companies must also maintain, and
make available to the FTC, copies of all documentation related to
compliance with the order, including advertisements, promotional
materials and other statements containing representations covered
by the orders.
Implications of the FTC’s Actions
Notably, the six settlements mark the second time within the last
two months that the FTC has brought charges against a company for
misrepresenting its Safe Harbor status. In August 2009, the FTC
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obtained a temporary restraining order against a company for a number
of allegedly deceptive acts or practices, including falsely representing
that it self-certified to Safe Harbor when in fact the company had
never participated in the program. 7 These recent actions suggest
that the FTC may be responding to long-standing suggestions by the
EU that the FTC needs to be proactive in monitoring whether organizations’
privacy policies conform to the Safe Harbor. 8 Regardless of
the FTC’s motivation, its recent focus in this area serves as an important
reminder to companies that they must continue to re-certify
their Safe Harbor compliance, or modify their privacy policies if they
have chosen not to recertify or neglected to do so.
These recent Safe Harbor cases are also consistent with recent
efforts by the FTC to ensure that privacy policies are clear and match
a company’s actual activities. Earlier this year, the FTC settled
charges against an online retailer whose systems were hacked,
exposing its customers’ data. The FTC claimed that the company’s
privacy policy inaccurately described the strength of its information
security policies. 9 Similarly, in its revised principles governing the
use of personal data for online behavioral advertising, the FTC
expressed its discontent with the “opaque privacy policies that only
a lawyer can understand.” 10
Practice Points
• Companies that have self-certified to the Safe Harbor must
keep in mind that they are required to self-certify each year if
they want to remain under the protection of this framework
to transfer personally identifiable data from the EU to the U.S.
Companies should establish internal “reminders” so that they
can begin the recertification process sufficiently in advance of
when it is due.
• Companies that have decided not to self-certify, or realize they
have neglected to do so, must immediately modify their privacy
polices to reflect that fact.
• Even if a company is not certified under the Safe Harbor, it is
critical for it to self-certify to ensure that its privacy policy accurately
captures the company’s activities. Any inaccuracy can lead
to a claim of unfair and deceptive misleading practices by the FTC.
While an inaccurate privacy policy might seem like a minor issue,
note that the implications can be significant if the FTC brings
actions. In the six recently settled cases, the companies are
prohibited from misrepresenting, expressly or by implication, their
adherence to any compliance program, whether sponsored by the
government or any other third party. �
1 See Press Release, Fed. Trade Comm’n, FTC Settles with Six Companies Claiming to
Comply with International Privacy Framework (Oct. 6, 2009), available at http://www.
ftc.gov/opa/2009/10/safeharbor.shtm.
2 Council Directive 95/46/EC, 1995 O.J. (L 281) 31 (EC).
3 Participation is available only to those companies coming under the jurisdiction of the
FTC or the U.S. Department of Transportation.
4 See, e.g., Complaint at 3, In the matter of Progressive Gaitways LLC, No. 092-3141
(Fed. Trade Comm’n 2009).
5 The proposed consent orders are subject to public comment through November 5,
2009, at which point the FTC will determine whether to finalize the orders.
6 See, e.g., Agreement Containing Consent Order, In the Matter of World Innovators,
Inc., No. 092-3137 (Fed. Trade Comm’n Oct. 6, 2009).
7 Press Release, Fed. Trade Comm’n, Court Halts U.S. Internet Seller Deceptively
Posing as U.K. Home Electronics Site (Aug. 6, 2009), available at http://www.ftc.gov/
opa/2009/08/bestpriced.shtm.
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8 See, e.g., Commission Staff Working Document on the Implementation of
Commission Decision 520/2000/EC on the Adequate Protection of Personal Data
Provided by the Safe Harbor Privacy Principles and Related Frequently Asked
Questions Issued by the US Department of Commerce (Oct. 2004), available at
http://ec.europa.eu/justice _home/fsj/privacy/docs/adequacy/sec-2004-1323 _en.pdf.
9 See Press Release, Fed. Trade Comm’n, Identity Theft, Consumer Electronics
Company Agrees to Settle Data Security Charges; Breach Compromised Data of
Hundreds of Consumers (Feb. 5, 2009), available at http://www.ftc.gov/opa/2009/02/
compgeeks.shtm.
10 Fed. Trade Comm’n, Self-Regulatory Principles for Online Behavioral Advertising:
Behavioral Advertising Tracking, Targeting, & Technology (2009), available at http://
www.ftc.gov/os/2009/02/P085400behavadreport.pdf.
Federal Circuit Allows Hidden Unwitting
Assignment by Employee Inventor to Defeat
Standing to Sue for Patent Infringement
A recent decision by the U.S. Court of Appeals for the Federal Circuit
in Board of Trustees of The Leland Stanford Junior University, et al., v.
Roche Molecular Systems, Inc. et al. underscores the need to draft
employee intellectual property assignment agreements with care
and to consider carefully how to structure arrangements that permit
employees to work as consultants to partners or third parties.
Background
The patents-in-suit claim methods for quantifying Human
Immunodeficiency Virus (HIV) in human blood samples, and correlating
those measurements to the therapeutic effectiveness of
antiretroviral drugs. Three Stanford researchers — Mark Holodniy,
Thomas Merigan and David Katzenstein — are named inventors
on all of the patents; a fourth inventor, Michael Kozal, appears on
one of the patents. The technology related to the patents-in-suit
was developed in the late 1980s and early 1990s by researchers at
Stanford and Cetus, a company where polymerase chain reaction
(PCR) techniques matured in the early 1980s.
In 1988, Holodniy joined Merigan’s laboratory at Stanford and
signed a “Copyright and Patent Agreement” (CPA) that obligated
him to assign his inventions to the university. In the CPA, Holodniy
acknowledged that Stanford enters into “Contracts or Grants” with
third parties, such as the government, and that he may “conceive
or first actually reduce to practice” various inventions. Paragraph
2 of the CPA then recites: “I agree to assign or confirm in writing
to Stanford and/or Sponsors that right, title and interest in … such
inventions as required by Contracts or Grants.”
In February 1989, Holodniy began regular visits to Cetus over
several months to learn PCR and to develop a PCR-based assay for
HIV. Holodniy signed a “Visitor’s Confidentiality Agreement” (VCA)
with Cetus. The VCA stated that Holodniy “will assign and do[es]
hereby assign to CETUS, my right, title, and interest in each of the
ideas, inventions and improvements” that Holodniy may devise “as
a consequence of” his work at Cetus. Stanford was unaware of
the VCA entered into by Holodniy, and no recordation of it was ever
made in relation to any patent. Eventually, Holodniy’s research with
Cetus produced an assay that used PCR to measure quantitatively
the amount of plasma HIV RNA in samples from infected humans.
Results obtained by the Stanford team using the new assay formed
the basis for the patents-in-suit. Stanford and Cetus were also
parties to various material transfer and other agreements related to
this work.
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In December 1991, Roche purchased Cetus’s PCR business, including
its agreements with Stanford and its researchers. After this transaction,
Roche began manufacturing HIV detection kits employing RNA
assays. In May 1992, Stanford filed the patent application to which
the patents-in-suit claim priority. The ’730 patent issued on October
19, 1999; the ’705 patent issued on January 7, 2003; and the ’041
patent issued on October 31, 2006, after this lawsuit began. Stanford
is the named assignee of all three patents.
Stanford received government funding for its HIV research through
the National Institutes of Health (NIH). On June 24, 1992, Stanford
filed an invention disclosure for the HIV RNA assay with the NIH. On
November 29, 1994, Stanford confirmed to the government the grant
of a “nonexclusive, nontransferable, irrevocable, paid-up license”
under the parent application. On April 6, 1995, Stanford formally
notified the government that it elected to retain title to the inventions
under the Bayh-Dole Act, 35 U.S.C. §§ 200-212.
Following failed discussions regarding licensing the patents, Stanford
filed suit against Roche in the Northern District of California on
October 14, 2005, alleging that Roche’s HIV detection kits infringe
its patents. Roche answered and counterclaimed against Stanford,
Merigan and Holodniy, asserting, inter alia, that Stanford lacked
standing to maintain the cause of action against Roche, that Roche
possesses ownership, license and/or shop rights to the patents
through Roche’s acquisition of Cetus’s PCR assets, and that the
asserted patent claims were invalid.
The parties cross-moved for summary judgment on Roche’s rights
in the patents, and the district court ruled that Roche’s pleading
was a counterclaim subject to the applicable statute of limitations
and not an affirmative defense, and ruled in Stanford’s favor on the
ownership and standing issues finding that (1) Roche’s ownership
claims were barred by California statutes of limitation, laches and the
Bayh-Dole Act; (2) Roche’s license claims failed because Stanford
never consented to Roche’s acquisition of Cetus’s patent licenses;
and (3) Roche lacked shop rights to the patents.
After briefing and a Markman hearing, the district court then
construed several claim terms. Roche then moved for summary
judgment that the asserted claims were invalid. The district court
granted the motion, holding all asserted claims obvious.
Stanford appealed the judgment of invalidity, and Roche crossappealed
the judgment as to the parties’ respective rights in the
patents.
The Federal Circuit’s Decision
On appeal, the Federal Circuit affirmed the district court’s dismissal
of Roche’s ownership counterclaim, vacated the judgment that the
asserted patent claims were invalid for obviousness, and remanded
with instructions to dismiss Stanford’s claim because, despite its
agreement with Holodniy and no actual notice of an assignment to
Cetus, Stanford cannot establish ownership of Holodniy’s interest
and therefore lacks standing to assert its claims of infringement
against Roche.
Present Versus Future Agreements to Assign
A threshold issue in the case was which of the various agreements
involving Holodniy (the CPA, the VCA or the recorded assignment
to Stanford) was effective to transfer his interest in the invention.
The Federal Circuit looked at the language in the CPA and VCA and
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held that when he “agree[d] to assign” in the CPA, Holodniy merely
promised to assign rights in the future to Stanford, while the VCA’s
language of “do hereby assign” effected a present assignment of
Holodniy’s future inventions to Cetus. Therefore, Cetus immediately
gained equitable title to Holodniy’s inventions and once the invention
was made and an application for patent was filed, Cetus’s equitable
title converted to legal title. Although Holodniy executed an assignment
of his rights in the parent application to Stanford, because Cetus’s legal
title vested first, Holodniy no longer retained any rights, negating his
subsequent assignment to Stanford during patent prosecution.
