Fordham 2016: Outstanding patent issues - the UPC, dual-track systems and Alice v CLS Bank

With everyone feeling suitably optimistic about the future of copyright and trade mark law, are patent lawyers feeling equally jolly?  Well....not quite.  There seems to be more problems to resolve following reform in the US and Europe, as the AmeriKat reports:  

Margot Frohlinger

Margot Fröhlinger (Principal Director, Patent Law and Multilateral Affairs, EPO) was the first to take the podium to discuss outstanding issues about the unitary patent.  Next year, Margot explained, we will hopefully have a unitary patent and a Unified Patent Court (UPC) in Europe.  This means a one-stop shop for post-grant procedure for protection and enforcement.  This will help remove the complexity of a fragmented market, but there are other issues that need to be addressed - some which are quite tedious and which need to be dealt with by agreement by Participating Member States or dealt with by the UPC.  The first issue is in relation to Unitary Supplementary Protection Certificates (i.e. SPCs based on unitary patents).  The European Commission has recently announced that they are going to create a unitary SPC.  Margot wishes them good luck.  The creation of a unitary SPC may be as complicated as the UPC (which took 40 years).  There are number of legal and political issues - i.e. creating a European unitary title that only has effect in some EU Member States?  Who is going to grant unitary SPCs and fix the fees?  Who is going to get the fees for unitary SPCs?  At the moment SPC fees are retained by national offices.  It will be difficult to create, but pending the creation of a unitary SPC, national SPCs can be obtained on the basis of the unitary patent.  The EU Commission will be clearly stating this.  The second issue is what happens if request for unitary effect is rejected by the EPO or is overruled by the UPC at the time when the validation deadlines has already expired.  Member States mainly agree that they should reopen the deadline for national validations.  This has been implemented in Sweden, Finland, Netherlands and Germany.  The UK considers that the patent holder should just pay the national renewal fees (and would be protected).  A harmonized approach on this point may be difficult.  The third difficulty is where prior national rights lead to a limitation or revocation of the patent for the territory of one of the participating Member States after the registration of unitary effect.  There are different solutions - either revocation or limitation of the unitary effect only for the territory of the Member State concerned, or revocation or limitation of the entire unitary effect and reopening of the deadline for national validations or loss of the entire Patent.  The UPC may have to deal with this issue as well.  The final issue is the double protection for the same invention by Unitary Patents and national patents.  There is no prohibition under the European Patent Convention.  This is left to Member States.  Member States have different approaches - some allow double protection, others prohibit it.  German law which traditionally prohibits double protection has now provided for double protection in their new draft legislation.  This adds another layer of complexity and may impact the opt-out strategies of patentees.  In conclusion, Margot says we should not compare the UPC and unitary patent with what an ideal world may look like - it needs to be compared with what the fragmented system is like now.  The UPC and unitary patent is an improvement.

Always smiling, John has been
working hard on patent harmonization

John Alty (Chief Executive and Comptroller general, UK IPO) started his presentation with a baseball analogy.  Popular in the US and Japan - there are essential elements in baseball that are common (baseball bats, mounds, bases), but there are slightly different rules . This is like the patent landscape where you have to understand slightly different rules in numerous jurisdictions which can be challenging for SMEs.  There should only be one system across the world, that may be agreed, but no one is in agreement as to what system this should be.  Group B+ is working on this in relation to four key topics:  grace periods, publication of applications, treatment of conflicting applications and prior user rights.  Starting by negotiating legal texts will not get us very far.  We need to step back and look at the objectives of the global patent system when it comes to harmonization.  In particular, solutions need to be coherent and balanced, provide legal certainty, promote high quality patents and support economic growth. As a result of this framework and the B+ Group's work on the four key topics, patent harmonization is now closer than ever.

Judge O'Malley  - a fan of the skill of IP litigators

Judge Kathleen O'Malley (US Court of Appeals for the Federal Circuit) stated that the CAFC came into being because there were so many regional circuits  - some patent friendly, some not - leading to a diversity of decisions.  The CAFC was therefore established to ensure that if a patent was found invalid/valid, it was held to be invalid/valid across the US.  In 2015, the CAFC entered appeals from district court cases in over 600 cases, with 6000 patent cases being brought before the district courts.  Now patent cases account for 60% of the CAFC's case load, but Judge O'Malley also reminded the audience that the CAFC has wider jurisdiction than just patent issues.  A significant change she has noted is the increase in the number of cases brought by patent owners who do not practice invention.  This change created a huge impact in the patent litigation game.  In particular, Judge O'Malley commented that big laws firms (with big fees), rather than boutique law firms, are increasingly representing parties in patent cases because the stakes have become so much greater.  This has led to a change in how patent cases are being tried.  This is because larger firms have litigation teams who are used to trying cases in a variety of subject matters in numerous different district courts.  They are also not unaccustomed to taking cases to the Supreme Court (and they know how to get leave to do so).  She is now seeing patent lawyers, who are technically skilled, adopting savvy litigation styles and advocacy in order to effectively explain the technology to the court. To obvious applause, Judge O'Malley noted that IP litigators are some of the best litigators that she has seen in court.

