IP news & comment. Advance Bite at the Apple? In this issue: By Keith G. Haddaway, Ph.D. and Lars Genieser, Ph.D.

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1 IP news & comment A PUBLICATION OF VENABLE'S TECHNOLOGY DIVISION April VENABLE In this issue: Patent Prosecution in the International Phase: An Advance Bite at the Apple?.1 USPTO's Final Rules Limiting Continuations and Claims Declared Void Ante Up or Ex Post Down? Licensing Issues in Standard- Setting USPTO Proposes New Rules for Deposits of Biological Materials In re Bilski on Appeal: Potentially Enormous Commercial Implications for Business Method Patents Michael Gollin Recognized by the Intergovernmental Panel on Climate Change as Contributing to its 2007 Nobel Peace Prize Award...16 Patent Prosecution in the International Phase: An Advance Bite at the Apple? By Keith G. Haddaway, Ph.D. and Lars Genieser, Ph.D. Actively prosecuting applications in the international phase under the Patent Cooperation Treaty (PCT) prior to entry into the U.S. national phase may be a viable means to afford applicants with needed opportunity to argue the validity of and amend claims. This could be particularly valuable if the United States Patent and Trademark Office's (USPTO) proposed rules are implemented. See, IP News & Comment, October 2007, (Newsletters/IP News & Comment). If the USPTO places a limit on the number of continuation applications and Requests for Continued Examination (RCEs), applicants may not be able to obtain full and appropriate protection for subject matter disclosed in a patent application during the limited prosecution available. Although the U.S. District Court for the Eastern District of Virginia has permanently enjoined the USPTO from implementing its proposed rules that limit an applicant to two continuation (or continuation-in-part) applications and one RCE, the ultimate disposition of these rules is not clear, because the USPTO may appeal the decision. See, Tafas v. Dudas 1:07cv846 (JCC) Consolidated with SmithKline Beecham Corp. v. Dudas 1:07cv1008 (JCC) (E.D. Va. Apr. 1, 2008); 72 Fed. Reg. 46, (Aug. 21, 2007). The International Searching Authority (ISA) must have first issued the International Search Report (ISR) along with the Written Opinion before an applicant can amend claims or have arguments considered by the International Examining Authority (IEA). Claims can be amended under PCT Article 19, or more extensive amendments and arguments are possible under PCT Article 34. Amendment Under Article 19, and Contrast with Amendment Under Article 34 If the applicant wishes to amend only the claims in the international phase, the applicant can invoke the mechanism of PCT Article 19. An Article 19 amendment can only be used to amend the claims, not the written description or drawings, must be made within two months of issuance of the International Search Report (ISR), and cannot add new matter. No PCT Chapter II Demand need be filed and no fee is required for amending claims

2 Editorial Team: Clifton McCann Editor Washington, DC Mary Ellen Himes Associate Editor Washington, DC Catherine Voorhees Patent/Trade Secrets Contributing Editor Washington, DC Mark Harrison Trademark Contributing Editor Washington, DC Josh Kaufman Copyright Contributing Editor Washington, DC Peter Curtin IP Litigation Contributing Editor Washington, DC under Article 19. If the ISR and Written Opinion cite prior art against which the applicant believes no effective argument can be made for patentability, it may be appropriate to amend claims under PCT Article 19. The claims will then be in better condition for national phase examination, and the applicant may avoid an iteration of amendment or argument. This might facilitate allowance of claims of satisfactory scope without the need for continuations or more lengthy prosecution. Furthermore, provisional rights may be enhanced, because claims as amended under Article 19 are included in a republished international application. Provisional rights provide that upon grant of a national patent, the applicant may be able to obtain a royalty back to the time of republication. See, 35 U.S.C. 154(d). PCT Article 34 allows amendment of the written description, drawings, and/or claims (collectively, the specification), constrained only by the prohibition against introducing new matter. That is, the applicant may move information from one part of the specification to another, e.g., from the written description to the claims, or reformulate text. To file an Article 34 amendment, the applicant must file a PCT Chapter II Demand within three months of issuance of the ISR or by 22 months from the priority date, whichever is later, and pay a fee. Under Chapter II, the applicant may engage in formal dialog with the IEA, for example, to argue that the claims meet the criteria of novelty, inventive step, and utility. Although amendments made to the specification under PCT Article 34 will be conveyed to national patent offices upon entry into the national phase, an Article 34 amendment will not cause the international application to be republished as amended. Thus, Article 34 amendments are not useful for enhancing provisional rights. Formal Dialog with the International Examining Authority Following a Chapter II Demand If, in contrast to the above example, the applicant believes that the International Searching Authority's (ISA's) finding of a lack of novelty and/or inventive step over prior art in the International Search Report (ISR) and Written Opinion is clearly incorrect, the applicant may file a PCT Chapter II Demand and present an argument to the International Examining Authority (IEA). The IEA will respond and issue an International Preliminary Report on Patentability (IPRP) that should take into consideration the applicant's arguments. If the Chapter II Demand is filed and IPRP received sufficiently early, the applicant may have the opportunity to engage in multiple exchanges of arguments with the IEA. Such dialog with the IEA may serve to expedite allowance of claims in the subsequent national phase. For example, the applicant can present the exchange with the IEA upon entry into the national phase. The PTO may accord persuasive weight to such an exchange, so that the U.S. examiner does not make the same rejection made in the ISR and Written Opinion. The applicant may thereby avoid an iteration of amendment or argument. This might facilitate allowance of claims of satisfactory scope without the need for continuations or more lengthy prosecution. 2