Because it was undisputed that Holodniy took certain information
and material from Cetus and used them to develop the PCR assay
for HIV RNA. The Federal Circuit agreed with the district court
that he developed the inventions “as a consequence” of his access
to Cetus. Even if Holodniy conceived and reduced to practice after
departing Cetus, his research was directly related to the collaboration
with Cetus. Thus, the chain of title to Holodniy’s rights leads to Roche,
leaving Stanford with defective title to the rights of all the inventors.
Bona Fide Purchaser Under 35 U.S.C § 261
Stanford asserted that it was a bona fide purchaser for value of
Holodniy’s interest in the patents by virtue of the CPA and that Cetus’s
failure to timely record the VCA gave Stanford superior title to that of
Roche under 35 U.S.C. § 261. The Federal Circuit disagreed.
In disagreeing with Stanford, the Federal Circuit first observed that
the bona fide purchaser defense to patent infringement, while a
matter of federal law, draws upon common law principles. On the
basis of common law principles and dicta from one of its previous
cases, 1 the court concluded that notice under Section 261 can
include constructive or inquiry notice, in addition to actual notice, and
that Stanford should be charged with notice of Holodniy’s assignment
to Cetus on the basis that (1) the CPA established an employment
relationship between Holodniy and Stanford, and Holodniy’s
work at Cetus related directly to his research at the university; (2)
Merigan, Holodniy’s supervisor at Stanford, directed Holodniy to
work with Cetus and himself executed Materials Transfer Agreements
with Cetus that allocated intellectual property rights; and
(3) constructive notice applies under California law in particular to
employees who are acting as agents of their employer. The Federal
Circuit also found that Holodniy’s promise in signing the CPA to “not
enter into any agreement creating copyright or patent obligations in
conflict with this agreement” does not prevent imputation of notice
to Stanford.
Bayh-Dole Considerations
Stanford contended that the Bayh-Dole Act allowed Stanford a “right
of second refusal” to the patents after the government refrained
from exercising its rights, that Holodniy’s rights were contingent
upon his CPA obligations to assign them to Stanford, and that the act
voided any assignment by Holodniy to Cetus upon Stanford electing
title to the invention. The Federal Circuit disagreed, relying on its
previous holding, that, 2 when the Bayh-Dole Act’s provisions are
violated, the government can choose to take action and title to the
patent may be voidable, but the Federal Circuit declined to expand
that holding to find that title is automatically void. Instead, the
Federal Circuit held that Holodniy’s assignment to Cetus provided
the government with, at most, a discretionary option to his rights,
but that absent exercise of that option, title remained with Holodniy
or his assignee (Cetus).
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The court went on to note that, at the time it elected title, Stanford
was entitled to claim whatever rights were still available after the
government declined to exercise its option, including the rights of coinventors
Merigan, Katzenstein and Kozal. Holodniy, however, had
transferred his rights to Cetus more than six years before Stanford
formally notified the government of its election of title. The court
specifically declined to express an opinion as to whether Holodniy’s
execution of the VCA violated any provisions of the Bayh-Dole Act,
or whether the act provides the government or Stanford some other
legal recourse to recover Holodniy’s rights.
Ownership and Standing
While the court held Stanford is not able to establish clear title
through all the inventors, it also upheld the district court’s dismissal
of Roche’s ownership claims as time-barred under California’s applicable
statute of limitations. Thus Roche was not awarded a judgment
of ownership. Nonetheless, the court found that Stanford’s
inability to establish that it possessed Holodniy’s interest in the
patents-in-suit defeats its right to assert its cause of action against
Roche, as it is well settled that “all co-owners normally must join
as plaintiffs in an infringement suit. Thus, the Federal Circuit found
that the district court lacked jurisdiction over Stanford’s infringement
claim and should not have addressed the validity of the patents. �
1 FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1574 (Fed. Cir. 1991).
2 Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C. 482
F.3d 1347, 1352-53 (Fed. Cir. 2007).
First Sale Doctrine Under Attack
A long-standing skirmish between brand owners and retailers over
the right of unauthorized retailers to sell authorized goods recently
has taken a pivotal turn. In a recent decision, Zino Davidoff SA v.
CVS Corp, 1 the U.S. Court of Appeals for the Second Circuit held
that the removal by a retailer of a Unique Production Code (UPC) on
the plaintiff’s fragrance packaging violated the plaintiff’s trademark
rights. As such, at least in the Second Circuit, a retailer that is not
authorized to sell a branded product now may face the difficult
dilemma of removing the UPC and risk engaging in trademark
infringement or keep the UPC on the product packaging and facilitate
the brand owner’s discovery (and termination) of the source of the
diverted goods. In either event, the unauthorized resale of branded
goods as we have come to know it may permanently be altered.
Background
For years, retailers have sold with relative impunity branded goods
that were not intended by the brand owner to be sold through that
retailer. We all have seen such sales, whether personal fragrances,
designer apparel, luxury goods, fine chocolate or other high-end (and
authentic) branded products being sold at a discount by a discount
retail chain. Frequently such goods are sold directly to the discount
retail chain by the brand owner’s exclusive distributors or by the
unauthorized high-end retailer itself, seeking to sell excess inventory
that the distributor or high-end retailer may not be able to sell
through authorized channels.
Brand owners have had a number of concerns regarding such resale,
including that such unauthorized channels are not consistent with
the image of the brand, do not provide service that consumers of
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the brand would come to expect, undercut sales and potentially put
pricing pressure on authorized retailers, and make it more difficult
to identify and prevent sales of counterfeit goods. Nonetheless,
brand owners by and large have been on the losing side of the legal
battle challenging such conduct, as the products at issue fulfilled
a fundamental principle of trademark law — that they are original
goods emanating from the brand owner (i.e., the product is no different
from that sold by authorized retailers). Put simply, courts held
that consumers could not be confused about the origin of a good
when the origin had not changed, just the sales outlet had. 2 Brand
owners adopted and pressed alternative legal theories to stop
such sales, such as tortious interference with contract (i.e., that
the retailer tortiously interfered with the brand owners’ exclusive
distribution relationships). But given the additional elements
that a plaintiff must present to establish such a tort (i.e., retailer
knowledge of the exclusive relationship and an intent to interfere
with such relationship), and that the genuine goods frequently
would travel through multiple parties such that the retailer would
not have diverted the goods from the distributor that was subject
to the contractual restriction with the brand owner, brand owners
frequently failed here as well. Brand owners also resorted to
self-help, by purchasing unauthorized product and attempting to
trace its origins (and the cause of the diversion), but retail stores
selling such unauthorized goods typically remove UPCs and similar
identifying characteristics to avoid such detection. Challenges by
brand owners that such UPC removal itself constituted trademark
infringement by modifying the product such that it was no longer
an original met with limited success. 3
Such was the legal landscape when Zino Davidoff SA (Davidoff), the
Switzerland-based manufacturer of luxury items, challenged CVS
Corporation (CVS), the pharmacy chain, for its unauthorized sales
of Davidoff’s Cool Water brand perfume. Davidoff distributes such
fragrances to select high-end retailers in the United States. CVS was
not an authorized retailer of the Cool Water fragrance, but was able
to obtain Cool Water inventory through secondary distribution channels
— i.e., the “gray market.” Cool Water fragrances were among
CVS’s top-selling fragrances.
On three different occasions over the years, Davidoff had discovered
that, in addition to fragrances acquired via the gray market, CVS also
was selling counterfeit Cool Water fragrances. After the third occasion,
Davidoff sought and secured a temporary restraining order in
the U.S. District Court for the Southern District of New York against
CVS with respect to such counterfeit product. The court additionally
authorized Davidoff to inspect all the undistributed Cool Water products
in CVS’s inventory to investigate how pervasive the counterfeits
were. During the course of the inspection, Davidoff discovered
that the UPCs had been removed from the packaging of 16,600
fragrances. Because Davidoff perceived the sale of these items to
be a threat to its anti-counterfeiting measures, it sought a preliminary
injunction preventing CVS from selling all Cool Water products with the
UPC removed regardless of whether the product was genuine or not.
The Court’s Decision
The Southern District of New York granted a preliminary injunction
and CVS appealed. The Second Circuit affirmed the preliminary
injunction. The appellate court agreed with the district court that
Davidoff likely would succeed in its trademark infringement claim,
finding that CVS interfered with Davidoff’s right to control the
quality of the product under the Lanham Act. The court ordered
CVS to stop selling such items, genuine or not, with the UPC
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removed. Davidoff introduced evidence that, as part of its quality
control measures, the UPC on each fragrance package, which
enables Davidoff to trace each product through the production
and distribution line to final sale, helps identify and resolve quality
issues as they arise. The Second Circuit stated that “because the
UPC acts as a quality control mechanism which enables Davidoff
to protect the reputation of its trademark by identifying counterfeits
and by protecting against defects,” Davidoff was likely to succeed
in its trademark infringement claim and a preliminary injunction
accordingly was appropriate. 4
The Second Circuit held that to establish a Lanham Act violation
there need not be actual quality differences between the authorized
goods and the gray-market goods — instead, the Lanham Act
affords the trademark owner the right to control the quality of goods
manufactured and sold bearing the mark. 5 The court endorsed the
three-part test set forth in Warner-Lambert Co. v. Northside Development
Corp., 6 to determine whether a holder’s right to control quality
has been subverted:
[A] trademark holder is entitled to an injunction against
one who would subvert its quality control measures
upon a showing that (i) the asserted quality control
procedures are established, legitimate, substantial,
and nonpretextual, (ii) it abides by these procedures,
and (iii) sales of products that fail to conform to these
procedures will diminish the value of the mark. 7
The appellate court determined that Davidoff’s practice of regularly
working with and training retailers, private investigators and U.S.
Customs agents enhanced its effectiveness to detect and prevent
the sales of counterfeits and to detect and recall defective goods; all
of which worked toward meeting the first two prongs of the Warner
test. 8 CVS argued that Davidoff’s UPC system is only a pretextual
quality control mechanism and in reality its true purpose is to allow
Davidoff to search out distributors of gray-market goods. The court,
however, found the argument to be unconvincing based on evidence
provided by Davidoff that it had in fact used its UPC system on
many occasions to address quality control issues such as identifying
counterfeits, under-filled or over-filled bottles, defective dispensers
and improper packaging. 9
In discussing the third prong, the appellate court noted that Davidoff
is able to use the UPC system to identify counterfeit items by
discovering items with UPCs that are not registered on its system. 10
Although CVS argued that gray-market goods are not necessarily
counterfeit goods, the court noted that gray-market goods that have
the UPC removed make it almost impossible for trademark holders
like Davidoff to discover counterfeit goods. 11 The court stated that
anti-counterfeiting systems control — even if indirectly — the quality
of a product because counterfeit goods are invariably inconsistent
and lower in quality. 12
Regarding direct quality control, the court found that the UPC
system helps Davidoff to identify and recall genuine authorized but
defective products. The UPC helps to identify where a product was
manufactured and the batch which produced the defect, and helps
facilitate targeted recall. Removing the UPC from a product could
prevent Davidoff from tracking the instances of inconsistency and
defect among its genuine fragrances. This interference alone, the
court held, is a violation of Davidoff’s right as trademark holder to
control the quality of its product. 13
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Impact
For the luxury manufacturer, this case signifies that anti-counterfeiting
systems can constitute quality control procedures. Tampering with
those systems could interfere with a trademark holder’s right to
control the quality of its product and maintain the value of its mark,
and such conduct in and of itself may constitute trademark infringement,
at least in the Second Circuit. In light of this decision, luxury
item manufacturers that utilize a UPC-like system for their products
may be successful in seeking a preliminary injunction in the Second
Circuit against retailers that resell even genuine products but do so
by obfuscating or removing UPCs. �
1 Zino Davidoff SA v. CVS Corp., 2009 U.S. App. LEXIS 13172 (2d Cir. N.Y. June 19,
2009).
