Philip M. Nelson, Partner, Knobbe Martens01.08.19
Many medical device companies have recently faced a bizarre response from the U.S. patent office. Incorporating next-generation “smart” technology into medical devices has actually reduced the chances of protecting them with patents. A small, but important, new guidance memo that came out last week may help resolve this situation.
The Trump administration has famously sought to reduce regulation, with the President at one point directing federal agencies to get rid of two regulations for every new one they propose. However, the first week of January 2019 brought one “regulation” small medical device startups should welcome with open arms. President Trump’s director of the U.S. Patent and Trademark Office, Andrei Iancu, has reportedly been working for several months behind the scenes to prepare new administrative guidance, and it could improve these companies’ prospects by greasing the skids for new patents on their core technologies.
Many applicants fighting to get a medical device patent in the last several months have noticed a new focus by U.S. patent examiners. These gatekeepers and their supervisors are now interpreting a vague legal requirement that does not appear in the Patent Act to reject medical device patent claims simply because they incorporate some computer-related feature. These “Section 101” rejections have caused many applicants to wonder why adding smart features would somehow make their new products less innovative—less worthy of a patent.
Section 101 of the Patent Act describes patentable subject matter broadly: any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Although courts initially interpreted this to cover “anything under the sun made by man,” courts also excluded “abstract ideas”—like pure mathematical formulas—and laws of nature. They argued it would be unfair to allow Einstein the exclusive use of E=mc2 for twenty years, no matter how useful the discovery. In the 90s, courts decided that computer software was not abstract, and was thus eligible for patenting, as long as it was stored on a physical medium or machine.
In the mid-2000s, some academics and interest groups complained that software patents were too easily obtained and that their claims were often too broad. They argued that rather than providing reasonable incentives to inventors and benefiting humanity, software patents actually stifled the economy.
Because patents create an exclusionary right—a right to block others from infringing on a legal “claim” describing the innovation—some inventors chose not to commercialize products. Many opted instead to monetize their work by selling the exclusionary right to another company. However, those acquiring patent rights have no obligation to commercialize, or “practice” the invention. Inevitably, some acquirers use them only to sue other companies and not to protect their own products. These companies have been dubbed non-practicing entities (NPEs), or sometimes “patent trolls.”
Large corporations were frequent targets of patent lawsuits by these NPEs. Unlike start-ups, these large corporations’ business models no longer depended upon breaking into the market with a few key innovations. Large corporations favored the arguments against software patents, even though they often held their own large portfolios of such patents for defensive purposes.
This background led to two major changes in patent law. First, the “America Invents Act,” billed as patent “reform,” was signed into law in 2011. It made many changes, but among the most important was to make it easier and cheaper to attack issued patents using administrative judges at the U.S. Patent and Trademark Office (PTO). In 2014, President Obama appointed one of Google’s in-house lawyers to lead the PTO, including these administrative judges. Second, the Supreme Court held in the Alice case of 2014 that some software patents were too abstract and therefore not eligible for patenting.
For the next several years, it became much more difficult to obtain and enforce patents on software innovations. Federal-court and PTO judges were not only more skeptical of issued patents, but software patent examiners themselves were much more likely to reject new patent applications. Past leadership, including especially mid-level supervisors in software examination units, applied stricter scrutiny to patent allowances. Examiners who always said “no” to new patents were rewarded with much less scrutiny or criticism. Examiners in this area of the PTO could go four or five years without ever saying “yes” to a single patent application.
Until recently, few medical device companies had been directly affected by this public policy debate. However, over the last two years, this changed. First, more medical devices incorporated software or other “smart” features. Second, examiners assigned to the medical device units at the PTO received more training from those in their sister software examination units, raising awareness of the changes in the law. Ironically, just as software examiners achieved a tentative equilibrium, finding the confidence to allow select patent applications, their medical device counterparts ramped up Section 101 rejections dramatically. Recent medical device rejections resemble the extreme cases found in pure software applications in 2015 and 2016. Many have treated software elements of any claim as a poison pill, despite the presence or predominance of clearly patent eligible, non-abstract elements.
These extreme cases—finding concrete medical devices “abstract,” merely because of smart features—have not yet been tested in the courts. They likely will not get that far.
Independent of PTO dynamics, the legal pendulum may be swinging back toward a more neutral view. In the last two years, several appeals court decisions have held several software inventions eligible for patenting (and not too abstract) under a handful of theories.
Under Director Iancu, this reversal has gained momentum at the PTO. The director has emphasized court cases finding eligibility and used public speeches to highlight problems he perceived with the way some courts and examiners were finding patent claims ineligible as “routine and conventional”—while at the same time finding them “novel and nonobvious.”
The change in how the PTO treats eligibility will be most apparent once the new “regulation” issues in January 2019. It will initially come as a less formal “guidance” memo to U.S. patent examiners, but it will likely publish in the Federal Register and enter the Manual of Patent Examining Procedure in due course. The new guidance is expected to provide a set of categories designed to help examiners quickly get past what should be a simple threshold question of patent eligibility, allowing more time for “prior art” searching to evaluate the core questions of novelty and obviousness.
Because medical device patent applications have been only recently dragged into this controversy and are perhaps the most affected, the reprieve may be welcomed most by them. Based on early reports, the guidance will make it much harder for examiners to ignore the physical aspects of medical devices and reject them merely because they incorporate software or other smart components.
It is too early to tell how far the pendulum will swing, given the forces at work on this important question of public policy. Those who obtain patents on their work will continue to have a business advantage that may provide the edge needed to secure venture funding. Courts, academics, and ultimately the American public will all have a say in how much patent protection should reward innovation involving software.