3 On the other hand, certain U.S. patentability standards differ from standards applied in the international phase. Thus, an argument effective in the international phase may be less effective in the subsequent U.S. national phase. Furthermore, if a subsequent U.S. national examiner perceives an applicant's argument against a position of the ISA as weak, the U.S. national examiner may dismiss the arguments as already having been considered in the international phase. Importantly, the estoppel effect of arguments presented during the international phase is not clear. The requirement that the ISR have issued can constrain the ability of an applicant to amend claims in the international phase, either by invoking Article 19 or by filing a Chapter II Demand and invoking Article 34, or to argue before the IEA by filing a Chapter II Demand. Although the ISR should be issued by the 16th month from the priority date, often the ISA issues the ISR much later. Late issuance of the ISR may weigh against or preclude amendment or argument in the international phase. In summary, an applicant should evaluate on a case-by-case basis whether to actively prosecute an application in the international phase, for example, by amending claims under PCT Article 19 or presenting argument through filing a PCT Chapter II Demand. Should the U.S. succeed in imposing limits on the number of continuations and requests for continued examination (RCEs) that an applicant may file, such international prosecution may allow claims of broader scope to be obtained than if prosecution were conducted solely before the USPTO in the national phase. Two circumstances in which an applicant may wish to actively prosecute an application in the international phase are as follow: (A) The applicant believes that a claim against which prior art is presented in the ISR and Written Opinion will not survive in the subsequent national phase, so that the claim should be already amended in the international phase. (B) A rejection in the ISR and Written Opinion is clearly invalid or irrelevant in the national phase, so that arguing against the rejection in the international phase may avoid the subsequent national phase examiner making a similar rejection. Circumstances (A) and (B) illustrate that actively prosecuting an application in the international phase may be appropriate at two extremes of the spectrum of strength of the ISA's rejection of a claim in the ISR and Written Opinion: very strong or very weak. Keith G. Haddaway, Ph.D. is a partner in Venable's Patent Prosecution Group and can be reached at or kghaddaway@venable.com. Lars H. Genieser, Ph.D. is an associate in Venable's Patent Prosecution Group and can be reached at or lhgenieser@venable.com. 3

4 USPTO's Final Rules Limiting Continuations and Claims Declared Void Tafas v. Dudas, (E.D.Va. April 1, 2008) By Ryan M. Flandro On April 1, 2008, Judge James C. Cacheris of the United States District Court for the Eastern District of Virginia held that the final claim and continuation rules (Final Rules) published by the United States Patent and Trademark Office (USPTO) are substantive in nature. Based on this determination, the court found the Final Rules to be null and void as otherwise not in accordance with law and in excess of statutory jurisdiction [and] authority and permanently enjoined the USPTO from implementing the Final Rules. This article examines the court's decision in three parts: the first part provides a brief background summary of the case and the Final Rules; the second part discusses the court's ruling and underlying reasoning; and the third part includes some practical implications of the decision particularly with regard to other proposed rules by the USPTO as well as the pending patent reform in Congress. Background: The Proposed Claim and Continuation Rules According to current U.S. patent practice before the USPTO, an applicant has a right to file an unlimited number of continuation or continuation-inpart applications, Requests for Continued Examination (RCEs), and claims. In January 2006, the USPTO published two sets of proposed rules delineating changes to the examination process that together would effectively limit the number of continuing applications, RCEs, and claims that an patent applicant could file as a matter of right. The USPTO reasoned that the proposed rules were necessary because the increasing number of continuating applications as well as the increasing number and complexity of claims in applications were hindering the Office's ability to examine a growing backlog of new applications. After a public comment period during which the USPTO received hundreds of written comments expressing disapproval and commenting on the possible illegality of the proposed rules, the USPTO published Final Rules on August 21, The Final Rules were set to become effective on November 1, Plaintiffs Triantafyllos Tafas (Tafas) and Smithkline Beecham Corporation, doing business as GlaxoSmithKline (GSK), however, filed complaints against the USPTO on August 22 and October 9, 2007, respectively, and Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia preliminarily enjoined the implementation of the Final Rules on October 31, Subsequently, both sides filed motions for summary judgment, the plaintiffs seeking to permanently enjoin the USPTO from implementing the Final Rules based on the argument that they constitute unlawful agency action under Section 706(2) of the Administrative Procedure Act (APA). In contrast with current practice, one aspect of the Final Rules would have allowed an applicant to file only two continuation or continuation-in-part applications, plus a single RCE, as a matter of right after an initial 4

