What is Patentable? Bilski Patent Case Oral Argument Heard at the United States Supreme Court : We Hope for Adoption of the Transformative Standard

On Monday, November 9, 2009, the U.S. Supreme Court heard oral argument in the Bilski patent case, the judicial resolution of which is bound to have far-reaching consequences on the way that the United States and the rest of the world view and treat patents (see the original transcript of the arguments here - hat tip to Kevin E. Noonan at PatentDocs in Supreme Court Bilski Argument).

Although the Supreme Court may decide the case narrowly with respect to the particular facts of the Bilski business method patent case, the reasons which the Supreme Court sets out as the basis for its decision will nevertheless have broad application in law, for the Supreme Court can not duck the pressing legal patent issues and must provide a flexible standard NOW, inserting stability into a system currently ruled by chaos.

Joe Mullin at The American Lawyer in Supreme Skepticism Over Bilski Claims Puts Method Patents on Shaky Ground writes in this regard that:

"For the first time in almost 30 years, the U.S. Supreme Court on Monday considered the issue of what types of technology should be eligible for patent protection when it heard oral arguments in Bilski v. Kappos.

Across the board, the justices indicated a deep skepticism toward the invention described in the patent application at issue, which was rejected by the U.S. Patent and Trademark Office and describes a method for trading commodities. Some of the justices went even further--expressing both a fair amount of disdain for the idea of granting broad "method" patents and a concern that ruling in favor of the petitioners would lead to patent grants on fundamental ways of conducting business or organizing human behavior. "

We have posted about the landmark Bilski case from the very beginning and our line of reasoning - prior to the court decisions - anticipated what the courts decided:

In re Kubin : Hitting the NAIL on the Head : Sequencing Poor Federal Circuit Court Decisions out of the Biotechnology Patent Genome via KSR and/or Bilski Reasoning

In re Bilski : Patentable Subject Matter : Federal Circuit Overturns Pure Business Method Patents : Requires Machine Process / Physical Transformation

Federal Circuit to Review Business Method Patents for Future Viability : There is a Great Likelihood of a New Upcoming Legal Standard

The Patentability of Business Methods and the Upcoming Federal Circuit Hearing en banc in Ex parte Bilski

For our part, we hope that the standard adopted is the transformative one. Transformation is the operative element that is common not only to patents but also to copyright law, for it is "transformation" which is the inventive step.

A copyrighted work is after all - in most cases - simply a unique transformation of commonly used words of the language or languages written. Since nearly every word is in a sense "copied" from prior art, and since many elements of any written work are common to many works due to the linguistically identifiable rules of grammar and syntax, almost any truly transformative work still necessarily contains many copied "elements". It is therefore the transformative nature of a work as a whole which must be judged and not its individual parts per se.

As far as patents are concerned, the same reasoning applies. Any transformation of "matter" or of a more abstract element of technology such as software or medical knowledge necessarily "copies", i.e. it relies on many elements of prior art to reach a new discovery. An inventive step is never taken in a vacuum and can therefore as good as never be divorced from the environment in which it takes place.

An invention is the whole work and it is entirely conceivable to imagine a fantastic new written work or invention made up totally of otherwise copyrighted or patented parts - for which the copyright or patent holders of those parts should in the case of such an invention nevertheless get nothing, because a transformation has taken place in the new whole.

A transformative standard can also be equally applied to software products (as a whole) or to new medical advances (as products), i.e. the transformative software (as a product) should be patentable, but NOT elements of the software code, and similarly, transformative medical discoveries should be patentable, but NOT the methods used to achieve them, e.g. transformative new ways to synthesize a gene should be patentable, but not the gene itself.

In the case of business methods, a transformative software product implementing a particular business method should be patentable - but NOT the business method itself. Until a business method is APPLIED, no transformation has occurred. Therefore, only a product which performs such a transformation can be patented.

We see no serious problems with a transformative standard - which need not be tied to machines or any other technology. The inventive step should be universally recognizable as a reproducible transformation.

The view voiced by some commentators and also expressed by some judges and also U.S. Supreme Court Justices that the Bilski patent might be rejected as being merely "an abstract idea" is an intellectual cop-out and begs the question of drawing the necessary line between "an abstract idea" and "an inventive step". WHERE that line is to be drawn is the job of the U.S. Supreme Court to determine and the Supremes therefore can not avoid the establishment of a standard simply by rejecting Bilski's business method as "an abstract idea".

The question is, when does a non-obvious abstract idea become an invention? And that question, the Court must answer. They have little choice.

We suggest that the only viable answer is the transformative standard.

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Comparing Pharmaceutical and Biotechnology Innovation in the United States and Europe : The Key Player is Venture Capital Financing and not Patents

It is often claimed that the liberal granting of patents is essential for the development of the pharmaceutical industry, especially modern biotechnology. The facts do not support that view.

