Keynote presentation from Judge Raymond Chen '94, U.S. Court of Appeals for the Federal Circuit.
Full video of this keynote is available on YouTube.
- All right, thank you. Thank you everyone for acting boldly and collectively by going and getting lunch and bringing it back in for the final piece of this two-day conference on proving IP, our key note from Judge Chen, and I think this is a really fantastic way to end our conference as a really nice grace note dessert, pick your metaphor, to bring this home. As I'm sure all of you know, Judge Chen is a judge on the US Court of Appeals for the Federal Circuit. Prior to that, Judge Chen was the deputy general counsel for intellectual property law and solicitor at the United State Patent Trademark Office, so he is the right person to be talking about what it means to be proving IP. Judge Chen is also an alumni of NYU Law. We always love to invite alumni back, and very importantly to me, is a member of the Engelberg Center Advisory Board. Please join me in welcoming Judge Chen.
- Thank you. Good afternoon, and thank you Michael for that very kind introduction, and thank you to everyone here for choosing to stay with me during your lunch hour. I guess you're watching me, but I'm also watching you, and it's making me realize I'm going to Joe's Pizza right after I give my speech here. I am honored to be back here at my alma mater, and participating in this Engleberg Center Center symposium. I don't think we had this Engleberg Center when I attended NYU back during, I guess that's the David Dinkins era, but we did have a Professor Dreyfuss here who was and still is a tremendous asset to this school, and so I'm grateful for her for teaching me patent law, and it makes me proud to see NYU is doing so much to advancing critical thinking and writing in the areas of innovation and law and intellectual property law in particular, so I want to thank all the faculty and administrators who have made this symposium possible. When Jeannie told me several months ago that I could speak about anything I wanted, that was very generous, but that was probably also just about the worst thing she could say to me, because I tend to be an unfocused blob unless someone orders me to do something very specific, but I came up with a couple patent law topics that I hope mesh okay with what you've been hearing over the past couple days. I just got in an hour ago from D.C., but I'm going to spend a few minutes discussing the relationship between inventorship and claim drafting that patent owners nowaday have to answer for, as well as a few observations on patent damages, and this is from the perspective of what I've seen so far, the Federal Circuit, for the past five and-a-half years. As you all know, the Federal Circuit has exclusive jurisdiction over patent appeals, but it also reviews many other kinds of cases, government contracts, anti-dumping trade cases, veterans benefits, and so on. In my short time on the Court, I've seen a really dramatic change in the composition of our docket. Federal Circuit, now more than ever, is really a patent court. Federal Circuit judges will bristle at that label, but there's just no getting around it. The patent cases now approach 70% of our entire docket, and 15 years ago it was about one-third, which was what the court's historic norm was for patent cases. To really be more specific, we're really a patent validity court, and that's because well over half of our patent cases are now coming from USPTO's patent board, where parties can seek to cancel a granted patent through administrative proceedings called inter-parties reviews. Again, if you just look at the numbers, that means almost 40% of the Federal Circuit's docket consists of appeals coming from the patent board. That's just a tremendous change in the complexion of the work that the Federal Circuit does. When it comes to the district court appeals, we receive a considerable number of appeals from Section 101 invalidity rulings, and then of course our Hatch-Waxman cases also tend to be just about validity. What this constant heavy influx of patent validity appeals means is that the court is devoting a great deal of its time to reviewing the work of the patent examiners who granted the patents as well as the patent board, which is also reviewing many of these patents, and so many of these patents are not surviving that scrutiny. Although it is the patent challenger, whether in the context of a district court action or a patent board proceeding, who bears the burden to prove the patent claims are invalid, what I'm seeing is that patent owners often need to marshal their own counter-story for why the patent claims appropriately represent what the inventor invented. In other words, they're under pressure more than ever to prove that they are entitled to the scope of their patent rights, either in the context of a Section 101 challenge, or perhaps a Section 112 written description challenge. Let me illustrate the tension that sometimes exists between invention and patent claims with a hypothetical. Assume there's a personal jet manufacturer who wants a new engine with certain characteristics, say an engine less than 500 pounds that can propel a jet to fly 500 miles per hour, and let's just say an engine like that would be a significant technical leap forward, and the jet manufacturer does not know how to make that engine. Instead, it enlists an aircraft engine maker to design and build this novel jet engine according to the jet manufacturer's preferred performance characteristics, and then after a series of failed attempts, the engine maker starts sending lightweight engines that work well with the jet manufacturer's existing airframes, so that the jets can fly at 500 miles per hour. Now assume the jet manufacturer, not the engine maker, files for a patent application claiming a jet comprising one, an