5 application (the "2+1 rule"). Further continuation or continuation-in-part applications and RCEs beyond these limits would have required the applicant to file a "petition and showing" that explains why the amendment, argument, or evidence could not have been presented previously. Pursuant to another aspect of the Final Rules, an applicant would have been limited to a total of 5 independent claims and 25 total claims per application (the "5/25 rule"). An applicant seeking to exceed these limits under the Final Rules would be required to provide an "examination support document" (ESD) including an applicant conducted search and, among other things, a "detailed explanation" of "how each of the independent claims is patentable over the cited references." Additionally, the Final Rules would have been retroactive to applications filed before the effective date under certain circumstances. They also contained other provisions to prevent avoidance of the 2+1 rule and/or the 5/25 rule by applicants. The Final Rules are Null and Void Many patent attorneys and applicants alike were relieved when, on April 1, 2008, Judge Cacheris declared the Final Rules null and void as otherwise not in accordance with law and in excess of statutory jurisdiction [and] authority. In deciding to permanently enjoin the USPTO from implementing the Final Rules, the district court rested its decision on a single issue, i.e., whether the rules are substantive in nature. The district court looked to the statute to determine the extent of rulemaking authority granted to the USPTO by Congress. Specifically, Section 2(b)(2) of Title 35 empowers the USPTO to "establish regulations, not inconsistent with law," to "govern the conduct of proceedings in the Office." Furthermore, pursuant to the statute, the USPTO may enact regulations that "facilitate and expedite processing of patent applications," and "govern the... conduct of agents, attorneys, or other persons representing applicants or other parties before the Office." Contrary to the USPTO's arguments that the Final Rules are procedural and/or fall within the expressly delegated rulemaking authority, however, the district court found the Final Rules to be substantive and that the USPTO lacks any general substantive rulemaking power. The district court broadly defined substantive rule as any rule that affect[s] individual rights and obligations and determined that the Final Rules change existing law and alter the rights of applicants under the Patent Act. In this regard, the district court stated that "[t]he 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden to applicants, constitute a drastic departure from the terms of the Patent Act" and that "[b]y so departing, the Final Rules effect changes in [applicants'] existing rights and obligations." The court reasoned as follows. First, with respect to continuation and continuation-in-part applications, the court found that the Final Rules effectively impose an impermissible hard limit that deprives applicants of their valuable rights under 35 U.S.C. 120 to an unlimited number of continuation and continuation-in-part applications as a matter of right. In so deciding, Judge Cacheris recognized that although the continuation rules would not completely prohibit applicants from filing additional continuations beyond the first two, the 5

6 rules would nevertheless effectively bar further continuations "because the USPTO intends to deny additional applications in almost all circumstances." Second, with respect to RCEs, the district court pointed to the plain language of 35 U.S.C. 132 which requires the USPTO to provide continued examination of each application at the request of the applicant. Moreover, the district court read the language shall" and at the request of the applicant" in Section 132(b) as evidence that Congress intended to allow for an unlimited number of RCEs at the discretion of the applicant. Therefore, similar to the rules on continuing applications, the Final Rules regarding RCEs would effectively impose a hard limit that alters applicants' rights. Third, as to the 5/25 rule, the district court stated that the Patent Act has never placed any mechanical limits on the number of claims an applicant may file and that other mechanisms exist (e.g., Section 112) by which the USPTO can limit claims as necessary on a case-by-case basis for undue multiplicity. Furthermore, the court viewed the ESD requirement as substantive because it requires far more than just "additional information" and, in fact, effectively shifts the burden of examination from the USPTO to the Applicant. In sum, the district court struck down as null and void each and every aspect of the Final Rules solely based on their substantive nature and the USPTO's general lack of substantive rulemaking power. What Now?: Practical Implications of the Ruling Although the Final Rules are on hold for now, some commentators have indicated that the USPTO intends to appeal the district court ruling to the Court of Appeals for the Federal Circuit (CAFC). Even if the USPTO appeals the decision, we are not likely to see a decision anytime soon. The district court ruling may, however, have other collateral consequences both in terms of other proposed USPTO rules packages and currently pending patent reform legislation. The USPTO currently has several other sets of proposed rules expected to be published in the near future such as, for example, rules regarding changes to Markush group claiming, rules regarding changes to Information Disclosure Statement requirements, and rules regarding changes to the appeals process. One or more of these packages may be effectively invalid (or will at least require serious revision) in view of the breadth of the district court's ruling. Like the ESD requirement related to the 5/25 rule, for example, the proposed IDS rules may be considered to impermissibly shift the examination burden from the government to applicants. The USPTO will likely take a closer look at each of these packages in light of the decision here to determine whether they are likely to be considered procedural or substantive. As to the patent reform legislation currently pending before Congress, the USPTO is also likely to make a strong push for a grant of substantive rulemaking authority. At this point, only the version passed by the House (H.R.1908) includes additional USPTO regulatory authority. The current Senate bill does not include such a provision. It is also worth noting that both bills currently include a section requiring so-called "Applicant Quality Submissions" or "Additional Information" granting the Director of the 6