2 E.g., Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083, 1085 (9th Cir. 1998).
3 See Davidoff & Cie v. PLD International Corporation, 263 F.3d 1297, 1303 (11th Cir.
2001) (a defacement of UPCs on a bottle that “degrades the appearance” of the
product may constitute trademark infringement).
4 Id. at 2.
5 El Greco Leather Products v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986)
(emphasis added).
6 86 F.3d 3, 39 (2d Cir. 1996).
7 Zino Davidoff, 2009 U.S. App. LEXIS 13172 at *16.
8 Id. But note that Warner-Lambert involved product that was being sold beyond its
expiry date, and accordingly arguably no longer was genuine.
9 Id. at *18.
10 Id. at *14.
11 Id. at *17.
12 Id. at *15.
13 Id. at *17-19.
Federal Circuit Issues Two Key Decisions
Clarifying Rights of Patent Licensees
On May 22, 2009, the Federal Circuit issued two decisions clarifying
the scope of rights conferred by patent license agreements, ruling in
favor of the patent licensee in both cases. In the first, Epistar Corp.
v. Int’l Trade Comm’n, Case No. 2007-1457, the court held that a
covenant not to challenge patent validity in a settlement or license
agreement was binding against successors-in-interest only to the
extent that it could have been enforced against the original licensee.
As such, a future assignee of a patent license retains the right to
assert a defense of patent invalidity in contexts that are outside the
scope of the original license agreement. In the second decision,
CoreBrace LLC v. Star Seismic LLC, Case No. 2008-1502, the court
determined that a license to make, use, and sell a patented product
necessarily included an implied license to have that product made
by a third party. Both of these decisions will undoubtedly impact
the legal and commercial analyses that business entities must
undertake when entering into agreements or considering corporate
mergers or acquisitions.
Epistar Corp. v. Int’l Trade Comm’n
On November 4, 2005, Philips Lumileds Lighting Company
(Lumileds) alleged infringement of U.S. Patent No. 5,008,718 (the
‘718 patent) against Epistar Corporation (Epistar) and United Epitaxy
Company (UEC) in the International Trade Commission (ITC). Prior
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to the filing of that action, Lumileds had entered into two separate
license agreements with Epistar and UEC, respectively, which
covered some (but not all) of the products manufactured by these
two entities. The license with UEC included the right to use the ‘718
patent for the manufacture, sale and importation of light emitting
diodes, and also contained a covenant not to challenge the ‘718
patent’s validity. The license with Epistar, covering a different set of
products, preserved Epistar’s right to challenge validity with respect
to any Epistar products that might later be accused of infringement.
Two months after the ITC action was filed, UEC merged into Epistar,
with UEC ceasing to exist as a separate company, and with Epistar
assuming all of “UEC’s assets, liabilities, contractual and patent-
related rights and obligations, and UEC’s status as a party to the
Commission investigation,” including UEC’s license with Lumileds.
After the merger, Epistar continued to manufacture its own light
emitting diodes, along with UEC’s products and three next-generation
diode products.
The ITC found that “Epistar, like UEC, is barred from raising an
invalidity defense to the assertion of infringement of the ‘718 patent
against any product” because “Epistar, like UEC, would be contractually
estopped from raising an invalidity defense to the ‘718 patent.”
The Federal Circuit reversed this finding, holding that “Epistar (as
successor to UEC) may not contest the validity of the ‘718 patent
with respect to the UEC products that it inherited in the merger,”
but this restriction would have no effect on Epistar’s right to challenge
the ‘718 patent when other products are at issue. As such,
“Epistar’s acquisition of UEC does not have the effect of limiting
Epistar’s rights that are unrelated to the product lines it acquired
from UEC.”
While this case involves some unique circumstances, including
the fact that Epistar had its own license agreement with Lumileds
which contained no covenant against challenging validity, the court’s
analysis suggests that its ruling applies to a broad range of commercial
relationships. For instance, the court notes that “[b]lack letter
contract law states that the assignment of a contract to an assignee,
such as from UEC to Epistar, only changes the obligated party, not
the scope of the obligation.” Given these underlying principles, it
appears that even if there had been no separate agreement preserving
the right to contest validity, the merger of UEC and Epistar
would not have eliminated Epistar’s ability to challenge the validity of
the ‘718 patent in all contexts.
CoreBrace LLC v. Star Seismic LLC
In CoreBrace, defendant Star Seismic LLC (Star) had received a
license in 2007 to U.S. Patent No. 7,188,452 (the ‘452 patent) from
the predecessor-in-interest to plaintiff CoreBrace LLC (CoreBrace).
On January 4, 2008, CoreBrace sent a letter to Star stating that
the license was terminated based upon Star’s use of third-party
contractors to manufacture licensed products for Star’s own use,
which CoreBrace contended was a breach of the license. On that
same day, CoreBrace filed suit for patent infringement. The district
court granted a Rule 12(b)(6) motion to dismiss, after determining
that Star was entitled to use third-party contractors to make the
licensed products, without such action constituting a breach of
the license.
The Federal Circuit affirmed the district court’s dismissal, concluding
that “[t]he right to ‘make, use, and sell’ a product inherently includes
the right to have it made by a third party, absent a clear indication
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of intent to the contrary.” Although the case nominally involved the
application of Utah’s contractual laws, the Federal Circuit’s holding
was based broadly on what it identified as complete agreement
among courts that had considered analogous circumstances, “that a
‘have made’ right is implicit in a right to make, use, and sell, absent
an express contrary intent.” Indeed, the Federal Circuit reached
this conclusion despite the fact that the licensee between Star and
CoreBrace included a “reservation of rights” clause. Thus, without
a showing of “clear intent to exclude ‘have made’ rights from the
License,” a patent licensor cannot sue for infringement based upon
the actions of a third party who is manufacturing licensed products
on behalf of the licensee.
Importance of Epistar and CoreBrace
Each of these decisions offers considerable guidance to commercial
entities when drafting agreements and when assessing
the intellectual property aspects of contemplated mergers and
acquisitions. In both of these cases, the licensee “won” — but in
each case, the Federal Circuit’s opinion suggests that a different
outcome could have been reached had the license agreements at
issue been drafted differently. Thus, these cases offer crucial guidance
and clarity to parties on both sides of a potential or existing
license agreement.
Commercial entities must be cognizant that a covenant against
challenging patent validity ultimately may not be enforceable in
all contexts against a license assignee. This will undoubtedly
affect the valuation of potential targets and the likelihood that the
acquiring party will one day be held liable for patent infringement
of a valid claim. In addition, when drafting license agreements,
parties must be aware of the scope and limitations of any covenants
made on behalf of the licensee, which the Federal Circuit
has indicated will be strictly interpreted, at least in the context of
a merger.
Likewise, the Federal Circuit also has created a brightline rule with
respect to the manufacturing of licensed products by third parties
— there must be a clear indication that the license does not extend
to such third-party activities; a reservation of rights clause is insufficient.
This may require parties on both sides of license agreements
(or potential license agreements) to discuss issues of third-party
manufacturing and assess whether this issue should be explicitly
addressed in the agreement. �
ISPs Immunity From Contributory
Infringement Not Absolute
Courts in the United States repeatedly have failed to hold Internet
service providers (ISPs) liable for contributory infringement based on
their hosting of Web sites — until now. In Louis Vuitton Malletier,
S.A. v. Akanoc Solutions, Inc., et al., 1 a jury in the Northern District
of California found two ISPs liable for $32.4 million in damages for
contributory trademark and copyright infringement when they failed
to take down sites selling counterfeit goods. This verdict presents
both an opportunity for brand owners seeking to stop the distribution
of infringing goods on the Internet, and an area of vulnerability for
ISPs that host sites offering such goods. It also creates a distinction
between how courts in the Second Circuit and the Ninth Circuit view
such activities.
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Background
The plaintiff, Louis Vuitton Malletier, S.A. (LV or the company), is a
well-known designer and distributor of luxury handbags, luggage
and other leather goods best known for bearing the distinctive “LV”
trademark. Within the United States, the company is the sole and
exclusive distributor of its products, which it sells online through a
single Web site operated by the company. 2
The defendants, Akanoc Solutions, Inc. (Akanoc) and Managed
Solutions Group, Inc. (MSGI) are ISPs that sell IP addresses and host
Web sites. A third defendant, Steven Chen, owns, operates and
controls both Akanoc and MSGI. According to LV, most, if not all, of
the Web sites hosted by the defendants are engaged in the sale of
counterfeit merchandise. 3
In 2006 and 2007, LV learned that over 70 Web sites hosted on the
defendants’ servers were selling counterfeit goods bearing “LV”
trademarks. 4 For a period of more than six months, the company
sent the defendants numerous letters demanding that the Web sites
be taken down. The defendants failed to respond to any of LV’s
requests and thus the majority of the offending Web sites were not
taken offline until after LV filed a lawsuit. 5
The company brought an action in federal district court alleging (1)
contributory trademark infringement; (2) vicarious trademark infringement;
(3) contributory copyright infringement; and (4) vicarious
copyright infringement. The district court granted the defendants’
motion for summary judgment on the vicarious infringement
claims, but denied it with respect to the contributory trademark and
copyright infringement claims, finding there was evidence that the
defendants had actual knowledge of, and continued to support, the
counterfeiting Web sites.
The Jury’s Verdict
After a trial on the merits, the jury found all three defendants liable
for contributory trademark and copyright infringement. Specifically,
the jurors found that after repeated notices from LV, defendants
knew or should have known that customers were using their services
to infringe LV’s intellectual property. Instead of taking action to
stop such activities by ceasing to host the Web sites, the defendants
ignored the requests and continued to provide the services, thereby
contributing to the damages suffered by LV.