Judge O'Malley also commented that the Supreme Court is increasingly taking an active interest in the CAFC given its important role which has been borne out by the numbers.  For example, in the past 6 years the CAFC has had 47 cases go to the Supreme Court, 32 of which are patent cases.  The Supreme Court is weighing in on really complex issues in relation to section 101  - patentable subject matter.  However, in response from a question from Hugh, Judge O'Malley noted that she is not a "huge fan of the Supreme Court's patent jurisprudence", especially when she sees a unanimous decision as that is indicative of a court that is not really delving into the patent issues, as necessary.  Judge O'Malley stated that she likes the ways in which the Supreme Court has dealt with some issues, for example in relation to civil procedure and jurisdiction. But, she stated, when it came to patent law "they have created more problems than what they have resolved".

David Kappos - not a fan of the Supreme Court's
decisions on section 101

David Kappos (Cravath, Swain & Moore) said that he is concerned about the IP system in general, because it is really quite clear that there has been major incursions made in the US and elsewhere that have diminished the strength of the applicability and vitality of the IP system (not just just patent law).  The Second Circuit seem to be delivering copyright decisions which are frankly bizarre (see the recent Instagram decision).  What is needed is a new direction for the country.  The election cycle will set in motion a new season of change.  David set out ten modest improvements that the next administration can implement quickly which are all business oriented.  The list focused on the leadership that the new administration needs to bring to the table to emphasize a policy at which innovation is at its heart, with the US resuming its role as the world's leader of innovation (but not ignoring the need for great innovation coming elsewhere).  David also said that the federal government needs to take a lead in championing and rewarding US innovation, which requires recognizing that innovation is difficult and risk and incentives are needed.  The patent system is our system for incentivization (anti-trust does not do it, no matter what they say) and the focus must be orientated towards IP, not other bodies of law.  

In terms of Supreme Court decisions, especially the CLS v Alice Bank decision, David said that it is impossible to make sense of the Supreme Court jurisprudence on section 101.  In trying to make sense of section 101, the PTO is trapped by a set of Supreme Court decisions which are incomprehensible.  That is has been the architect of PTO's real struggle to get to grips with patentable subject matter.   Judge O'Malley agreed that it is difficult to understand what is and is not left in terms of patentable subject matter, but this challenge has led to many more creative arguments from lawyers who try to distinguish their inventions from the realm of a CLS  v Alice Bank situation.  Sir Robin chimed in stating that in the real world the patent office does issue bad patents - it is inevitable  This is because its a one-sided examination process conducted by an examiner who may not have all of the prior art before him or her and who is generally under-resourced.  You can see this in Europe where an opposition takes 10-15 years to decide whether a patent is valid.  This is a broken system.  The America Invents Act, to Sir Robin, looks great in comparison as it provides a quicker, more efficient regime to address validity.  It also provides certainty, which is hugely important.
David agreed about the inevitably of some patents being wrongly granted.  In particular, this is an issue when an examiner is being asked whether an invention is abstract - that very question is entirely subjective and, as Sir Robin noted, in such a situation of course wrongly granted patents will be inevitable.

Sir Robin envisaging the end of EPO oppositions in favor
of Central Division revocations

"I would not want to be a patent owner, given there are so many ways to be attacked", continued Judge O'Malley.  In particular she noted the problem of patentees facing "serial inter partes reviews (IPRs)."  For example, if a lawsuit is subsequently dismissed or via a time-barred opponent latching on to an IPR brought by a venture capitalist who does not need to show standing. There is no certainty as to when a patent will be held valid or invalid, which devalues the property right.  Even if you get a positive result in one forum, she noted, its impossible to know whether your property right is solid enough to be able to invest into it.  The US patent system currently does not really address the problems that are caused with these different tracks in place.

Picking up on this point, the AmeriKat posed a question to the panel:  Given the problems of this dual-track system - in the US, between the district courts and the USPTO IPR and, in Europe, national courts and EPO oppositions - what is the solution?  In Europe, a national court may have held a patent to be valid and infringed only for the patent, many years later to be held invalid by virtue of an EPO opposition decision.  This issue will come up in the UPC and we should be looking for a solution now.  What is the answer?   Judge O'Malley stated that what is needed is knowing when there is a final decision.  This needs to be clear, but that under US law this may be an issue which needs to go to the Supreme Court to resolve.  David Kappos stated that clever litigants will find ways to game a dual-track system.  When the AIA was put together, David stated that a "safety valve was put in place whereby the USPTO could decline to institute an IPR.  However this safety valve needs to be used more", especially when a litigant has had their day in court.  Another solution, would be by way of legislative fixes to address the unintended consequences of the dual-track system.  Sir Robin stated that the solution, with respect of the UPC, would be to forget EPO oppositions and to commence revocation actions before the Central Division of the UPC.  Indeed, he foresees litigants using this venue more than EPO oppositions in the future.