7 USPTO authority to require patent applicants to submit a search report and analysis relevant to patentability as well as any other information relevant to patentability. Nevertheless, many of the provisions in both bills are still being hotly contested and it is unclear if and/or when the pending legislation will be passed. All in all, it is business as usual for now with respect to the mechanics of prosecution practice before the Office, notwithstanding other recent Supreme Court and Federal Circuit decisions related to such cornerstones of patent law like obviousness. In any event, Applicants and attorneys alike should continue to closely follow the USPTO's actions and the pending patent reform so that proactive steps can be taken to properly protect valuable rights. Ryan M. Flandro is an associate in Venable's Patent Prosecution Group and can be reached at or rmflandro@venable.com. Ante Up or Ex Post Down? Licensing Issues in Standard-Setting By Justine A. Gozzi Baseballs, no. 2 pencils, DVD players, 8 1/2 x 11" paper, and USB ports although these common products seem unrelated, they each incorporate a standard adopted in a product category. Consumers benefit when an industry adopts a standard: consumers can buy compatible products, price competition is enhanced, and consumer risk decreases. When an industry commences adoption of a standard, major players in the industry typically turn to a Standards Development Organization (SDO); the SDO then collaborates and decides what technology to adopt as its standard. However, collaboration of industry leaders gives rise to concerns that the conduct is anticompetitive. Recently, courts and antitrust enforcement agencies have considered a number of cases involving a patent holder's duties to (1) disclose patents to the SDO and (2) license on reasonable terms. In determining whether standard-setting behavior is anticompetitive, courts and antitrust enforcement agencies apply a "rule of reason" analysis. Duty to Disclose Most SDOs obligate a participant in the standard setting process to disclose its patented intellectual property. But what happens when an SDO member fails to disclose ownership of a patent covering the to-be-adopted standard and the SDO member subsequently makes royalty demands after the standard is adopted? This was the primary issue in The Matter of Dell Computer, 121 F.T.C. 616 (1996), where the Federal Trade Commission (FTC) found Dell to have participated in a "patent hold up" and Dell entered into a consent decree in which Dell agreed not to enforce its patent rights against the companies incorporating the standard. A "patent hold up" consists of three elements: (1) after a standard is adopted by the SDO, a patent owner enforces its patent rights or attempts to impose licensing terms that other 7

8 members of the SDO could not reasonably have anticipated; (2) it is not commercially reasonable to discard the adopted standard and create a new standard; and (3) if the other SDO members had anticipated the patent holder's demands, the SDO members could have chosen a different standard that avoided the patent. 1 The FTC found that Dell intentionally failed to disclose its patent rights during the standard-setting discussions and violated the terms of the standard-setting organization. In another "patent hold up" case, Rambus Incorporated, FTC Docket No. 9302, the defendant Rambus allegedly interfered with the SDO s assessment of available alternatives by amending patent applications to cover the to-beadopted standard. Rambus argued that it fulfilled the SDO s disclosure requirements and even if it had not met the requirements, Rambus asserted that nondisclosure is not an antitrust violation. The FTC disagreed with Rambus position and held against Rambus. The Commission ordered Rambus to license its technology prospectively on a non-discriminatory basis and prohibited Rambus from collecting more than prescribed maximum royalties for practicing those standards. Rambus appealed the FTC order to the U.S. Court of Appeals for the District of Columbia Circuit. On April 22, 2008, a three-judge panel unanimously vacated the FTC s decision and sent the case back to the FTC for a potential new trial to address serious concerns about the sufficiency of the evidence in the case. 2 The court found that the commission failed to sustain its allegation of monopolization and that deceit merely enabling a monopolist to charge higher prices than it otherwise could have charged would not in itself constitute monopolization. The court intimated that the FTC failed to prove that Rambus engaged in deceptive acts that rose to the level of antitrust violations. At this juncture, the FTC could try to reinstate its original decision via appeals to the entire D.C. Circuit or appeals to the U.S. Supreme Court, or in the alternative, the FTC could abandon the case altogether. Although this case seems to fall in line with Dell in maintaining the importance of adhering to the SDO s disclosure rules, it adds a new twist as to whether nondisclosure constitutes an antitrust violation and how much evidence is required for such violation. Duty to License Another problem that arises in the standard-setting context occurs during licensing negotiations where an SDO member and patent holder has disclosed the existence of a relevant patent, but refuses to negotiate a license for the patent in good faith. The Court of Appeals for the Third Circuit addressed this issue in Broadcom Corporation v. Qualcomm, Inc., 501 F.3d 297 (3rd Cir. 2007), where defendant Qualcomm allegedly misled SDO members by agreeing to license its technology on fair, reasonable and nondiscriminatory terms (FRAND). Once the standard was adopted, however, Qualcomm allegedly demanded higher royalties than originally discussed. In ruling against Qualcomm, the Third Circuit held that (1) in a consensusoriented private standard setting environment (2) a patent holder's intentionally false promise to license essential proprietary technology on FRAND terms (3) together with an SDO's reliance on that promise by 8

