Recent Developments in United States Patent Law

1. Recent Developments in United States Patent Law Katherine J. Strandburg DePaul University College of Law

2. OUTLINE • SUPREME COURT CASES (PAST TERM) • SUPREME COURT CASES (NEXT TERM) III. ISSUES POTENTIALLY BEFORE THE COURT IN THE FUTURE IV. LEGISLATION (FUTURE) V. CONCLUSION

3. SUPREME COURT CASES (PAST TERM) • Supreme Court has been unusually active in patent law recently (most active since early ’80’s) RECENT CASES • MERCK V. INTEGRA - statutory research exemption • ILLINOIS TOOL WORKS - antitrust, patents and market power • EBAY v. MERCEXCHANGE - standard for injunctive relief • LABCORP V. METABOLITE - Patentable subject matter

4. I.A. MERCK V. INTEGRA ISSUE: Extent of the exemption from infringement for research use of a patented invention under 35 U.S.C. 271(e), exempting “uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use or sale of drugs . . .”

5. I.A. MERCK V. INTEGRA FACTS: - RGD peptides were potential drug candidates b/c of possible role in inhibiting “angiogenesis” - Research at issue involved animal tests to evaluate suitability of specific compounds for drug use

6. I.A. MERCK V. INTEGRA FEDERAL CIRCUIT DISPOSITION: MAJORITY: Research at issue was “not clinical testing to supply info to the FDA” but “general biomedical research to identify new pharmaceutical candidates” NOT EXEMPTED DISSENT (Newman): Focused on common law research exemption; argued experimentation aimed at characterizing patented substance is exempted either by statute of by common law exemption

7. I.A. MERCK V. INTEGRA SUPREME COURT OPINION: OUTCOME: Vacated and remanded • Exemption covers any info reasonably related (including preclinical studies) • Exemption covers efficacy and safety info • Exemption can cover research for which no IND is eventually filed • Use is reasonably related: “where a drug maker has a reasonable basis for believing that a patented compound may work, through particular biological process, to produce a particular physiological effects, and uses the compound in research that, if successful, would be appropriate to include in a submission to the FDA”

8. I.A. MERCK V. INTEGRA LOOSE ENDS/WHAT’S NEXT? • REMAND: Argument heard on remand, but no opinion as of 8/21/06 • COMMON LAW EXEMPTION: Supreme Court has yet to weigh in, extremely narrow exemption is controversial esp. wrt “experimenting on” • RESEARCH TOOLS: • parties and Court agree not at issue here • Subject of amicus briefing at SCt • Rader pushed argument on this point at remand hearing • Issue remains “hot”

9. I.B. ILLINOIS TOOL WORKS v. INDEPENDENT INK ISSUE: Presumption that patent confers market power per se in antitrust context Questioned Supreme Court precedent in Int’l Salt Co. v. US which established this presumption in antitrust law

10. I.B. ILLINOIS TOOL WORKS v. INDEPENDENT INK FACTS: • Involved patented print cartridges and unpatented ink • Agreement to purchase ink for patented cartridges only from ITW and not to refill cartridges challenged as illegal tying arrangement

11. I.B. ILLINOIS TOOL WORKS v. INDEPENDENT INK SUPREME COURT OPINION: OUTCOME: Vacated and remanded - “over the years this Court’s strong disapproval of tying arrangements has substantially diminished and no longer presume that “tying arrangements serve hardly any purpose beyond the suppression of competition”

12. I.B. ILLINOIS TOOL WORKS v. INDEPENDENT INK MARKET POWER AND PATENT MISUSE:  presumption of market power arose in patent misuse cases • Congress rejected the presumption in patent misuse (35 USC §271(d)) - No misuse b/c of tying unless “the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned”  Begs questions why antitrust should have a different rule

13. I.B. ILLINOIS TOOL WORKS v. INDEPENDENT INK REBUTTABLE PRESUMPTION? Independent Ink arguments: 1. rebuttable presumption of market power when purchase of patented product conditioned on exclusive agreement wrt unpatented product 2. (fallback) distinction btw simultaneous purchase of tied products (no presumption) and “requirements tie” (presumption) ARGUMENTS REJECTED: NO PRESUMPTION, MARKET POWER MUST BE PROVED CASE BY CASE

14. I.C. EBAY v. MERCHEXCHANGE ISSUE: Proper test for injunctive relief in patent cases FEDERAL CIRCUIT: “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances” PETITIONER: Traditional equitable test should be applied

15. I.C. EBAY v. MERCHEXCHANGE FACTS: • eBay runs internet auction • MercExchange has business method patent for “electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants”

16. I.C. EBAY v. MERCHEXCHANGE SUPREME COURT OPINION: OUTCOME: Vacated and remanded MAJORITY OPINION: Four-factor test applies: • Irreparable injury • Remedies at law inadequate • Balance of hardships • Public interest