engine less than 500 pounds, and two, that can fly at 500 miles per hour. The first question in your mind should be who's the true inventor? The jet manufacturer does not know how to build a 500-pound engine that can make a jet go 500 miles per hour, but it was the first one to imagine such an engine or at least having one created, so is it the jet manufacturer or the engine maker that is the party that contributed something of value to the useful arts? Is it possible they could be co-inventors? Part of the conundrum, I think with this story, may be with how the invention is being claimed. It's not claimed by what the invention is, what the engine is, but by what the engine does, what the invention does. The claim does not explain anything about the structural features of the new lightweight engine. Instead it just claims the desired result, which happened to be conceived of by the jet manufacturer. The bulk of the patent office's examination work is long-focused on finding prior art, and in this scenario the examiner would be unable to find this novel jet engine of the prior art, nor would it be able to find prior art to show why a skilled artisan would believe it to be a straightforward obvious variant of prior art engines, but the continuing trend over the past 20 years towards aggressive functional claims in patent drafting and then the recent Supreme Court jurisprudence on Section 101 together enforced everyone in the patent system to think about patent validity based on more than just prior art. Deeper considerations now required over assessing what precisely is the inventor's contribution to society and then also considering whether the patent claims are drafted with an appropriate scope, or are the claims drafted in an over-broad way? Patent challengers now are raising these types of issues more often as lines of attack requiring patent owners to defend their patent claims on grounds that they hadn't foreseen when the patents were granted. With Bilski, Mayo, Myriad, and Alice, the Supreme Court in the past decade has forced us all to ask whether patent claims, despite usually reciting technical elements like a computer or a network, as examples, actually recite any inventive concept at all. The Supreme Court has articulated its two-step framework for assessing Section 101 patent eligibility in the following manner. First, we must determine whether the claims at issue were directed to a patent-ineligible concept, such as an abstract idea, law of nature, or natural phenomenon. If so, we ask, "What else is there in the claims before us?" and then to answer that question, we have to look at the claim elements individually and as an ordered combination to figure out whether the claim elements transform the nature of the claim into a patent-eligible application, also known as an inventive concept. When it comes to many computer-implemented patent claims that recently have been invalidated under Section 101, the Federal Circuit has had to grapple with what can be a reasonable understanding of what the Supreme Court intended to exclude under the abstract idea exception. One way to think about the meaning of abstract idea is simply the converse of inventive concept, that is a non-inventive concept, a claim that fails to articulate any kind of inventive contribution. For example, if your patent claims some kind of business transaction to occur through a series of steps performed over a computer network using well-known computer elements operating according to their well-established technical functions, then the Supreme Court would say you're not really an inventor. Your business transaction would deemed to be just an abstract idea, and thus is not inventive, even if it's novel and done on a computer platform. In such a situation, the perforded inventor is simply unable to prove he is an inventor entitled to a patent, and that appears to be the import of Bilski and Alice. Aside from this particular case of business methods, there is a more fundamental type of abstract idea that is non-inventive concept that has been part of the Supreme Court precedence since the 1800s, and that for claims that are directed solely to the result or goal to be accomplished, as opposed to a claim describing a particular means for achieving a goal. As the Federal Circuit pointed out last summer in interval licensing, and again recently in its charge-point opinion, this concern over result-oriented claims dates back to as early as Wyeth versus Stone, an 1840 opinion by Justice Story. There the patent did describe a machine for cutting ice, but the patent claimed a process of cutting ice unrestricted by any means, and Justice Story invalidated that claim as for, "An art of principle in the abstract," so in modern-day terms, that claim, while calling for ice to be cut into pieces of uniform size, was at bottom nothing more than the abstract idea of cutting ice, lacking any inventive concept. Such a claim did not qualify for patent protection because the claim filed failed to recite anything that could be regarded as a contribution by the inventor to the field of ice cutting. Again, it's merely directed to a non-inventive concept. Other patent claims from the 1800s, such as in O'Reilly versus Morse, suffered from that same kind of defect, in the sense that the claims were likewise seen to be claiming just a desired result, rather than a particular means of achieving that result. Now for most of the 1900s, these opinions from the 1800s have little work to do, as this kind of abstract idea exception attack against broad concept claims almost never arose until now, and so over the past five years, the Federal Circuit has responded to the recent Supreme Court decisions by building case-law precedent that hopefully provides some clear guidance for how computer-implemented inventions can be found to be patent-eligible. In a nutshell, these