9 including the technology in the standard and (4) the patent holder's subsequent breach of that promise is actionable anticompetitive conduct. Most recently, the FTC considered In the Matter of Negotiated Data Solutions LLC, FTC File No (Jan. 23, 2008). In that case, the patent owner made a commitment to the SDO that it would offer to license its technology for a one-time license of $1,000. Consequently, the technology was adopted as the standard; the patent owner subsequently sold its patent rights to Negotiated Data Solutions (N-Data). N-Data attempted to renege on the original $1,000 license negotiated by the original patent holder. The FTC found that N-Data's conduct constituted an "unfair method of competition" and an "unfair act or practice" within the meaning of the FTC Act, but ruled that the conduct did not rise to the level of "exclusionary conduct" within the meaning of the Sherman Act. The majority ruled against N-Data on the basis that "bad faith or deceptive behavior that undermines the [standardsetting] process may also undermine competition in an entire industry, raise prices to consumers, and reduce choices." The dissent argued that the focus of the inquiry should be on whether the initial patent holder had engaged in deceptive conduct during the standard-setting process, not whether the acquirer of the patent rights had reneged on the original promise. Broadcom and N-Data highlight problems associated with licensing standards and raise concerns regarding when patent licensing should occur and who should set the terms. The licensing options include either (a) licensing the patent before the technology becomes the standard ("ex ante licensing"), or (b) licensing the patent after the patented technology becomes the standard ("ex post licensing"). Ex ante licensing gives the SDO significant leverage, allowing them to set the terms of the licensing agreement, and essentially maintains a buyer's cartel over the patent holder, leaving the patent holder at the mercy of the SDO. Because the patent holder s technology will be rendered less valuable if he refuses to agree to the licensing agreement and a competing alternative is chosen, the patent holder is likely to enter the agreement. Such a result can undermine the rights of a patent owner the government grants a patent owner a monopoly in its claimed technology in exchange for the owner's full disclosure of its technology. Patent owners are granted "the right to exclude others from making, using, offering for sale or selling the invention throughout the United States or importing the invention into the United States" and its territories. Licensing a patent before the technology is adopted weakens the rights of patent holders and encourages potential price-fixing anticompetitive conduct on the part of the SDO. In contrast, a patent holder's licensing of its technology ex post gives the patent holder a significant advantage. Ex post licensing has the potential to give the patent holder more power than the government intends to grant. In this scenario, not only does the patent holder have the power inherent in the patent itself but also the power of the industry standard. This grants the patent holder a monopoly in the industry standard and gives the patent holder more leverage over the SDO to set the terms of the licensing agreement. Although the licensing terms are to be analyzed under the fair, 9

10 reasonable and non-discriminatory standard (FRAND), the FRAND terms could be extremely different whether analyzing from the patent holder's point of view or the SDO's point of view. Conclusion Some rules in standard-setting are necessary to prevent anticompetitive conduct; accordingly the duty of disclosure has recently become a settled principle and SDO members must adhere to SDO disclosure requirements. Of course, issues arise as to whether pending patent applications must also be disclosed, whether nondisclosure constitutes an antitrust violation and what evidence may be needed to prove such violation. Prevention of anticompetitive conduct also creates the need for the duty to license, which in turn raises important issues that the courts and antitrust enforcement agencies have yet to resolve fully. SDO's should largely prefer to negotiate licensing deals ex ante so that the SDO has leverage over the patent holder. As a patent holder, it is far more beneficial to negotiate licensing ex post, thereby strengthening the patent holder s intellectual property rights. 3 Justine A. Gozzi is an associate in Venable's Patent Prosecution Group and can be reached at or jagozzi@venable.com. USPTO Proposes New Rules for Deposits of Biological Materials By Joan Ellis, Ph.D. On February 20, 2008, the United States Patent and Trademark Office (USPTO) proposed new amendments to the rules governing the deposit of biological materials. 37 C.F.R The proposed rules would require, inter alia, that biological deposits necessary for an application to comply with 35 U.S.C. 112, first paragraph, be made and all restrictions as to access by the public be removed prior to the publication of said application. Background The first paragraph of 35 U.S.C. 112 requires that a patent specification contain a written description of the invention sufficient to enable a person skilled in the art to make and use it. However, since the advent of biotechnology, the Courts have acknowledged that it is not always possible to use words alone to describe inventions involving biological materials. The problem of describing an invention which employed a microbial starting material was first addressed in In re Argoudelis, 434 F.2d 666 (CCPA 1970). In Argoudelis, the patent claims were directed to a method of making an antibiotic using a specific microorganism. The Court recognized the difficulty of providing an adequate written description of a newlydiscovered microorganism which did not commonly occur in nature and, therefore, was not readily available to other workers in the art. However, the Court noted that the inventors had deposited the crucial microorganism in a public depository before filing their patent application and referred to the deposit in the specification. The deposit had been made under the then 10