The jury further rejected the defendants’ arguments that the safe harbor
provisions of the Digital Millennium Copyright Act (DMCA) insulated
them from liability. The DMCA holds ISPs whose services are used
to commit infringement 6 immune from legal liability for such activities
when they establish and follow a “notice and takedown” process
to respond to complaints and remove infringing material in a timely
manner. It does not, however, protect an ISP that is “aware of facts or
circumstances from which infringing activity is apparent” or “receive[s]
a financial benefit directly attributable to the infringing activity.” 7 As
discussed above, the jury was convinced that the defendants were
aware of the infringing activity and rather than stop it, instead chose to
continue to receive hosting fees and enable the infringement.
In determining damages, the jury found that the defendants acted
willfully, and thus awarded LV $31.5 million on the contributory
trademark and $900,000 on the contributory copyright infringement
claims. The district court is expected to issue a permanent injunction
prohibiting defendants from hosting Web sites selling counterfeit
Louis Vuitton goods.
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Split in the Circuits’ Views
Prior to the Louis Vuitton case, ISPs generally were well shielded by
judicial interpretations of the DMCA’s safe harbor. Additionally, no
court or jury previously had found an ISP liable for contributory trademark
infringement where customers used the ISP’s services to sell
counterfeit or infringing goods. In fact, in July 2008, the U.S. District
Court for the Southern District of New York held in Tiffany, Inc. v.
eBay, Inc., 8 a case with certain similar facts, that online marketplace
eBay, Inc. was not liable for contributory trademark infringement.
The case is on appeal to the U.S. Court of Appeals for the Second
Circuit, which heard oral arguments in July 2009.
In Tiffany v. eBay, after conducting a bench trial on the merits, the
court was not convinced that luxury jeweler Tiffany, Inc.’s repeated
mailing of demand letters to eBay and its submission of eBay’s
Notice of Claimed Infringement (NOCI) forms notifying eBay that
counterfeit Tiffany products were sold on its marketplace were
sufficient to establish eBays’ knowledge of the infringement. The
court determined that Tiffany’s demand letters only gave eBay generalized
knowledge rather than knowledge of specific instances of
infringement, and thus were not sufficient to establish a contributory
trademark infringement claim. As discussed above, this is in direct
contrast to the Louis Vuitton case, where the jury believed that LV’s
demand letters were sufficient to find that the defendants knew or
should have known of specific instances of infringement.
Another fact worth noting is the difference in the respective
defendants’ responses to the plaintiffs’ demand letters. In Tiffany
v. eBay, the defendant maintained extensive anti-fraud measures
and responded to each of Tiffany’s NOCI forms by investigating and
ultimately removing the listings for counterfeit goods. Therefore,
the court concluded that, even assuming the demand letters could
constitute specific knowledge, the defendant took prompt steps to
stop the infringement. In contrast, the defendants in Louis Vuitton
did not respond to the demand letters and failed to promptly cease
hosting the sites selling counterfeit goods.
Impact
It will be interesting to see if and how the Ninth and Second Circuits
resolve their different approaches to the issue of sufficient notice
under the DMCA. In the meantime, the jury’s verdict in Louis
Vuitton could create a helpful new avenue for companies struggling
to protect their brands and intellectual property from infringement on
the Internet. In light of the case, intellectual property owners should
not only notify ISPs of infringement, but continue to send demand
letters to nonresponsive ISPs, as courts may view such actions as
evidence of contributory infringement. The case also should serve
as a reminder for ISPs that the safe harbor protections of the DMCA
are not absolute. Turning a blind eye toward intellectual property
owners’ take-down requests may render an ISP liable for willful
contributory infringement and subject it to large damage awards. �
1 Verdict, Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., et al., No. C 07-03952
JW (N.D. Cal. Aug. 28, 2009).
2 See Amended Complaint, supra note 1, at 8-9.
3 See id. at 31.
4 See Order Granting in Part and Denying in Part Defendants’ Motion for Summary
Judgment, supra note 1, at 2-3.
5 See Declaration of Nikolay Livadkin in Support of Opposition to Defendants’ Motion
for Summary Judgment, supra note 1, at 12-19.
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6 See 17 U.S.C. § 512 (2008).
7 Id. § 512(c)(1).
8 576 F. Supp. 2d 463 (S.D.N.Y. 2008), appeal docketed, No. 08-3947-cv (2d Cir. filed
Aug. 11, 2008).
SEC Imposes $100,000 Fine for Firm’s Failure
to Safeguard Customer Information
The Securities and Exchange Commission (SEC) recently intensified
its efforts to ensure that firms implement adequate measures
to protect customers’ nonpublic personal information. On September
29, 2009, the SEC issued a cease and desist order pursuant
to Sections 15(b) and 21C of the Securities Exchange Act of 1934,
and Sections 203(e) and 203(k) of the Investment Advisers Act of
1940 against a registered broker-dealer/investment adviser that
failed to safeguard customer information. 1 The SEC also ordered
the firm, Commonwealth Equity Services, LLP d/b/a Commonwealth
Financial Network (Commonwealth), to pay a civil money
penalty of $100,000.
Background
Rule 30(a) of Regulation S-P (the Safeguards Rule) 2 requires brokerdealers
and SEC-registered investment advisers to adopt written
policies and procedures that address administrative, technical and
physical safeguards for the protection of customer records and information.
Specifically, these written policies and procedures must be
reasonably designed to: (1) ensure the security and confidentiality of
customer records and information; (2) protect against any anticipated
threats or hazards to the security or integrity of customer records
and information; and (3) protect against unauthorized access to or
use of customer records or information that could result in substantial
harm or inconvenience to any customer. 3
Commonwealth retains approximately 1,600 licensed brokers
as independent contractors (registered representatives). Each
registered representative received Commonwealth’s written policies
and procedures, which were intended to safeguard customer
records and information. These policies required each representative
to maintain the security of the information entrusted to that
representative. In connection with such requirement, the policies
recommended that the registered representatives install anti-virus
software on computers used by the representatives to access
customer account information.
In November 2008, an unauthorized party hacked into a registered
representative’s computer, obtained the representative’s login
credentials and used the credentials to access customer account
information. The intruder then entered several unauthorized purchase
orders for which Commonwealth absorbed monetary losses.
Notably, the representative whose computer was hacked had called
Commonwealth’s IT help desk several times before the incident.
For example, in September 2008, the representative called the help
desk for assistance with a potential software virus. The help desk
was unable to detect anti-virus software on the representative’s
computer, but only “recommended” that the representative install
such software. The help desk did not do any follow up, and the
representative never installed the software. The lack of anti-virus
software allowed the intruder to hack the representative’s computer
and access customer information.
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In anticipation of the SEC proceedings, Commonwealth submitted
an Offer of Settlement. The SEC accepted Commonwealth’s offer
and entered the order instituting administrative and cease and desist
proceedings. Commonwealth consented to the order without admitting
or denying any of the findings in the order.
SEC Order
The SEC found that Commonwealth willfully violated the Safeguards
Rule by recommending, but not requiring, that its registered representatives
maintain anti-virus software on their computers. As a
result, Commonwealth’s customer information was left vulnerable,
and such vulnerability was successfully exploited.
Commonwealth also was found not to have procedures in place to
adequately review its representatives’ computer security measures.
In particular, Commonwealth did not audit its representatives’
computers to determine whether anti-virus software was installed.
Additionally, Commonwealth did not have procedures in place to
follow up on potential computer security issues uncovered during
audits or when representatives notified Commonwealth of the issue.
Impact
The SEC order against Commonwealth comes at a time when
state and federal regulators are paying increased attention to data
breaches, and serves as an important reminder that firms must pay
careful attention to this area. The order reiterates that companies
are not only responsible for their own systems, but for the systems
of independent contractors, even where independent contractors
provide their own computer and software. Firms must also ensure
that their security measures protect against unauthorized access to
customer records, and must implement policies to address security
issues that arise. In particular, firms registered with the SEC must
put these procedures in writing to ensure compliance with the
Safeguards Rule. �
1 See Release No. 34-60733.
2 17 C.F.R. A7 248.30(a). The Safeguards Rule became effective on November 13,
2000, and compliance has been mandatory since July 1, 2001.
3 Id.
The Reign of Bilski ( from page 1 )
The Bilski Decision
The Federal Circuit’s en banc decision arose from a patent application
with claims directed to methods of hedging risk in the field of
commodities trading. During prosecution, all of the pending claims
were rejected by the Patent Office (PTO) under Section 101 of the
Patent Act. Section 101 provides that:
Whoever invents or discovers any new and useful
process, machine, manufacture, or composition of
matter, or any new and useful improvement thereof, may
obtain a patent therefor, subject to the conditions and
requirements of this title.
35 U.S.C. § 101. Section 101 recites four categories of patenteligible
subject matter: processes, machines, manufactures and
compositions of matter. Although the applicants contended that
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their claims were directed to a “new and useful process,” the PTO
and the Board of Patent Appeals and Interferences (BPAI) disagreed.
Upon appeal, the en banc Federal Circuit affirmed the rejection of the
pending claims, with nine circuit judges joining the majority opinion,
two judges filing dissenting opinions agreeing with the ultimate outcome
but offering a different rational, and one judge filing a lengthy
dissent without expressing a view as to whether the claims were
drawn to patent-eligible subject matter under Section 101. Despite
the multiple opinions, the Federal Circuit judges all agreed, following
prior decisions of the Supreme Court, that the meaning of the term
“process” in Section 101 is narrower than its ordinary meaning.
“Specifically, the Court has held that a claim is not a patent-eligible
‘process’ if it claims ‘laws of nature, natural phenomena, [or] abstract
ideas.’” Bilski, 545 Fed. Cir. at 952 (quoting Diamond v. Diehr, 450
U.S. 175, 185 (1981)). However, the various opinions debated what
test or set of criteria governed the determination as to when a process
was improperly claiming a law of nature, natural phenomena,
mental process or an abstract idea.
The majority opinion set forth the following test in an attempt to
answer that question. The Federal Circuit held that a “claimed
process is surely patent-eligible under Section 101 if: (1) it is tied
to a particular machine or apparatus, or (2) it transforms a particular
article into a different state or thing.” Bilski, 545 F.3d at 954
(emphasis in original). The court explained that “the use of a specific
machine or transformation of an article must impose meaningful
limits on the claim’s scope to impart patent-eligibility” and “the
involvement of the machine or transformation in the claimed process
must not merely be insignificant extra-solution activity.” Id. at
961-62. Thus, the transformation of a particular article into a different
state or thing “must be central to the purpose of the claimed
process.” Id. In further explaining the “machine-or-transformation”
test, the Federal Circuit explained that “mere field-of-use limitations
are generally insufficient to render an otherwise ineligible process
claim patent-eligible,” as such limitations indicate that a claim is not
limited to a specific application of a fundamental principle. Id. at 957.