opinions typically uphold claims that specify some kind of technical solution that is an improvement to the computer or network itself. Now when I refer to technical improvement, or an inventive contribution in the context of an abstract idea inquiry, it's important to stress that I'm not suggesting that a patent claim has to be novel and non-obvious to pass mustard under Section 101. I'm just saying that claims need to state something specific that the inventor contends is his technical improvement, and perhaps future cases in our court will present opportunities to identify other forms of inventive concepts for this technical area, but we'll have to wait and see. There's a related validity doctrine, the written description doctrine, that likewise forces an inventor to put on a cast to establish why he or she is an inventor of what the patent is actually claiming. The 1840 Wyeth versus Stone opinion could easily be understood as a written description invalidity case in that Mr. Wyeth did disclose in his patent a particular machine for cutting ice, but his claimed overreached by covering all means of cutting ice, and so therefore such a claim does violate the written description doctrine because Mr. Wyeth did not disclose all ways of cutting ice, and he was only entitled to claim the embodiment he disclosed. Until fairly recently, written description concerns were raised predominantly for patents in the life sciences field, but now the Federal Circuit is seeing written description challenges in technologies across the board much more often as functional claiming is so prevalent in granted patents of all kinds. With Section 101 challenges as well as more frequent written description attacks, I see patent owners and applicants under much more pressure these days to explain and prove, not in a legal burden of proof way, but in more of a rebuttal manner, that they in fact have an inventive concept stated in the claims and that the claim scope appropriately corresponds to their inventive contribution and does not overreach by claiming territory they never invented. While patent claims are always highly motivated, patent applicants are always highly motivated to gain the broadest scope of coverage they can, it is my hope that today's patent applicants are drafting their applications with an eye towards avoiding the problems some previously-granted patents are currently suffering from, so that when they do go before patent examiners, the patent board and courts, they can point to something in the claims that expresses their inventive work, and likewise they can show why the claim scope does correspond to the scope of their written descriptions. Shifting gears toward patent damages law, I'll have to admit that I don't claim to be an expert on patent damages law because we just don't get that many patent damages cases anymore at the Federal Circuit. This is an area with several different rabbit holes. There's lost profits, entire market value rule, ex-ante hypothetical negotiation, apportionment, comparable licenses, non-infringement alternatives, and so on, but I'd like to just offer a few observations about a couple of those things. First, when I was an attorney at the patent and trademark office for 15 years, I didn't really pay attention to the damages question. I didn't have to, but I'd always assume that damages calculations would be based on some very rigorous economic-faced data-driven inquiry with lots of hard numbers entering into a mix of complex algorithms, but so far this is not what I've seen. The cases tend to boil down to reliance on a few patent licenses that act as a stand-in or a benchmark for what we theorize would have occurred in a hypothetical negotiation between the patent owner and the accused infringer, and the proposed comparable licenses invariably arise in different contexts, and sometimes are not even for the same patents that are being litigated, and so the various differences between the relied-on licenses and the hypothetic license need to somehow be accounted for, whether because adopting the comparable licenses would overvalue or undervalue the damages from patent infringement. After reviewing these kinds of cases, I've just had to learn to get comfortable with the reality that calculating the value of an infringer's use of patented technology involves sometimes a considerable degree of approximation and uncertainty. One interesting rule is that the hypothetical negotiation assumes that the asserted patent is valid and infringed. That assumption and the law seems to be in direct contrast with real-world licensing negotiations, in which a patent owner typically has to discount the value of its patent due to the possibility of losing on validity or infringement, which seems to suggest, assuming all things being equal, that real-world licenses may be lower than a license reached from the so-called hypothetical negotiation. There are other considerations, however, that make an alleged comparable license too high as evidence of the value of the patented technology. For example, when it comes to settlement agreements in a patent lawsuit, the litigation costs may loom large in a party's decision to settle. Another obvious concern is that litigation settlements are obtained under the specter of a possible injunction against the defendant, who has already sunk considerable costs into its products and is exposed to the costly possibility of needing to switch over to creating a new line of products, whereas with an ex-ante hypothetical negotiation, the assumption is is that the defendant hasn't yet sunk in all those costs yet. Other problems with reliance on comparable patent licenses is that a patent owner may rely on a license to an entire portfolio, but the litigation at hand concerns only one or two of the portfolios' patents, and the portfolio encompasses a range of different