17. I.C. EBAY v. MERCHEXCHANGE MAJORITY OPINION: Neither court below applied the test properly: Fed Cir.: did not apply test Dist. Ct.: Concluded broadly that “willingness to license” + “lack of commercial activity” = no irreparable harm No categorical rule, principles of equity apply

18. I.C. EBAY v. MERCHEXCHANGE OPINION FOR COURT: Neither court below applied the test properly: Fed Cir.: did not apply test Dist. Ct.: Concluded broadly that “willingness to license” + “lack of commercial activity” = no irreparable harm No categorical rule, principles of equity apply

19. I.C. EBAY v. MERCHEXCHANGE ROBERTS CONCURRENCE (SCALIA, GINSBURG): • Historical practice granted injunctions in vast majority of patent cases • No general rule favoring injunctions • BUT when it comes to discretion pursuant to four-factor test “a page of history is worth a volume of logic”

20. I.C. EBAY v. MERCHEXCHANGE KENNEDY CONCURRENCE (STEVENS, BREYERE, SOUTER): • Earlier pattern of injunctions in patent cases simply illustrates the results of the four-factor tests in historical contexts • In many cases current patents present different considerations, e.g. firms primarily licensing patents; patented invention small component of enjoined product; some potentially vague and suspect business method patents • Equitable discretion suited to allow district courts to adapt to rapid technological and legal developments

21. I.C. EBAY v. MERCHEXCHANGE LOOSE ENDS/WHAT’S NEXT? • REMAND: No opinion as of 8/21 • Cases following the Supreme Ct opinion: • z4 Technologies v. Microsoft (E.D. Tex.): denying permanent injunction - no presumption of irreparable harm - no product, no irreparable - money damages sufficient - balance of hardships favors M’soft - potential negative effects of depriving public of Office weigh slightly in favor of M’Soft

22. I.C. EBAY v. MERCHEXCHANGE • Abbott Labs v. Andrx Pharms. (Fed. Cir.): reversing grant of preliminary injunction - No likelihood of success when there is invalidity defense “that patentee cannot prove lacks substantial merit” - “No longer” presumption of irreparable harm w/o likelihood of success - “absent any other relevant concerns” “the public interest is best served by enforcing patents that are likely valid and infringed” - (Aside): relation of “undue experimentation” to obviousness? Newman Dissent: • Majority failed to defer to District Court

23. I.C. EBAY v. MERCHEXCHANGE • Christiana Inds. v. Empire Electronics (E.D. Mich.) - Denying motion to reconsider preliminary injunction - EBay did not invalidate a presumption (rebuttable) of irreparable harm from patent infringement

24. I.D. LABCORP v. METABOLITE ISSUE: Patentable Subject Matter Patentability of a process using prior art medical diagnostic tests plus a step of “correlating” the results with a particular condition

25. I.D. LABCORP v. METABOLITE FACTS: - Patent claims process for diagnosing B vitamin deficiencies • Researchers found correlation between blood levels of homocysteine and vitamin deficiency • Developed and patented new tests for homocysteine • Also claimed “A method for detecting a [vitamin] deficiency . . . Comprising . . . Assaying . . . For a elevated level of total homocysteine and correlating an elevated level . . . With a [vitamin] deficiency . . .

26. I.D. LABCORP v. METABOLITE PROCEDURAL BACKGROUND • Patentable subject matter issue under § 101 not considered by the Federal Circuit • Cert granted to consider: Whether a method patent . . . directing a party simply to ‘correlate’ test results can validly claim a monopoly over a basic scientific relationship . . . such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result

27. I.D. LABCORP v. METABOLITE SUPREME COURT OPINION: OUTCOME: Writ DIG after extensive briefing and argument BREYER DISSENT (STEVENS AND SOUTER): • Reads like a draft majority opinion • Reason for excluding laws of nature is that too much patent protection can impede progress, rule reflects “basic judgment that protection in such cases, despite its potentially positive incentive effects, would too often severely interfere with, or discourage development and the further spread of useful knowledge itself.”

28. I.D. LABCORP v. METABOLITE BREYER DISSENT (STEVENS AND SOUTER): • Difficult to define unpatentable subject matter but this case “not at the boundary” • Physical transformation during the test does not matter because the claim does not require that the test involve a physical transformation • State Street Bank test “useful, concrete, and tangible result” has never been adopted by S Ct and “if taken literally the statement would cover instances where this Court has held the contrary” • “The process is no more than an instruction to read some numbers in light of medical knowledge” - natural phenomenon

29. I.D. LABCORP v. METABOLITE BREYER DISSENT (STEVENS AND SOUTER): • Case should be decided at this point: - LabCorp argued the “essence” of its claim below (despite not referring to § 101) - Though no Federal Circuit opinion, numerous briefs, Gov’t brief, oral argument provide comprehensive record - Public interest would be served by answering this question