The Federal Circuit’s “machine-or-transformation” test was adopted
to the exclusion of the Freeman-Walter-Abele test 1 , the “useful,
concrete and tangible result” test 2 , and a “technological arts” test
proposed by several amici.
Applying the machine-or-transformation test, the Federal Circuit
held that the applicants’ claims failed to satisfy the first prong of
the test (process tied to a particular machine) as the applicants
admitted that their pending claims were not limited to any specific
machine or apparatus. Id. at 962. The Federal Circuit also held
that the applicants’ claims did not transform any article to a different
state or thing. In particular, the Federal Circuit held that
manipulation of “legal obligations or relationships, business risks,
or other such abstractions cannot meet the test because they are
not physical objects or substances, and they are not representative
of physical objects or substances.” Id. at 963. In short, the
applicants’ claims were rejected since they sought “to claim a nontransformative
process that encompasses a purely mental process
of performing requisite mathematical calculations without the aid of
a computer or any other device, mentally identifying those transactions
that the calculations have revealed would hedge each other’s
risks, and performing the post-solution step of consummating
those transactions.” Id. at 965. With this decision, the Federal
Circuit opened the door to a greater number of invalidity challenges
based on Section 101.
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Post-Bilski Decisions by the Federal Circuit
Although not mentioning Bilski, the Federal Circuit applied Section
101 to affirm the rejection of a large number of claims directed to
methods for mandatory arbitration in In re Comiskey, 554 F.3d 967
(Fed. Cir. 2009). In particular, the rejected claims recited methods
or systems for mandatory arbitration involving legal documents. The
claims did not require the use of a mechanical device such as a computer.
After addressing prior Section 101 jurisprudence, the Federal
Circuit reiterated that the term “process” as used in the Patent
Act did not actually encompass all things that could be considered
processes. The Federal Circuit held that Comiskey’s method claims
were not patent-eligible because they recited business systems that
depended entirely on the use of mental processes and abstract ideas.
In its first decision subsequent to Bilski that applied the machineor-transformation
test, the Federal Circuit confirmed the rejection
of claims directed to methods of marketing products and claims
directed to “paradigms” for marketing. See In re Ferguson, 558
F.3d 1359 (Fed. Cir. 2009). The Federal Circuit held that the
methods for marketing did not satisfy either prong of the machineor-transformation
test and reiterated that this was the sole test for
judging the patent eligibility of method claims. 3 The methods were
not tied to any particular machine or apparatus (“a marketing force
is not a machine”). Id. at 1364. Furthermore, the methods did not
transform any article into a different state or thing — organizing
business or legal relationships in the structuring of a sales force is
not transforming a physical object or substance. Id. With regard
to the “paradigm” claims, the Federal Circuit rejected those claims
as covering nonstatutory subject matter in that they only provided
an abstract idea — “a business model for an intangible marketing
company.” Id. at 1366.
In its most recent decision applying Section 101, the Federal Circuit
reversed a district court’s determination that claims directed to a
method of optimizing therapeutic efficacy for a particular disorder
were invalid as directed to nonstatutory subject matter. In Prometheus
Labs., Inc. v. Mayo Collaborative Servs., 581 F.3d 1336,
2009 U.S. App. LEXIS 20623 (Fed. Cir. Sept. 16, 2009), the claims at
issue were directed to methods of optimizing treatment comprising the
steps of (1) administering a particular drug to a subject (“providing
6-thioguanine”) and (2) determining the level of certain metabolites
in the subject as a result of the administering step. The claims
also recited several “wherein” clauses that suggested, but did not
require, either a need to increase or decrease further administration
of the drug based on the determining step.
Applying the machine-or-transformation test, the Federal Circuit held
that the claims were patent-eligible because they transformed an
article into a different state or thing. “The transformation is one of
the human body following administration of a drug and the various
chemical and physical changes of the drug’s metabolites that enable
their concentrations to be determined.” Prometheus Labs., 2009
U.S. App. LEXIS 20623 at *22-23. The Federal Circuit indicated that
administering drugs as a method of treatment is “always transformative”
when attempting to treat the effects of a medical condition. Id.
at *23. The Federal Circuit rejected the notion that the administering
and determining steps amounted to mere data gathering and as such
did not fall within the scope of patentable subject matter. Instead,
the steps were considered to be “part of a treatment protocol”
and as such were transformative. Id. at *28. With regard to the
“wherein” clauses, the Federal Circuit held that those statements
did not render the claims outside the scope of the Patent Act even
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though they suggested mental processes used to determine the
need to change drug dosage levels in the future. Reiterating its
discussion in Bilski, the Federal Circuit noted that it is irrelevant
whether any individual step or limitation in a process claim would be
unpatentable by itself. Id. at *30-31. When the claims are viewed
as a whole, the mental steps recited in the “wherein” clauses did
not negate the transformative aspects of the “administering” and
“determining” steps in the claim. Id. at *30-32. 4
Post-Bilski Decisions by District Courts
Following the example set by the Federal Circuit, several district
court decisions demonstrate that district court judges are willing
to find claims invalid under Section 101 when they do not meet
the “machine-or-transformation” test. In Fort Properties, Inc. v.
American Master Lease, LLC, 609 F. Supp. 2d 1052 (C.D. Cal. 2009),
the court held that all claims of a patent directed to methods of
conducting transactions for acquiring real estate were invalid under
Section 101. Since the applicant admitted during prosecution that
the methods could be performed without the use of a computer, the
court proceeded to review whether the claims met the transformation
prong of the Bilski test. “Like the claims at issue in Bilski,
the claims of the ‘788 Patent involve only the transformation or
manipulation of legal obligations and relationships. Specifically,
the claims of the ‘788 Patent only transform or manipulate legal
ownership interests in real estate. Under Bilski, the Court cannot
find that those claims transform an article or thing.” Fort Properties,
609 F. Supp. 2d at 1056. 5 While the claims did recite the creation of
“deedshares,” the court held that the deedshares were not physical
objects, but instead were conceptual legal rights that may or may not
be printed on paper. Id.
In Cybersource Corp. v. Retail Decisions, Inc., 620 F. Supp. 2d 1068
(N.D. Cal. 2009), the district court held that two claims — one
directed to a method for verifying the validity of credit card transactions
“over the Internet,” and another claim directed to a “computerreadable
medium containing program instructions for detecting fraud
in a credit card transaction” — were invalid under Section 101. In
invalidating the method claim, the court determined that “manipulation”
of credit card numbers to construct a data structure useful in
detecting fraud was not patent-eligible. “There is no indication that
the Federal Circuit, having reaffirmed the machine-or-transformation
test, intended to weaken the key term ‘transformation’ by equating
it with mere ‘manipulation.’” Cybersource Corp., 620 F. Supp. 2d at
1073. The court determined that neither the credit card numbers
nor the credit cards were “transformed.” “Simply collecting data
into a vague sort of ‘map’ does not amount to a ‘transformation.’”
Id. at 1074. Furthermore, the court held that the credit card number
represented an account and not a physical object: “Both the number
and the card represent a common underlying abstraction — a credit
card account, which is a series of rights and obligations existing
between an account holder … and a card issuer.” Id. Analogizing this
to Bilski, the court commented that a “piece of paper upon which the
terms of an option are written is, like a credit card, a physical object.
Yet this connection to a physical medium does not create patent
eligibility, because an option ultimately represents the abstraction of a
legal obligation or business risk. … Like options or deedshares, credit
card accounts represent sets of legal rights and relationships, not
‘articles.’” Id.
The method claim in Cybersource Corp. was held invalid notwithstanding
that it recited steps for use “over the Internet” and utilized
“an Internet address” as part of a method for verifying the validity of
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a transaction. The district court held that the claimed method was
not statutory as the method did not transform or manipulate an IP
address. “The IP address itself is not an object of transformation;
indeed, it would make no sense to change the IP address, since its
purpose is to serve as an identifier.” Id. at 1076.
The “computer-readable medium” claim contained the same limitations
regarding credit card numbers and the use of IP addresses. It
also recited the use of “one or more processors” to carry out certain
steps. Nonetheless, the court held that this claim was invalid because
it was not implemented on a particular machine. The court rejected
the idea that the “Internet” was a particular machine: “the internet is
an abstraction. If every computer user in the world unplugged from
the internet, the internet would cease to exist, although every molecule
of every machine remained in place. One can touch a computer or a
network cable, but one cannot touch ‘the internet.’” Id. at 1077. The
court also concluded that the use of the “Internet” was insignificant
extra-solution activity and constituted an attempt to make nonstatutory
subject matter patent-eligible simply by limiting the claim to a particular
technological field. Id. at 1077-78. Finally, the court held that simply
adding the phrase “a computer-readable medium” to an otherwise nonstatutory
process claim is insufficient to make it statutory. Id. at 1079.
In Every Penny Counts, Inc. v. Bank of America Corp., 2009 U.S.
Dist. LEXIS 53626 (M.D. Fla. May 27, 2009), the claim at issue
concerned a “system,” including a network with various means for
accomplishing certain tasks (e.g., “entry means … for entering into
the network an amount being paid in a transaction”). The patentee
argued that since the claim was directed to a “system” containing
several “means,” the claim was directed to a machine — a category
of patentable subject matter not addressed by Bilski. Despite the
language of the claim, the court held that the patent was directed
to a process and not a machine. According to the district court,
the claim was directed to “a mathematical algorithm [that] uses
machines for data input and data output and to perform the required
calculations. Those machines do not, however, impose any limit on
the process itself. The involvement of the machine in the process
is insignificant extra-solution activity and thus the process is not
patentable under § 101.” Every Penny Counts, 2009 U.S. Dist.
LEXIS 53626 at *7. The court held that the steps of the claim did not
transform any article into something different, and that the process
was not tied to a particular computer or other device. Id. at *8.
Accordingly, the court held the claim invalid under Section 101.
In DealerTrack, Inc. v. Huber, 2009 U.S. Dist. LEXIS 58125 (C.D. Cal.