technologies, so then a patent damages expert often has to do quite a few adjustments to a patent license that on its own really isn't comparable at all to the hypothetical negotiation at stake in order to make it representative. We have said that reliance on partially-analogous licenses goes to the weight of the evidence, not to the admissibility, and although we have affirmed damages verdicts within perfect evidence like this, it does make one wish for and wonder whether better evidence could have been available to arrive at a reasonable royalty. When I look at the Georgia Pacific factors framework, it looks like and feels like a grab-bag of 15 factors that don't collectively channel a fact finder in a coherent way to reach a result. When all of them are presented to the jury, which is often, they feel too unfocused and unproductive, and each of the factors really need further explanation to avoid any jury being misled. In fact, jury instructions as a general matter are often too long and difficult to comprehend. My concern is that such lengthy and laborious-to-read instructions may do a disservice to juries in their ability to logically and accurately make decisions on the issues they confront. Overly-long instructions seem to be adopted at times just because they had been previously blessed by the PELA courts, but I think the Federal Circuit would be, and in fact has been open to instructions that are more focused, doing away with discussion of extraneous factors and considerations. Getting back to the Georgia Pacific factors, I do find it a bit peculiar that the loan factor devoted to apportionment appears at number 13 of the 15 factors, and it seems to me that the incremental value contributed by the patented technology to the accused product should be front and center rather than buried in the back of the inquiry, and factors relating to comparable licenses can benefit from identifying some of the more common problems that require adjustment. Factor number six relating to convoyed sales is a form of the entire market value rule, and I think the Federal Circuit has made pretty clear by now that patent owners cannot rely on such a damages theory unless a demand for the entire product is attributable to just the patented feature. It seems to me that just about every case aught to simply the Georgia Pacific inquiry by using few factors and then offering more precise explanation as to the meaning of each of the smaller number factors. In the end, development of the law on proof requirements for patent damages just hasn't been as robust as in other areas of the law, probably in part for a few different reasons. First, the court doesn't get that many damages cases as compared to, say, Section 103 or Section 101, because we issue dozens of opinions in each of those areas annually. Second, it's just a hard area of the law to pin down beyond articulating broad principles and guiding frameworks. For example, it can be very difficult for the Federal Circuit to rule that a district court judge abused his or her discretion when the judge finds that the probative value of an expert's report or an alleged comparable license is substantially outweighed by unfair prejudice, likewise a different judge on identical facts could come out the opposite way and would again be difficult for the Federal Circuit to overrule that choice by that second judge due to the differential standard of review. That's not to say that district court judges on whether to admit evidence are totally un-reviewable. We have in the past occasionally found the district court did abuse its discretion perhaps because a particular patent license admitted into evidence lacked any relation to demonstrating economic demand for the patented technology. Another example is where the Federal Circuit repudiated that so-called 25% rule of thumb as a starting point for licensing negotiations, but the point I'm making is that the Federal Circuit is somewhat limited in its ability to standardize this area of the law due to the fact that we review several choices either for abusive discretion or under substantial evidence standard. Another problem is that damages calculations are just incredibly fact-dependent and its circumstances vary to such a degree, that we has a court have to be mindful to avoid unduly rigid categorical rules. Instead we have to ensure that a flexible enough frame work exists to allow parties to make their cases based on the available evidence, and it is then up to the parties to identify weaknesses in the other side's position, whether it is in the strength in the evidence, the logic behind its calculations, or the assumptions it relies on. For example, as to apportioning through the base or the rate when an infringing product contains many non-infringing components. While we have warned against creating a damages model based on the defendant's entire product as the royalty base, as opposed to, say, the smallest saleable unit, we have also said that the objective of apportionment can be achieved in different ways, and that is why our court has not outlawed the usage of comparable licenses that cover the overall end-product, even thought the patented feature was just part of a component of that end-product. Such licenses can be admissible where the damages expert demonstrates that the comparable license itself was based on the apportioned value of the patented technology to the overall product. To wrap up, I've tried to identify just a few still-murky areas the court is looking to address to help improve accuracy, as well as predictability in areas of proof that patent owners must confront, and the cases we face present a never-ending stream of opportunities to incrementally move the law forward, and we always appreciate receiving amicus briefs from the academy. Thank you to NYU for inviting me back, and thank you for your attention.