NGP's Mind the gap? writes:

"Fast facts

For most of the past century, Europe has been leading the world in pharmaceutical innovation. But over the last decade, the US gradually overtook Europe both in terms of innovative efforts (R&D investment) and in terms of the output of its innovative activity (New Molecular Entities).

Europe is still leading the world in pharmaceutical production, which has risen fivefold in value over the last 20 years, with exports accounting for 60 percent of total production.

More than 400,000 Europe-born scientists are estimated to have crossed the Atlantic, where they account for 40 percent of scientists working in the US.

About 40 percent of the new active substances launched nowadays on the world market have been discovered and developed in Europe, whereas 30 years ago Europe’s share of pharmaceutical discoveries was 65 percent."

The reason for the mass exodus of pharmaceutical scientists from Europe to the USA is the lure of more money, enabled by exorbitant U.S. pharmaceutical profits as engendered by a failed and exploitative patent policy. As written by Marcia Angell in Excess in the pharmaceutical industry:

"Although the pharmaceutical industry claims to be a high-risk business, year after year drug companies enjoy higher profits than any other industry. In 2002, for example, the top 10 drug companies in the United States had a median profit margin of 17%, compared with only 3.1% for all the other industries on the Fortune 500 list. Indeed, subtracting losses from gains, those 10 companies made more in profits that year than the other 490 companies put together. Pfizer, the world's number-one drug company, had a profit margin of 26% of sales. In 2003, for the first time in over 2 decades, the pharmaceutical industry fell slightly from its number-one spot to third, but this was explained by special circumstances, including Pfizer's purchase of another drug giant, Pharmacia, which cut into its profits for the year. The industry's profits were still an extraordinary 14% of sales, well above the median of 4.6% for other industries. A business that is consistently so profitable can hardly be considered risky.

Excess profits are, of course, the result of excess prices — and prices are excessive principally in the United States, the only advanced country that does not limit pharmaceutical price increases in some way. Of the top 10 drug companies in the world, 5 are European and 5 are American, but all of them have the US as their major profit centre. In the US, uninsured patients (of which there are many) are charged more for drugs than those who have large insurance companies to bargain for them, and the prices of prescription drugs are generally much higher to start with than in other advanced countries. Moreover, the prices of top-selling drugs are routinely jacked up in the US at 2 to 3 times the general rate of inflation."

In reality, biotechnology patents are not an issue of health, invention or patent law, but rather a matter of greed for money, as discussed in the Journal of Intellectual Property Law & Practice by Katherine A. Helm in her article, The battle over global drug markets: enforcement of pharmaceutical patents in the United States, Europe, and Japan.

The facts also tell a different story about the alleged relationship of patents to innovation. Margaret Sharp and Pari Patel, SPRU, University of Sussex, write as follows in their article Europe's Pharmaceutical Industry: An Innovation Profile: Summary as part of EIMS (European Innovation Monitoring System):

"For the 20 largest R&D spending pharmaceutical firms, there is little correlation between measures of innovation such as R&D spending, patenting, the number of new drugs under development (in R&D), or the number of top-selling drugs, except for a positive correlation between R&D intensity and the number of new drugs as a percentage of sales....

Biotechnology offers a new route to drug discovery that could potentially reduce R&D costs and development times. A large number of small, dedicated biotechnology firms (DBFs) have been established in the United States in response to a conducive environment characterised by a developed venture capital market, lenient stock exchange rules, and a well-funded research base in the life sciences (Irvine et al, 1990). In contrast, few DBFs have flourished in Europe, while Europe's large pharmaceutical and chemical firms were latecomers to biotechnology, although several built up research teams in the early 1980s in order to keep abreast of developments. Since the late 1980s an important route for European firms to access biotechnology expertise has been through the purchase of American DBFs or the establishment of research laboratories in the US. However, case-study research shows that there is no systematic tendency for leading-edge biotechnology research by European firms to move to the United States (Senker et al, 1996). On the contrary, European firms are building up strong research capabilities in biotechnology, using links with American DBFs in areas where Europe is weak.

Few DBFs have been able to become fully integrated pharmaceutical firms and as of 1993 only about 3.9% of all pharmaceutical sales were due to biotechnology drugs (Ernst & Young, 1994). Most DBFs survive through a synergistic relationship with larger firms, where the DBF supplies potential new products to a large firm which in turn takes them through clinical trials and helps defend patents. This has meant that there has been a shift over the past decade from R&D agreements to alliances based on marketing and licensing.

Conclusions

Innovation in the pharmaceutical industry is difficult to measure. Too much R&D is devoted to duplicating the work of other firms and much patenting is defensive. Counts of drugs under development is not a satisfactory innovation indicator because they can reflect poor management as much as real innovation. The best measure is perhaps to take the number of top-selling drugs, but the drawback with this measure is that it measures past rather than present innovation. By this measure German firms have been lagging while British firms are the leading innovators in the EU. All EU firms have been rather slow at making the shift from a drug development paradigm based on chemistry to one that also includes biotechnology, although most are now moving in this direction, partly through establishing links with American DBFs.