30. I.D. LABCORP v. METABOLITE LOOSE ENDS/WHAT’S NEXT? • Patentable Subject Matter Likely To Resurface Soon, S Ct Obviously Interested!! • QUESTIONS ABOUT STATE STREET BANK (Cf. EBay Concurrence) • Questions About Mental Steps And Natural Phenomena • Query relationship between this issue and KSR v. Teleflex nonobviousness case

31. SUPREME COURT CASES (NEXT TERM) UP NEXT TERM • MEDIMMUNE v. GENENTECH (to be argued October 4, 2006) • KSR v. TELEFLEX (no argument date as of 8/21/06) (Full disclosure: I filed Law Professor Amicus briefs in support of KSR at petition and merits stages)

32. II. A. MEDIMMUNE v. GENENTECH ISSUE: Ability of a licensee in good standing to sue for a declaration of patent invalidity BACKGROUND: • Lear v. Adkins – licensee is not estopped from challenging validity when sued (but did not deal with licensee paying royalties) • Declaratory Judgment requires “case or controversy” + exercise of discretion QUESTION PRESENTED:  Does “actual controversy” requirement . . . “require a patent licensee to refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed?”

33. II. A. MEDIMMUNE v. GENENTECH FEDERAL CIRCUIT DECLARATORY JUDGMENT RULE: For declaratory judgment jurisdiction must have: • Reasonable apprehension of suit • Present activity constituting infringement

34. II. A. MEDIMMUNE v. GENENTECH PETITIONER’S ARGUMENTS: • Actual controversy does not require apprehension of suit • Purpose of Declaratory Judgment Act was “to allow contracting parties to resolve their disputes in court without breach and without risking economic destruction and multiplying damages,” breach not required in other contexts • Challenges to patent validity are favored by public policy

35. II. A. MEDIMMUNE v. GENENTECH RESPONDENTS’ ARGUMENTS: • A patent license is a compromise of legal rights by which the licensee voluntarily opted out of the statutory patent system • This is not a dispute about the terms of a contract • Patent policy is served by legal rules permitting predictable transfer of technology • If plaintiff can prevent an injury from occurring it is ordinarily not “imminent”

36. II. B. KSR v. TELEFLEX ISSUE: Proper standard of obviousness– Is the Federal Circuit’s requirement of a “teaching, suggestion, or motivation to combine” prior art references appropriate? BACKGROUND: • Graham v. John Deere: • Obviousness is a question of law with three underlying questions of fact: 1) the scope and content of the prior art; 2) differences between the prior art and the claims at issue; 3) the level of ordinary skill in the pertinent art • Secondary indicia of obviousness or nonobviousness may be provided by the circumstances surrounding the invention

37. II. B. KSR v. TELEFLEX FEDERAL CIRCUIT SUGGESTION TEST Combination of prior art references is obvious ONLY IF there is a “teaching, suggestion, or motivation to combine” the references in the prior art Suggestion can come either: • Explicitly from the references • Implicitly from the general knowledge of the skilled in the art • Implicitly from the nature of the problem to be solved Patent Examiner must present evidence in the record of reliance on general knowledge or nature of problem to be solved

38. II. B. KSR v. TELEFLEX PETITIONER’S ARGUMENTS (merits briefs to be filed 8/22/06) • Suggestion test is inconsistent with Supreme Court precedent • Suggestion test takes insufficient account of the ordinary problem-solving of the PHOSITA • Suggestion test undermines PTO expertise • Suggestion test results in issuance of patents on obvious advances

39. II. B. KSR v. TELEFLEX RESPONDENTS’ ARGUMENTS (merits briefs to be filed in October): • Suggestion test is necessary to avoid hindsight bias • Possibility of implicit suggestions is sufficient to permit application of examiner expertise and skill of the PHOSITA

40. III. ISSUES POTENTIALLY BEFORE THE COURT IN THE FUTURE • Research exemption – research tools, common law exemption • Patentable subject matter – especially business method patents, State Street Bank test • Other issues of justiciability (depending on outcome of Medimmune) • Divided/Extra-territorial infringement – Blackberry case, Microsoft v. AT&T (awaiting CVSG) • Various issues about Fed Cir deference – to district court (e.g. claim construction), to PTO (depending on KSR outcome)

41. III. LEGISLATION • Lots of proposals last year • Two proposals live as of 8/21/06: • Proposal for voluntary “opt in” for district court judges to hear patent cases (HR5418) • Hatch-Leahy Bill - first inventor to file (important to pay attention to exactly what happens to 102) - no interferences, but “derivation proceedings” - reasonably royalty to account for economic contribution of invention - grounds for willfulness restricted - limitations on pleading inequitable conduct - prior user defense expanded - repeals 271(f) - institutes post-grant opposition - rulemaking authority (substantive?)