- [Michael] Thank you Judge Chen. I told Judge Chen before he started that, I asked if he wanted to take questions, and I told him that he could have the same rule that Judge Leval had yesterday which was, yes, if they're easy. If you have, we have time for one or two questions. If you have an easy question for Judge Chen, please use the mic, and I'll let him be the arbiter as to whether or not your question meets that standard.
- You can ask anything you want. It just depends on whether I want to answer it or not.
- [Man] You may or may not want to answer it. You talked about Section 101 and abstract ideas, and I was just, this past semester, teaching patent law to students, and in Section 101 with more in the life sciences area where laws of nature, we could not articulate a rule to harmonize the various Federal Circuit cases, and I'm just wondering if you could offer any clarity of ways of looking at it that maybe somebody could end up with some kind of a test?
- Thank you for the question. The question is can a rational human being draw a straight line through the Federal Circuit cases on Section 101, or maybe any area of the law? Yeah, I think the official answer is yes, but I think of course it depends on really what we're talking about. If we're talking about diagnostic claims, for example, I think the answer if definitely yes because we keep affirming invalidity rulings on those, so there is no conflict there. When it comes to treatment methods, I think also there's uniformity there. We're finding all of those to be patent-eligible so far. Is there a meaningful distinction between treatment methods and diagnostic methods? That's harder to answer. I think right now the Federal Circuit precedence so far, these are all panel decisions, would say yes, it's a meaningful-enough distinction that adding the treatment step at the end is something significantly more, in the words of Justice Breyer. Is it really something significantly more? I think, to be honest, the Federal Circuit is guessing a little bit. We can't know exactly what the Supreme Court is thinking when they give us these principles that are stated a very high level of generality, but we're doing our level best to try to reach a reasonable framework to understand what they've told us to think about in terms of the law of nature natural phenomenon exception. I think there's, I understand the arguments that go different ways on this, but I will say that when it comes to the diagnostic methods, I'll say to all of this area, the judges, to a person, are taking all of this very seriously. Everybody understands that at a gut-instinct level, whether it's a treatment method or a diagnostic method, in a broad policy way, these kinds of discoveries, invention, innovations, whatever you want to call them, feel like they are right within the main line of what the patent system is for, to induce that kind of risky, expensive, unpredictable research and development to provide these kinds of important benefits to society. On one level you would say, intuitively, the patent system ought to be there for protecting and incentivizing this kind of research, but at the same time, we are where we are with cases like Mayo and Myriad, and so if there's one thing that all courts look at and understand uber alles is stare decisis, and so if we're going to have a coherent judiciary, we have to maintain and follow precedent, or else we're just gonna have chaos if we're zig-zagging all over the place, panel to panel, court to court, on various doctrine. I don't know if I just ran out the clock here, but I think if you had something more specific in mind, that's what my answer to you is on the perceived conflict in Federal Circuit case law on life sciences in Section 101.
- [Michael] Great, thank you. Please join me once again in thanking Judge Chen.