The priority for European policies to support innovation in this sector is to create an environment conducive to innovation. Several policy measures would assist the European pharmaceutical industry: continued substantial support for the public research base in the life sciences; encouraging the full exploitation of that base by Europe's major firms (who still tend to know too little about what lies beyond national boundaries); the reinforcement of the single market and in particular the construction of a European rather than a national regulatory system, the easing of financial restrictions on venture capital financing; and finally, the promotion of other mechanisms to support and fund new, technology-based firms."

Accordingly, the surely short-lasting biotechnology edge that American firms obtained in the last decade was largely a product of more lenient American venture capital financing practices. Biotechnology innovation has had little to do with patents and patent law.

Patent Baristas Comments Extensively on In Re Kubin : The Use of Conventional Techniques to Arrive at an Obvious Result Does Not Make an Invention

Stephen Albainy-Jenei at the blog Patent Baristas has an extensive posting on In re Kubin at Court: It’s Not An Invention If You Use Conventional Techniques To Make It, writing:

"In In re Kubin (08-1184), the US Court of Appeals for the Federal Circuit held that the US Patent and Trademark Office's Board of Patent Appeals and Interferences was correct to hold claims as unpatentably obvious when applicants use "conventional techniques" to make an invention. This is bad news not just for biotech but for all arts."

The discussion by Albainy-Jenei is a good one, so be sure to read it, although we think that In re Kubin is not going to be long-term bad news for biotech or for the arts. The Federal Circuit in In re Kubin, following the United States Supreme Court's new obviousness standard in KSR, simply has finally drawn an understandable and desperately needed line for biotechnology patent applications - this far and no further. Not every foreseeable - obvious - increase in our scientific knowledge is - or should be - subject to patent protection. There is something we might call the "normal" progress of science - and that - to our mind - is not invention.

The patent situation in biotechnology has gotten as much out of hand as in the rest of the patent world. We need merely to refer to the Google Public Policy Blog where Michelle Lee, Head of Patents and Patent Strategy at Google, writes in Patent reform needed more than ever:

"After the last time I blogged about patent reform in late 2007, the House went on to approve the Patent Reform Act. The bill unfortunately got bogged down in the Senate the following year. Since then the problems of the current system — and the need for reform — have only grown.

Consider this: Of the 20 patent lawsuits filed against Google since late 2007, all but two have been filed by plaintiffs who don’t make or sell any real product or service — in other words, by non-practicing entities or “patent trolls.” Most of these cases seem to feature the same small set of contingent fee plaintiff's lawyers asserting patent claims against the same small set of companies. We've also noticed a more disturbing trend: in many of these cases, the patents being asserted against us are owned by — and in a surprising number of cases, are even “invented” by — patent lawyers themselves.

Unfortunately, the temptations and opportunities for abuse have gotten too high. Lawyers and plaintiffs have seen the potentially huge payoffs available in patent litigation. Before 1990, there had been just one patent damage award of over $100 million. Since 1990, there have been at least 15, with at least five topping $500 million." [emphasis added by LawPundit]

As the current world financial crisis shows, especially in the United States - which is bogged down by a mountain of debt to various vested financial interests, including those created by patent monopolies - you can't have the non-producing sectors of society sucking the life out of the economy without serious deleterious economic and political consequences.

Federal Circuit affirms In re Kubin and puts sensible limits on Biotechnology Patents pursuant to the KSR obviousness standard, thus negating Deuel

We posted previously, extensively and definitey about the need to limit biotechnology patents at In re Kubin : Hitting the NAIL on the Head : Sequencing Poor Federal Circuit Court Decisions out of the Biotechnology Patent Genome via KSR and/or Bilski Reasoning.

Through Filewrapper we just became aware of the the fact that the Federal Circuit decided this landmark biotechnology case just last Friday, applying the obviousness standard in KSR to biotechnology cases and in so doing finding that Deuel in this regard is no longer good law. BRAVO to the Federal Circuit in properly applying the U.S. Supreme Court's KSR standard.

Read the full posting Kubin decided: Federal Circuit provides guidance for application of KSR in biotechnology at Filewrapper, which provides excellent links to most if not all of the necessary resources - something we ourselves always try to do in our often lengthy postings, but which most blogs in their superficiality never do.

Well done, Filewrapper team!

By contrast, Patent Docs, pushing their particular subjective and outdated view of biotechnology patents, still doesn't get it, assigning multiple errors to the Federal Circuit court rather than trying to formulate a workable understanding of the rule now applied in In re Kubin and applicable to the grant or denial of all biotechnology patents in the future. When Patent Docs writes that "the Court set forth a plethora of factual grounds unlikely to be identically (or even substantially) encountered for other genes," they are engaging in wishful nostalgic thinking which has no bearing on the current and modernized patent realities.

The fact is that biotechnology patents will be more difficult to obtain because of In re Kubin, make no mistake about that, and thank goodness for that, for the sake of the health of the patent industry as a whole and for the sake of the health of the entire legal system.