July 7, 2009), the court held that patent claims directed to computeraided
methods of managing credit applications were invalid under
Section 101. The sole question concerned whether the method
claims were tied to a particular machine, as the plaintiff apparently
conceded that the transformation prong of Bilski was not met. Id.
at *8-9. The claims at issue did recite a “computer aided method,”
including receiving data from “a remote application entry and display
device” and forwarding that data “to remote funding source terminal
devices.” Nonetheless, the court held that the claims were invalid
because “none of these devices constitutes a ‘particular machine’
within the meaning of Bilski.” Id. at *12. Referencing its earlier
claim construction ruling, the court noted that the “remote application
entry” device and “remote funding” devices included any device
“such as a personal computer or dumb terminal, and these devices
clearly cannot constitute particular machines.” Id. at *13. 6
In Research Corp. Technologies, Inc. v. Microsoft Corp., 2009 U.S.
Dist. LEXIS 71883 (D. Az. July 28, 2009), the court rendered a
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split decision, holding two patents invalid under Section 101, but
confirming the patentability of three other patents under Section
101. Two patents contained claims that were directed to methods
of “halftoning” images by utilizing pixel-by-pixel comparisons of
an image against a particular mask. In addressing these claims,
the court noted that the “only component that could require a
‘machine’ in the patents is the pixel-by-pixel comparison.” Id. at *35.
However, the court noted that this comparison does not necessarily
require a machine, but “instead it could be done on a sheet of paper
using a pen.” Id. at *37. “The patent claims for the [] patents do
not mandate the use of a machine to achieve their algorithmic and
algebraic ends. Simply because a digital apparatus such as a computer,
calculator, or the like could assist with this comparison does
not render it patent-eligible material. RCT’s argument that a pixel
by its nature is electronic and therefore necessitates a machine is a
post solution argument and the Court rejects it.” Id. After finding
that these claims were not tied to a particular machine, the court
also concluded that the claims did not require the transformation of a
specific article. The claims did not “require the transformation of the
gray scale images into another image … [T]hese two patents merely
recite the comparison as something ‘which is designed to produce …’
dot profiles. The claim does not make this production or transformation
a realized action through the patent process. Instead it recites it
as a potential outcome of the comparison and does not require any
visual depiction or subsequent display.” Id. at *38-39. 7
In H&R Block Tax Services, Inc. v. Jackson-Hewitt Tax Service,
Inc., Case No. 6:08-cv-00037, Docket No. 107 (E.D. Tex. Nov. 10,
2009), the magistrate judge recently recommended that the court
partially grant a motion for summary judgment of invalidity based on
arguments that the patent claims at issue failed Bilski’s “machineor-transformation”
test. Some of the claims at issue involved “computerized
system” claims for providing a loan based on an anticipated
tax refund, as well as a “computer-implemented method” for
providing a loan to a taxpayer based on an anticipated tax refund. In
some claims, the loan was provided on a “spending vehicle,” such as
a prepaid credit card or similar device.
Drawing inferences in the plaintiff’s favor for the purpose of summary
judgment, the magistrate nevertheless found that the “computerized
systems” claims were not patent-eligible under Section 101
and thus invalid. In particular, the magistrate found that the claims
directed to a “computerized system for distributing spending vehicles”
involved assigning rights and financial relationships between
entities, which he found was “simply an abstract intellectual
concept” and, although they were not process claims as in Bilski,
they ran afoul of the Supreme Court’s prohibition against claiming a
fundamental principle. Id. at 10 & n.2. 8 In general, the magistrate
found that, to the extent the computerized system claims recited a
computer, it was “not a particular, special-purpose machine,” and
thus was “an insignificant, extra-solution component of the claimed
system” that failed to impose any meaningful limits on the claim or
render an otherwise patent-ineligible claim eligible. Id. at 11, 12. 9
The remaining claims at issue recited “a method utilizing an ‘electronic
tax preparation system,’” which the plaintiff argued required
the use of a computer. Id. at 13. The magistrate found that the computer
was involved in three of the steps: (1) preparing a tax return;
(2) obtaining tax return data; and (3) executing an agreement related
to a spending vehicle. The magistrate found the computer’s use in
the first two steps insufficient to make the claimed process patenteligible.
On the other hand, the magistrate found that the third step
of executing an agreement was an essential part of the claim (and
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thus not insignificant extra-solution activity), and imposed meaningful
limits on the claims since it does not preempt all methods
of executing such agreements. Id. at 14. Based on this finding,
the magistrate found the method claims to be sufficiently tied to a
particular machine to pass Bilski’s “machine-or-transformation test”
for patentable subject matter. Id. at 15.
Other Post-Bilski Decisions
While the Federal Circuit and a few district courts have issued opinions
relying upon Bilski, the BPAI has been very active in applying
the machine-or-transformation test. In particular, since Bilski was
decided, the BPAI has issued almost 100 decisions purporting to
apply the Federal Circuit’s test for patent eligibility. Some of the
BPAI’s decisions are simple extensions of Bilski, rejecting claims
that recite methods of organizing human or business activities.
However, numerous BPAI decisions address claims that, prior
to Bilski, were routinely approved as patent-eligible (e.g., claims
reciting a computer-readable medium and/or a system containing
a processor for executing a sequence of steps). A representative
sampling of the BPAI’s decisions reveals that it is not business
as usual at the PTO when it comes to applying the test for patent
eligibility under Section 101.
Methods for Identifying Information or Organizing Activities
Have Been Rejected
In line with the Federal Circuit’s statement that method steps
manipulating legal obligations, legal relationships, business risks,
human activities or other such abstractions cannot meet the patent
eligibility test because such steps are not applied to physical objects
or substances, the BPAI routinely has rejected claims that are not
tied to a particular machine, merely organize human activities or
merely gather information for identification purposes. For instance,
in Ex parte Toth, No. 2008-4543, 2009 Pat. App. LEXIS 13 (BPAI
June 15, 2009), the BPAI rejected claims under Section 101 that
were directed to methods for “providing a one game scratch match
play single elimination tournament for league players.” Id. at *1. The
steps of the method included providing a pool of players, placing
players into divisions and conducting various rounds of competition.
The claims were rejected under Section 101 as they did not “limit
the play to any particular game” and did “not limit the method to
implementation using any particular machine or apparatus.” Id. at
*5-6. The claims were analogized to the rejected claims in Bilski
as the pending claims merely called for the performance of method
steps “that involve transformations or manipulations of relationships.”
Id. at *6.
In a companion case decided the same day, Ex parte Toth, No.
2009-9323, 2009 Pat. App. LEXIS 15 (BPAI June 15, 2009), the
BPAI similarly rejected claims directed to “a one game scratch
match play single elimination tournament for league players.” Id.
at *1. Unlike the prior case, the claims involved in this appeal did
identify a game (“setting a minimum number of games bowled”)
and did recite some apparatus elements (e.g., bowling pins: “establishing
multiple average divisions based on 10-pin or 15-pin average
divisions;” television broadcasting: “each division champion
bowling in separate television telecasts”). Despite these recitations,
the BPAI held that the claims did not satisfy Section 101 as
they were not “tied to a particular machine or apparatus.” Id. at
*6. The BPAI held that the recitation of “pins” was not sufficient,
nor carried throughout the claims so as to limit them to a particular
apparatus, as “the competition could be conducted via a computer
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in a virtual bowling tournament or in person with an actual bowling
ball and pins.” Id. at *6-7. With regard to the television telecast
reference, the BPAI held that references “in the claim to television
telecasts do not impose any meaningful limits on the claimed
method because the method is directed to tournament play to
determine a champion and thus the display of the actual championship
play on the television is merely ‘insignificant extra-solution
activity.’” Id. at *7.
With regard to methods for identifying information or organizing
activities, the BPAI similarly has rejected the following types of
claims: steps for implementing a best practice idea within an organization
10 , steps for collecting payments from customers having
delinquent accounts 11 , steps for selecting software and hardware
based on business needs 12 , steps for preventing the processing of
suspect trades 13 , steps for identifying relationships between users
of a social networking site 14 , steps for establishing the reliability of
a part based on data analysis 15 , steps for developing a solution to
customer experience requirements 16 , steps for making healthcare
patient credit decisions 17 , and steps for identifying trade secrets of
a business. 18
Recitation of a Computer Not Always Sufficient
Since Bilski was decided, numerous claims reciting a general
purpose computer or processor have been rejected as insufficiently
tied to a particular machine. For instance, in Ex parte Gutta, No.
2008-3000, 2009 Commr. Pat. LEXIS 59 (Jan. 15, 2009), new
grounds for rejection under Section 101 were entered for several
claims directed to a computerized method for recommending
items to a target user. The claims at issue recited a computerized
method “performed by a data processor” for recommending one or
more items based in part on the selection history of a third party.
Id. at *1. The method claims also recited a step of displaying a recommendation
score to a target user. Id. at *2. The opinion noted
that the recitation of these elements fell within the category of
claims that Bilski did not address. 19 Nonetheless, the claims were
rejected for not complying with the machine-or-transformation test.
The inclusion of a “computerized method performed by a data
processor” phrase in the claims was held to be insufficient under
the first prong of the Bilski test in that the phrase added “nothing
more than a general purpose computer that is associated with the
steps of the process in an unspecified manner. Such a field-of-use
limitation is insufficient to render an otherwise ineligible process
claim patent eligible.” Id. at *6. Similarly, the step of “displaying”
was not tied to any particular machine and could “be accomplished
simply by writing the resulting score on a piece of paper.” Id. at
*6-7. Finally, the opinion noted that the claims failed the transformation
prong of the Bilski test because the data being manipulated
did “not represent physical and tangible objects. Rather, the data
represents information about user selection histories, an intangible.”
Id. at *7.
More recently, in Ex parte Myr, App. 2009-005949 (BPAI Sept.
18, 2009), the BPAI rejected method claims directed “a computer
implemented method for appraising real estate.” The BPAI
held that steps of “storing” values constituted data gathering,
“performing nonlinear programming” was a formula-manipulating
step, and that “providing signals” was a post-solution activity. Id.
at 12-14. Since the method did not transform a particular article
into a different state or thing (appraising “does not transform the
land in any physical way”), the BPAI analyzed whether “computerimplemented”
in the preamble of the claim was sufficient to render
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the claim patent-eligible as “tied to a particular machine.” “Given
that claim 1 recites no other structure in the body of the claim, the
phrase ‘computer-implemented’ in the preamble of claim 1 is a
nominal recitation of structure.” Id. at 17. “To elevate such a token
recitation of a computer to that of a ‘particular’ machine that would
satisfy the machine prong of the Bilski machine-or-transformation
test would be to permit clever drafting of process subject matter
not contemplated by the case law and to exalt form over substance
in determining whether the claimed process passes § 101 muster.”
Id. at 18.