11 existing USPTO Rule 14. This rule provided that when a deposit of a microorganism was made, said microorganism could not be released to the public prior to the grant of a patent without the inventors approval, except as necessary to conduct business before the USPTO. Accordingly, the Court held that a specification which identified the deposit of a microorganism necessary to make and use the invention complied with the first paragraph of 112. The Federal Circuit relaxed the time for making a microbial invention publicly available in In re Lundak, 773 F.2d 1216 (Fed. Cir. 1985). Here, the Court again acknowledged that a deposit of a biological material can satisfy the requirements of 35 U.S.C. 112 for inventions which cannot be reproduced from the written description in the specification. However, rather than requiring that the deposit be made prior to filing the patent application, as implied in Argoudelis, the Court held that a deposit which is referred to in a specification need only be made prior to the patent issue date. The rulings in Argoudelis and Lundak were reasonable at the time because an application that did not issue as a patent was never published or otherwise disclosed to the public. Thus, there was no need to enable one skilled in the art to make and use an unknown invention. To date, Lundak remains in effect and is followed by the USPTO and practioners in biotechnological arts. What constitutes a biological material? A non-exhaustive list is set forth in 37 C.F.R and includes any material that is capable of self replication either directly or indirectly. The rule s representative examples comprise bacteria, fungi including yeast, algae, protozoa, eukaryotic cells, cell lines, hybridomas, plasmids, viruses, plant tissue cells, lichens and seeds. Further included are: [v]iruses, vectors, cell organelles and other nonliving material existing in and reproducible from a living cell may be deposited by deposit of the host cell capable of reproducing the non-living material. Public access to a deposited biological material is necessary to enable one skilled in the art to make and use the invention without undue experimentation. See, e.g., In re Wands, 858 F.2d 731 (Fed. Cir. 1988). The Budapest Treaty on International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure (established in 1977 and operational in 1981) facilitates the making of biological deposits worldwide. The treaty establishes international standards for receiving, storing and furnishing said deposits and requires all signatory countries, which include the United States, to recognize deposits made in any of the 31 depositories (International Depository Authorities (IDA) approved by WIPO (World Intellectual Property Organization). USPTO s Reasons for the Proposed Rule Changes On November 29, 1999, the American Inventors Protection Act of 1999 (AIPA) of the Intellectual Property and Communications Omnibus Reform Act of 1999 was enacted into law. The AIPA requires that U.S. patent applications (with some exceptions) be published eighteen months after the earliest date for which priority benefit is sought. According to the USPTO, Congress intended that for a patent application to be entitled to other statutory rights which accompanied AIPA; i.e., the right to obtain royalties 11

12 from infringers from date of publication (35 U.S.C. 154(d)), the law which implements publication of patent applications (35 U.S.C. 122) requires that the specification contain an enabling disclosure. That is to say, all published applications, regardless of the subject matter claimed, must enable those skilled in the art to make and use the invention without undue experimentation. Accordingly, the USPTO now proposes that for applications which require a deposit of biological material in order to provide an enabling disclosure, said deposit must be made prior to the publication of the application. Thus, a published application involving biological material will be in compliance with the first paragraph of 35 U.S.C. 112 at the time it is disclosed to the public. The USPTO contends that in view of the eighteen month publication of patent applications pursuant to the AIPA, the holdings of Argoudelis and Lundak are no longer relevant. The proposed rules are said to now harmonize USPTO practice with inventions involving biological deposits with the AIPA. In addition, the proposed rule changes are said to bring U.S. patent practice in harmony with that of the European Patent Office (EPO). The EPO requires that biological deposits necessary for compliance with their statutes be made at or before the filing of the patent application. According to the USPTO, an inventor might not be entitled to the filing date of a U.S. priority application if a deposit is not made at or before filing. Thus, the proposed rules are said to prevent a potential loss of benefit. Proposed Rules Changes There are four sections of the proposed rule changes which warrant attention. First, the proposed amendments to the rules would require that for those applications which want to preserve their provisional rights under 35 U.S.C. 154(d), the deposit must be made prior to filing an application or during the pendency of an application, provided that the deposit is made before technical preparations for publication of the application... begun. Proposed amendment to 37 C.F.R Second, the proposed rules would provide that all restrictions imposed by the depositor will be irrevocably removed upon the earlier of publication of the application... or grant of the patent, and [a deposit would] indicate that the rule applies regardless of whether the deposit was made to satisfy a statutory provision. Proposed amendment to 1.808(a)(2). Third, it is proposed that 1.808(c) be amended to provide that upon request, the USPTO will certify that an application referring to the deposit has been filed...[and that a] requesting party has a right to a sample of the biological material. Fourth, any request to hold the making of the deposit in abeyance will not be considered a bona fide attempt to advance the application to final action. Proposed amendment to 1.809(b)(2). 12