So a very interesting question going into 2019 will be how medical device examiners will react to the new Section 101 guidance. They may well return to historical allowance rates, in line with present PTO leadership’s views. Medical device startups may thus find themselves celebrating 2019 by toasting at least one New Year’s “regulation.”
The Trump administration has famously sought to reduce regulation, with the President at one point directing federal agencies to get rid of two regulations for every new one they propose. However, the first week of January 2019 brought one “regulation” small medical device startups should welcome with open arms. President Trump’s director of the U.S. Patent and Trademark Office, Andrei Iancu, has reportedly been working for several months behind the scenes to prepare new administrative guidance, and it could improve these companies’ prospects by greasing the skids for new patents on their core technologies.
Many applicants fighting to get a medical device patent in the last several months have noticed a new focus by U.S. patent examiners. These gatekeepers and their supervisors are now interpreting a vague legal requirement that does not appear in the Patent Act to reject medical device patent claims simply because they incorporate some computer-related feature. These “Section 101” rejections have caused many applicants to wonder why adding smart features would somehow make their new products less innovative—less worthy of a patent.
Section 101 of the Patent Act describes patentable subject matter broadly: any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Although courts initially interpreted this to cover “anything under the sun made by man,” courts also excluded “abstract ideas”—like pure mathematical formulas—and laws of nature. They argued it would be unfair to allow Einstein the exclusive use of E=mc2 for twenty years, no matter how useful the discovery. In the 90s, courts decided that computer software was not abstract, and was thus eligible for patenting, as long as it was stored on a physical medium or machine.
In the mid-2000s, some academics and interest groups complained that software patents were too easily obtained and that their claims were often too broad. They argued that rather than providing reasonable incentives to inventors and benefiting humanity, software patents actually stifled the economy.
Because patents create an exclusionary right—a right to block others from infringing on a legal “claim” describing the innovation—some inventors chose not to commercialize products. Many opted instead to monetize their work by selling the exclusionary right to another company. However, those acquiring patent rights have no obligation to commercialize, or “practice” the invention. Inevitably, some acquirers use them only to sue other companies and not to protect their own products. These companies have been dubbed non-practicing entities (NPEs), or sometimes “patent trolls.”
Large corporations were frequent targets of patent lawsuits by these NPEs. Unlike start-ups, these large corporations’ business models no longer depended upon breaking into the market with a few key innovations. Large corporations favored the arguments against software patents, even though they often held their own large portfolios of such patents for defensive purposes.
This background led to two major changes in patent law. First, the “America Invents Act,” billed as patent “reform,” was signed into law in 2011. It made many changes, but among the most important was to make it easier and cheaper to attack issued patents using administrative judges at the U.S. Patent and Trademark Office (PTO). In 2014, President Obama appointed one of Google’s in-house lawyers to lead the PTO, including these administrative judges. Second, the Supreme Court held in the Alice case of 2014 that some software patents were too abstract and therefore not eligible for patenting.
For the next several years, it became much more difficult to obtain and enforce patents on software innovations. Federal-court and PTO judges were not only more skeptical of issued patents, but software patent examiners themselves were much more likely to reject new patent applications. Past leadership, including especially mid-level supervisors in software examination units, applied stricter scrutiny to patent allowances. Examiners who always said “no” to new patents were rewarded with much less scrutiny or criticism. Examiners in this area of the PTO could go four or five years without ever saying “yes” to a single patent application.
Until recently, few medical device companies had been directly affected by this public policy debate. However, over the last two years, this changed. First, more medical devices incorporated software or other “smart” features. Second, examiners assigned to the medical device units at the PTO received more training from those in their sister software examination units, raising awareness of the changes in the law. Ironically, just as software examiners achieved a tentative equilibrium, finding the confidence to allow select patent applications, their medical device counterparts ramped up Section 101 rejections dramatically. Recent medical device rejections resemble the extreme cases found in pure software applications in 2015 and 2016. Many have treated software elements of any claim as a poison pill, despite the presence or predominance of clearly patent eligible, non-abstract elements.
These extreme cases—finding concrete medical devices “abstract,” merely because of smart features—have not yet been tested in the courts. They likely will not get that far.
Independent of PTO dynamics, the legal pendulum may be swinging back toward a more neutral view. In the last two years, several appeals court decisions have held several software inventions eligible for patenting (and not too abstract) under a handful of theories.
Under Director Iancu, this reversal has gained momentum at the PTO. The director has emphasized court cases finding eligibility and used public speeches to highlight problems he perceived with the way some courts and examiners were finding patent claims ineligible as “routine and conventional”—while at the same time finding them “novel and nonobvious.”
The change in how the PTO treats eligibility will be most apparent once the new “regulation” issues in January 2019. It will initially come as a less formal “guidance” memo to U.S. patent examiners, but it will likely publish in the Federal Register and enter the Manual of Patent Examining Procedure in due course. The new guidance is expected to provide a set of categories designed to help examiners quickly get past what should be a simple threshold question of patent eligibility, allowing more time for “prior art” searching to evaluate the core questions of novelty and obviousness.
Because medical device patent applications have been only recently dragged into this controversy and are perhaps the most affected, the reprieve may be welcomed most by them. Based on early reports, the guidance will make it much harder for examiners to ignore the physical aspects of medical devices and reject them merely because they incorporate software or other smart components.
It is too early to tell how far the pendulum will swing, given the forces at work on this important question of public policy. Those who obtain patents on their work will continue to have a business advantage that may provide the edge needed to secure venture funding. Courts, academics, and ultimately the American public will all have a say in how much patent protection should reward innovation involving software.
So a very interesting question going into 2019 will be how medical device examiners will react to the new Section 101 guidance. They may well return to historical allowance rates, in line with present PTO leadership’s views. Medical device startups may thus find themselves celebrating 2019 by toasting at least one New Year’s “regulation.”