In Ex parte Greene, App. No. 2008-4073 (BPAI April 24, 2009), the
BPAI addressed claims directed to a “computer system for performing
a fast Fourier transform” that included “one or more vector
processors configured as” “a non-final stage calculating means”
and “a final stage calculating means.” Id. at 2-3. While the BPAI
found the claims to be “clearly” distinguishable from the process
claims at issue in Bilski, the BPAI nonetheless held the claims to be
patent-ineligible under Section 101. The BPAI considered the claims
as “apparatus claims that implement a mathematical algorithm (i.e.,
a Fast Fourier Transform).” Id. at 11. In rejecting the claims, the
BPAI emphasized that the output results of the calculation were “not
used for any practical purpose or inventive application.” Id. at 13.
The BPAI also held that the claims were not limited to a particular
type of computer system: “Indeed, Appellant’s Specification
expressly discloses that ‘[t]he method can be embodied in software
that can run on a variety of computers known in the art, including
without limitation, personal computers, workstation computers, and
supercomputers known in the art.’” Id. (emphasis in original). If
these “conventional hardware elements” were removed from the
claim, the BPAI noted that the claims would be nonstatutory as
being directed to an abstract idea and/or a fundamental principal (a
mathematical algorithm). Id. In short, the BPAI held that “merely
adding a nominal recitation of conventional computer hardware in a
claim otherwise directed to a pure mathematical algorithm is merely
an exercise in claim drafting that cannot, by itself, render the claim
statutory.” Id. at 14. 20
In Ex parte Snyder, App. No. 2008-4598 (BPAI May 12, 2009), the
BPAI affirmed the rejection of claims directed to transforming text
documents to XML documents. Certain claims were written as a
“text to XML transformer, comprising: a transformer program …
and a processor for executing,” while other claims were written as
a process for converting text to XML. The BPAI held that recitation
of “a processor” only nominally connected the claimed transformer
to a machine since the processor was only recited for the purpose
of executing the transformer program. Id. at 22. The specification
did not disclose any particular processor, but instead suggested
that “any and every possible processor for performing the function”
could be used. Id. In these circumstances, the BPAI held that the
claimed transformer was not a machine. While the process claims
did not recite a processor or computer, they did recite executing a
program. Nonetheless, the BPAI held that the process claims were
not tied to any particular machine. Id. at 23. In addition, the BPAI
stated that the only “transformation” occurring in the claims was a
transformation from one digital data form to another. Id. “Here, we
do not have a transformation of physical subject matter but merely
an abstract expression that is created from converting data from text
to XML, which does not require any tangible output or result.” Id. at
24 (emphasis in original). The BPAI held that this type of transformation
did not satisfy the transformation prong of the machine-ortransformation
test.
IP® EVIEW
15
Software in a Computer-Readable Medium Not
Always Patentable
In addition to rejecting claims having a token recitation of a processor
or general purpose computer, the BPAI has been active in rejecting
otherwise ineligible process claims packaged as software stored
on a computer-readable medium. For example, in Ex parte Cornea-
Hasegan, 89 U.S.P.Q.2d (BNA) 1557 (BPAI 2009), the claims at issue
concerned a method for predicting results of floating point mathematical
operations and a computer-readable media including program
instructions to perform the method. Although the method claims
recited the use of a processor to perform the steps, the BPAI held
that “the recitation of a processor does not limit the process steps
to any specific machine or apparatus.” Id. at 1560. 21 The BPAI also
held that the method claims did not transform an article or physical
thing. “Rather, the data represents information about an abstract
floating-point number, which is intangible.” Id. After addressing the
method claims, the BPAI affirmed the rejection of claims directed to
computer-readable media: “When broadly construed … the claimed
‘computer-readable media’ limits the scope of the claimed media to
tangible media embodiments such as the disclosed ‘fixed magnetic
disk, [] floppy disk drive, [] optical disk drive, [] magneto-optical
disk drive, [] magnetic tape, or non-volatile memory including flash
memory.’ Even so, analysis of a ‘manufacture’ claim and a ‘process’
claim is the same under Section 101.” Id. at 1561 (citations omitted).
Thus, despite the recitation of tangible media, the BPAI concluded
that the claim “is still directed to determining a result d from a
mathematical algorithm. Additional recitations of computer- readable
media, a hardware prediction unit, steps manipulating other
data (floating-point operands) and determining whether to calculate
d using floating point hardware are still insignificant extra-solution
activities that fail to ‘transform an unpatentable principle into a
patentable process.’ Limiting the claim to computer-readable media
does not add any practical limitation to the scope of the claim.” Id. at
1561 (citations omitted).
Similarly, in Ex parte Mitchell, App. No. 2008-2012 (BPAI Feb. 23,
2009), the BPAI affirmed the rejection of method, computer-readable
medium, and system claims under Section 101. The claims were
directed to “identifying co-evolving regions in the memory of a
target application” so as to prevent computer memory space from
being reclaimed for other uses in the computer. The BPAI rejected
the method claims under the machine-or-transformation test as the
claims were not tied to a particular machine and they did not recite
an article that was transformed to a different state or thing. The
computer-readable medium claim was rejected for the same reason:
“We see no reason why a ‘computer-readable medium’ containing
‘instructions’ for the otherwise ineligible method should be treated
any differently from the non-statutory method recited in” the
method claim. Id. at 8. The “system” claim was likewise rejected:
“Limiting the claim to part of a system comprising a ‘processor’ and
‘memory’ does not add any practical limitation to the scope of the
claim. Similar to a field-of-use limitation in a process claim, the use
of a general ‘processor’ and ‘memory’ is insufficient to render an
otherwise ineligible claim patent eligible.” Id. at 11. 22
In Ex parte Gutta, App. No. 2008-4366 (BPAI Aug. 10, 2009), the
BPAI addressed three types of claims: (1) methods for identifying
one or more mean items for a plurality of items, (2) systems for
identifying one or more mean items including a memory and a
processor configured to compute various values, and (3) an article
of manufacture for identifying one or more mean items comprising
a computer-readable medium having computer-readable program
( continued on page 16 )

( continued from page 15 )
code to perform various steps. The BPAI held that all three types
of claims were not statutory under Section 101. With regard to
the method claims, the BPAI held that they were not tied to any
particular machine and they did not transform an item into a different
state or thing. However, when addressing the system and article of
manufacture claims, the BPAI applied a modified version of the Bilski
test to determine patent eligibility. In particular, the BPAI noted that
a machine or article of manufacture that involves a mathematical
algorithm is not patent-eligible if it fails one of these two tests: “(1)
Is the claim limited to a tangible practical application, in which the
mathematical algorithm is applied, that results in a real-world use
(e.g., ‘not a mere field-of-use label having no significance’)? (2) Is
the claim limited so as to not encompass substantially all practical
applications of the mathematical algorithm either ‘in all fields’ of use
of the algorithm or even in ‘only one field?’” Ex parte Gutta, App.
No. 2008-4366 at 15. 23 Applying these tests, the BPAI held that
the system and computer-readable medium claims were not patenteligible
because they encompassed all practical applications of the
mathematical algorithm and thus claimed “the algorithm itself.” Id.
at 22.
Computer Simulations May Not Pass Muster Under
Section 101
In a recent decision, the BPAI applied Section 101 to reject claims
directed to methods for rendering “a volumetric obscurant” (e.g.,
a simulated cloud) “in a computer generated graphical image” by
executing an algorithm defining a polygon region having pixels,
spreading the pixels, and modulating a density of the pixels “to
create a realistic image of a volumetric obscurant.” In Ex parte
Gardiner, App. No. 2009-001597 (BPAI Oct. 22, 2009), the BPAI
rejected the pending claims as not being tied to a particular machine.
The BPAI noted that “the claimed method is directed to applying
the algorithm to an image and is therefore not tied to a particular
machine.” Id. at 5. The BPAI also held that transforming a computer
image into another image containing a cloud (as would be accomplished
in simulating the visual effect of an airplane flying through
a cloud) does not transform an article into a different state or thing
under the machine-or-transformation test: “neither the polygon nor
the obscurant represents a physical item; rather, the polygon is an
abstraction to define a region of an image. The obscurant is also
an abstraction as it is not based upon a physical item, but rather is
part of a simulation … Thus [] the steps … recited in claim 1 do not
transform any physical object.” Id. at 6. 24
Argument Before the Supreme Court
On November 9, 2009, the Supreme Court heard oral arguments in
the appeal of the Federal Circuit’s en banc Bilski opinion. Although it
was unclear from the oral argument how the Court might rule, it was
clear that the Justices recognized the importance of this case and
the potential far-reaching effects of any decision they may render,
noting in particular the “80 briefs” filed in the case. Bilski v. Kappos,
Case No. 08-964, Official Transcript, 32:1-4 (Sup. Ct. Nov. 9, 2009).
A majority of the Justices appeared to have some level of discomfort
with the claims in Bilski’s patent and, thus, it seems unlikely that the
Court will find Bilski’s patent claims to be patent-eligible. Several
of the Justices noted that the Bilski patent application was directed
to the types of processes for which patents were not sought years
ago—suggesting that these types of claims were not patent-eligible.
Chief Justice Roberts and Justice Kennedy noted that risk hedging
has been common in the insurance industry for years without the
protection of patents. Justice Sotomayor expressed doubts about
IP® EVIEW
16
the benefit of patents like Bilski’s that only require human activities,
without requiring any technology, asking “why not patent a method
of speed dating?” Id. at 7:7-12. The Justices gave other examples of
the types of protection that they thought would be similarly ineligible
for patent protection: buying low and selling high to maximize
wealth, attempting to patent a horse training technique, attempting
to patent a technique of writing a book on how to win friends and
influence people, attempting to patent a method for teaching antitrust
law, and speed-dating.
Bilski’s counsel argued that the claims are valid, not under the
machine-or-transformation test, rather because they involved
physical steps. Upon making that argument, he was interrupted by
the Chief Justice asking:
CHIEF JUSTICE ROBERTS: I’m sorry. Just what are
the physical steps? Initiating a series of transactions
between commodity provider and market participants?
MR. JAKES: That would be one.
CHIEF JUSTICE ROBERTS: You get on the phone and
you call the baker and you get on the phone and you call
the grocer and say: I can set up a deal for both of you?
Id. at 11:19-12:2. Chief Justice Roberts later emphasized this same
point on rebuttal, hinting at his dissatisfaction at a patent claim
covering people conducting a transaction by phone.
With regard to the test for patent eligibility, the Justices seemed
concerned with the outer bounds of the Federal Circuit’s machineor-transformation
test, noting that it leaves “much unresolved,”
such as what the terms “machine” and “transformation” actually
mean and how broad or narrow they are. Id. at 32. In addition, there
was concern about the quality of the machine or the transformation
with respect to the invention being claimed. Chief Justice Roberts
was concerned that “the most tangential and insignificant use of a
machine” might be able to transform something otherwise unpatetentable
into something patentable. Id. at 33:3-7.