13 Potential Ramifications of the Proposed Rule Changes A primary concern with respect to the release of deposited biological material has always been the potential for abuse by infringers. It would not be unreasonable to assume that the risk of copying by competitors would escalate if public availability of a biological deposit were advanced to the eighteen month publication date. However, this concern has been addressed under 35 U.S.C. 154(d), which provides that an inventor is entitled to reasonable royalties from an infringer starting from the date of publication of the application, with one proviso. That is, 154(d) requires that the invention claimed in the published application be substantially identical to the invention claimed in the patent. This proviso should not be a problem with claims directed to a deposited biological material, or the use thereof, because there should not be a need to claim a different deposit at a later, post-publication date. The only time this problem would arise is when a biological deposit is disclosed but not claimed in the published application. Timely recognition and claiming of a biological invention will now be essential. In any event, even under current practice, any substitution or addition to the deposited material disclosed in the original application usually results in the loss of benefit of its filing date because the claims are directed to new subject matter. The earlier deposit of seeds, however, could also pose a problem of potential unauthorized use. Many countries do not issue patents for plant varieties. Therefore, with the availability of deposits at the 18 month publication date, it would be possible to obtain a seed sample and use it overseas at an earlier date without risk of liability. However, the risk of this occurrence would not increase over the current system of depositing seed at the time a patent is granted; the opportunity would simply present itself at an earlier date. Release of deposited material at the 18 month publication date might enable earlier design arounds to be made so that the patent applicant would not receive full protection. However, this problem is present at the time any patent application is published. With respect to biological materials, the earlier availability of the deposit might entice those in the art to obtain a sample and possibly begin making alterations having modified or enhanced properties. As discussed above, the risk of this occurrence should not fluctuate with the date of release. The current practice of drafting claims as broadly as possible to forestall design arounds remains the best means of protecting patent rights. Practitioners should bear in mind that if, out of an abundance of caution, the patent applicant deposits all the biological materials disclosed in the specification, regardless of whether the deposits were necessary to make and use the claimed invention, the proposed changes to 1.808(a)(2) denote that all the rules governing deposits will automatically apply. Thus, all deposited material will manifestly be available to a requestor upon publication of the application. Because the proposed amendments to 1.809(b)(2) do not permit an applicant to request the postponement of making a deposit, a combination of these two rules will preclude the possibility of maintaining the deposited material as a trade secret after the 18 month publication. Thus, practitioners and applicants must carefully consider whether to make a deposit in the first instance. Given the backlog 13

14 in the examination of patent applications in the biotechnology group at the USPTO, it is highly likely that the decision for making a deposit will be required prior to having an examiner s opinion as to its necessity. However, if patent protection in Europe is desired, it is best to err on the side of caution and make a deposit. As discussed above, in Europe, biological deposits must be made when the patent application is filed. The statutory safeguard for biological deposits, Rule 28, provides that any requestor of a biological deposit must agree to use the deposit for experimental use only unless the patent is denied, withdrawn, or expired. In addition, the requester is not permitted to release the deposited material to any other party. The U.S. statutory protection in this regard is covered by 35 U.S.C. 271 wherein any offer to sell or sale of a patented invention is considered an act of infringement. A safe harbor is only provided for (i) the importation of certain specified biological products during the time information is being developed and submitted under any Federal law which regulates the making, using and selling of drugs or veterinary biological products; e.g., experimentation necessary to gain information for FDA approval, ( 271(e)); and (ii) uses by non-profit laboratories, or non-profit entities such as a university, provided such use is for the benefit of the public ( 273). Conclusion The proposed amendments to 37 C.F.R , if implemented, will require that deposits of biological materials be made prior to the 18 month publication of a patent application. Consequently, deposited materials will be publicly available at an earlier date. In contrast to the other rule changes proposed by the USPTO in the past year, these requirements should have minimal impact on the biotechnology industry. Statutory safeguards are in place to help prevent competitors from taking unfair advantage of the deposit requirement during the period after the deposit is made and before a patent is granted. Nevertheless, timely claiming of inventions involving biological materials, and the drafting of broad claims, remain crucial to securing full patent protection. Joan Ellis, Ph.D. is a partner in Venable's Patent Prosecution Group and can be reached at or jellis@venable.com. In re Bilski on Appeal: Potentially Enormous Commercial Implications for Business Method Patents By Henry J. Daley, Ph.D. On February 15, 2008, the U. S. Court of Appeals for the Federal Circuit decided to hear an appeal from the U.S. Patent and Trademark Office, Board of Patent Appeals and Interferences by the entire Court to rule on questions regarding what constitutes patent-eligible subject matter. The case is In re Bilski (Appeal No ) in which, after arguments were presented before the normal three-judge panel, the Federal Circuit decided sua sponte to hear the appeal en banc. This will likely be an important case for at least 14

15 business method and software-related inventions. The court instructed the parties to brief the following five issues: (1) Whether claim 1 of the 08/833,892 patent application claims patenteligible subject matter under 35 U.S.C. 101? (2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101? (3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter? (4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101? (5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect? Briefs, including over twenty amicus briefs, have already been filed with the Court and the case is due for oral argument on May 8, Of the twenty briefs, six were submitted from the financial services sector and seven from the computer software and hardware sector. Numerous organizations, such as the Intellectual Property Owners Association (IPO), American Intellectual Property Law Association (AIPLA) and the Biotechnology Industry Organization (BIO), submitted amicus briefs. This case addresses the threshold question of what is patentable subject matter under 35 USC 101. The patent laws provide that "[w]hoever 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 therefore, subject to the conditions and requirements of this title." 35 USC On the other hand, a long line of Supreme Court cases indicate that laws of nature, natural phenomena, and abstract ideas are not patentable subject matter. Diamond v. Diehr, 450 U.S. 175, 209 U.S.P.Q. 1 (1981). The patent application at issue is directed to a method of managing consumption risks associated with a commodity sold at a fixed price. 5 Neither the claim nor the description of the invention in the patent application indicates that the method has to be performed on a machine. It is a method that could be performed purely by people, without the use of a computer or other machine. The claims were rejected by the examiner under 35 USC 101. The rejection was upheld by the Board of Patent Appeals and Interferences in a 71 page opinion that seems to invite the Federal Circuit to clarify the requirements for patent-eligible subject matter. This seems to be a case that fundamentally requires a clarification of at least what are the bounds of the process class of Section 101 and/or when 15

16 is subject matter excluded as an abstract idea even if it does fall within the process definition. The fact that the Federal Circuit decided sua sponte to take this case en banc, as well as the issues specified for briefing, seem to indicate that the Federal Circuit intends to address these issues head on in this case. In addition, the Court is clearly considering whether to clarify, modify or overrule the State Street Bank and AT&T cases. It is important to note, though, that these cases have significant differences from the current case. The State Street case was important in establishing that an otherwise valid method claim that clearly falls within the process class does not become ineligible for patent protection merely because it is directed to a business method. However, in State Street, the claims did require machine implementation, unlike the current case. Hundreds of thousands of patents and pending patent applications will likely be affected by the ruling in this case. Depending on the outcome, it could have an effect on billions of dollars worth of business. This is clearly a case to watch since it touches on fundamental questions of what subject matter is eligible to be considered for patent protection. Henry J. Daley, Ph.D. is a partner in Venable's Patent Prosecution Group and can be reached at or hjdaley@venable.com. Michael A. Gollin Recognized by the Intergovernmental Panel on Climate Change as Contributing to Its 2007 Nobel Peace Prize Award The Intergovernmental Panel on Climate Change (IPCC) recognized Michael A. Gollin's work as contributing to the award of the Nobel Peace Prize for 2007, which the IPCC shared with Al Gore. Mr. Gollin was a co-author of an IPCC report, Methodological and Technological issues in Technology Transfer, Bert Metz et al., eds. (Cambridge University Press 2000). The report is available at or Michael A. Gollin is a partner in Venable's Patent Prosecution Group and can be reached at or magollin@venable.com. 1 "Antitrust Issues in Standard-Setting: Recent Developments," American Bar Association Section of Litigation- The Antitrust Litigator, vol. 7 no. 2 (Spring 2008), quoting Gerald F. Masoudi, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, "Antitrust Enforcement and Standard-Setting: the VITA and IEEE letters and the 'IP 2' Report," Speech at Spring Meeting of the AIPLA (Boston, Massachusetts May 10, 2007) available at 2 Rambus Inc. v. FTC, No , April 22, 2008, available at: pdf 16