It is far from certain how the Justices will articulate the test to
govern patent eligibility under Section 101. One possibility is that
they affirm the Federal Circuit’s machine-or-transformation test as
there appears to be a general consensus that Bilski’s pending claims
should not be patent-eligible. However, there is the possibility that
they may make a narrow ruling. The government attorney noted
explicitly that this case may not be the best vehicle for determining
the bounds of patent-eligible subject matter in subject areas like
software and medical diagnostics. Id. at 36:10-22. Indeed, the
Court has waded into this murky water before, only to express its
displeasure at the state of the law on patent-eligible subject matter
without making any decision. 25
Conclusion
Although uncertainty exists as to what test the Supreme Court will
articulate to judge questions of patent eligibility, it is clear that the
Federal Circuit, district courts, BPAI and PTO have embraced Bilski’s
machine-or-transformation test and are willing to invalidate and/or
reject claims that do not meet the test. To prepare for the possibility
that the Supreme Court will affirm this test for patent eligibility, patentees
and patent applicants should conduct a serious review of their
pending applications and existing United States patent portfolios to
( continued on page 17 )

( continued from page 16 )
make sure that their claims will pass the machine-or-transformation
test. While changes to claims in pending applications can be made
through simple amendments, revising claims through reissue is
not as simple. Moreover, as the average prosecution pendency
of reissue applications is approaching five years, patentees should
review their portfolios during the pendency of the Bilski appeal so
that they are ready to pursue reissue applications, if necessary,
shortly after the Supreme Court renders its decision.
In terms of strategic considerations for litigation, amendments to
pleadings should be made where necessary to assert arguments
that are available under the Bilski line of decisions. Similarly, where
claims of any patents-in-suit appear to fail the Federal Circuit’s
machine-or-transformation step, it may make sense to consider
summary judgment motions based on Bilski and its progeny.
Additionally, licenses and/or settlement agreements that involve
patents that are on shaky ground under Bilski should be reviewed.
As with preparations of reissue applications, it makes sense to begin
reviewing these documents during the pendency of the Bilski appeal
to be ready to approach the other parties once the Supreme Court
renders its decision. �
1 This test, derived from a series of cases, namely In re Freeman, 573 F.2d 1237 (CCPA
1978), In re Walter, 618 F.2d 758 (CCPA 1980), and In re Abele, 684 F.2d 902 (CCPA
1982), involved two steps: (1) determining if the claim recited an algorithm and (2)
determining whether the algorithm was applied in any manner to physical elements
or process steps.
2 The “useful, concrete and tangible result” test arose from several cases, namely
AT&T Corp. v. Excel Commc’ns, Inc., 172 F.3d 1352 (Fed. Cir. 1999), State St. Bank &
Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998), and In re Alappat, 33
F.3d 1526 (Fed. Cir. 1994).
3 The applicants in Ferguson proposed that the Federal Circuit consider a new test:
“Does the claimed subject matter require that the product or process has more
than a scintilla of interaction with the real world in a specific way?” In re Ferguson,
558 F.3d at 1364. The Federal Circuit rejected that proposal and reaffirmed the
machine-or-transformation test as the sole test for a process claim under Section
101. Id. Like the applicants in Ferguson, amici filing briefs with the Supreme
Court have proposed various different tests for patent eligibility. See, e.g., Brief
for Bank of America et al. (processes are patent-eligible only when physically
transformative or tied to the nonconventional use of a particular machine); Brief for
Microsoft Corporation et al. (processes are patent-eligible when they describe a
series of steps that use physical means to produce a result or effect in the physical
world); Brief for Dolby Labs. et al. (processes that apply scientific/technological
principles to achieve a result that has practical application are patent-eligible); Brief
of Regulatory Datacorp, Inc. et al. (ordinary, broad meaning of process should
be adopted in view of normal statutory construction principles); Brief of Yahoo!
Inc. (patent eligibility predicated upon whether the claimed process sets forth
a series of clearly defined steps that are stable, predictable, and reproducible);
Brief for Bilski (practical application of a principle in an art or process is the test for
patent eligibility); Brief for IBM (patent eligibility depends upon whether a process
provides a technological contribution without preempting the use of laws of nature,
natural phenomena, mental processes, or abstract ideas); Brief for 20 Law and
Business Professors (applied ideas are eligible for patenting, whereas ideas in the
abstract are not).
4 The Federal Circuit’s decision in Prometheus Labs. likely will be applied to a
matter currently on appeal to the Federal Circuit. In King Pharmaceuticals, Inc.
v. Eon Labs, Inc., 593 F. Supp. 2d 501 (E.D.N.Y. 2009), the district court granted
summary judgment that a dependent claim was invalid under Section 101 because
it only recited the step of informing another person of the effect of administering
a particular drug with or without food. The court held that the “act of informing
another person of the food effect of metaxalone does not transform the
metaxalone into a different state or thing.” King Pharmaceuticals, 593 F. Supp. 2d
at 512-13. However, in light of the Federal Circuit’s determination in Prometheus
Labs. that administering drugs is “always transformative,” it is unlikely that the
court’s decision in King Pharmaceuticals will stand since the independent claim
recites the positive step of “administering to the patient a therapeutically effective
amount of metaxalone”. Id. at 506.
5 A similar conclusion was reached in Ex parte Roberts, App. No. 2009-009323 (BPAI
June 19, 2009), wherein the BPAI rejected a claim directed to a method for creating a
real estate investment instrument adapted for performing tax-deferred exchanges.
IP® EVIEW
17
6 In making this determination, the court did not squarely address the language of
Section 100(b) that a “process” “includes a new use of a known … machine.” It is
not clear that any court has squarely addressed the argument of whether software
operating on a computer or processor constitutes a new use (e.g., enumerated
software routines) of a known machine (e.g., a general purpose computer).
7 In contrast to the two patents that were invalidated, the court confirmed the
patentability of three patents under Section 101. These patents also had claims
directed to methods of “halftoning.” However, unlike the other two patents, these
patents had limitations requiring the production of a “halftoned image.” While the
court concluded that the claims in the three patents did not meet the first prong
of the Bilski test (tied to a particular machine), the court held that they did satisfy
the second prong (transformation). In particular, the halftoned images “are the
manifestation of a particular transformation. The patent dictates a transformation of
specific data, and is further limited to a visual depiction which represents specific
objects.” Research Corp. Technologies, Inc. v. Microsoft Corp., 2009 U.S. Dist. LEXIS
71883 at *45.
8 Specifically, the magistrate cited Funk Bros. Seed Co. v. Kalo Co., 333 U.S. 127
(1948), as holding invalid a product claim for preempting a fundamental principle,
and Gottschalk v. Benson, 409 U.S. 63 (1972), as holding invalid a process claim for
preempting a fundamental principle.
9 The magistrate analogized the “extra-solution component” of the computerized
system claims to the “extra-solution step” that the Federal Circuit held in Bilski would
be insufficient to render otherwise unpatentable process claims patent-eligible.
10 Ex parte Sandoval, App. No. 2009-000175 (BPAI Sept. 25, 2009).
11 Ex parte Haworth, App. 2009-000350 (BPAI July 30, 2009).
12 Ex parte Hemmat, App. No. 2009-003911 (BPAI Oct. 13, 2009).
13 Ex parte Delta, App. No. 2009-000982 (BPAI May 26, 2009).
14 Ex parte Dom, App. No. 2008-002470 (BPAI May 29, 2009).
15 Ex parte Babu, App. No. 2008-4851 (BPAI May 29, 2009).
16 Ex parte Farnes, App. No. 2009-002770 (BPAI June 2, 2009).
17 Ex parte Johnson, App. No. 2009-000714 (BPAI June 8, 2009).
18 Ex parte Halligan, 89 U.S.P.Q.2d (BNA) 1355 (BPAI 2008).
19 In rendering its decision in Bilski, the Federal Circuit noted that it would “leave to
future cases the elaboration of the precise contours of machine implementation, as
well as the answers to particular questions, such as whether or when recitation of
a computer suffices to tie a process claim to a particular machine.” Bilski, 545 F.3d
at 962.
20 See also Ex parte Holtz, App. No. 2008-004440 (BPAI Aug. 24, 2009); Ex parte Goud,
App. No. 2008-003121 (BPAI July 20, 2009); Ex parte Dang, App. No. 2009-000984
(BPAI June 29, 2009); Ex parte Caputo, App. No. 2008-004868 (BPAI June 18, 2009)
(an “unspecified ‘processing’ or ‘computing’ device performing the claims algorithm
is not sufficient … to tie the claimed process to a ‘particular’ machine or apparatus”);
Ex parte Avinash, App. No. 2009-1542 at 22 (BPAI June 2, 2009) (“a general purpose
computing system does not tie claim 10 to a special purpose or particular machine”);
Ex parte Nawathe, App. No. 2007-3360 (BPAI Feb. 9, 2009).
21 With regard to the “processor” limitation, the BPAI also commented as follows:
“The recitation of a ‘processor’ performing various functions is nothing more than a
general purpose computer that has been programmed in an unspecified manner to
implement the functional steps recited in the claims. The recitation of a processor in
combination with purely functional recitations of method steps, where the functions
are implemented using an unspecified algorithm, is insufficient to transform
otherwise unpatentable method steps into a patent eligible process.” Ex parte
Cornea-Hasegan, 89 U.S.P.Q.2d (BNA) at 1560-61.
22 See also Ex parte Busche, App. No. 2008-004750 (BPAI May 28, 2009) (rejecting
claims directed to a “computer program product in a computer-readable medium
comprising instructions for enabling a data processing machine to select data
sets”); Ex parte Mau, App. No. 2009-0065 (BPAI May 1, 2009) (“merely reciting
data or instructions on a stored computer-readable medium does not make a
claim patentable”).
23 See also Ex parte Market, App. No. 2009-001843 at 6 (BPAI Oct. 23, 2009) (same); Ex
parte Forman, App. No. 2008-005348 at 16 (BPAI Aug. 17, 2009) (same).
24 See also Ex parte Petculescu, App. No. 2008-002859 (BPAI June 4, 2009) (purported
transformation of data about an intangible, abstract dimensional model is not patenteligible).
25 See LabCorp. v. Metabolite Labs., Inc., 548 U.S. 124 (2006) (writ of certiorari on case
involving diagnostic test dismissed as improvidently granted on a 5-3 vote; Justices
Breyer, Stevens and Souter dissenting that the subject patent claim was directed to a
natural process and unpatentable).

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