1. USA and Canada Updates Presentation on behalf of FICPI Douglas N. Deeth President, Communications ACTING FOR THE IP PROFESSION WORLD WIDE

2. What’s New in North America USA – Computer-implemented inventions – Myriad decision and implementation by USPTO Canada – Utility of an invention and the promise of the patent

3. Computer-Implemented Inventions 35 U.S. Code § 101 – Whoever 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 therefor, subject to the conditions and requirements of this title.

4. US situation CLS Bank vs. Alice Corp. – Method, system and computer-readable medium claims directed to techniques for mediated settlement were not patent-eligible i.e. not within § 101 – Two part test for patent eligibility Is the claim “drawn to” a patent-ineligible abstract idea? If so, is the claim directed to “significantly more” than the abstract idea?

5. US History – How did we get here? Benson 1972 – Computer implemented method for converting binary coded decimal to pure decimal not patentable Diehr 1981 – Method for using computer to determine when to open a rubber mould was not patentable. State Street 1998 – Business methods patentable

6. Changing Tide Bilski, Mayo, Myriad (US Supreme Court) – Slightly changing positions on patent eligibility of claims to more “abstract” concepts – Rejection by US Supreme Court of the “useful, concrete and tangible result” test of State Street – Endorsement of the “machine or transformation” test as a “useful and important clue, an investigative tool” for assessing patentability – Not clear what is a “business method”

7. CLS Bank v Alice Corp Pty Ltd (Trial) CLS sought a declaratory judgment of non- infringement with respect to three patents owned by Alice. – The patents included method-, system- and computer-readable-medium claims for a method of exchanging financial obligations – method used a shadow credit record and a shadow debit record to ensure that the parties have the required funds available at the time the obligations are to be exchanged.

8. Declaratory Judgment Some of the method claims, such as claim 33 in US Patent No 5,970,479, did not recite any computer or other hardware elements. The District Court found, in a summary judgment, that all the asserted claims were invalid as being nothing more than abstract ideas.

9. Bancorp Services v Sunlife Assurance 2011 Lower Court – summary judgment: – Bancorp’s claims failed the machine-or- transformation test. – the specified computer components were no more than objects on which the claimed methods operate – steps of tracking, reconciling and administering the life insurance policy could be performed manually.

10. Bancorp Claims The Court also found that – the claims merely converted raw data into more data and therefore did not effect a transformation. – The invention claimed abstract ideas The Court compared Bancorp’s claims with claims rejected on the same basis by the US Supreme Court in – Bilski v Kappos, 130 S Ct 3218 (2010), – Gottschalk v Benson, 409 US 63 (1972) and – Parker v Flook, 437 US 584 (1978).

11. Bancorp v Sunlife (Appeal) Central issue: whether Bancorp’s claims cover more than abstract ideas. Appeals Court: – role of the computer must be integral to the invention, facilitating the process in a way that could not be performed manually. – Found that Bancorp used a computer to perform routine calculations and not in a manner that would meaningfully limit the scope of the claims

12. CLS v. Alice (CAFC 1) 2 -1 decision of the US Court of Appeals for the Federal Circuit (Appeals Court) Court was aware of the uncertainty around the “abstract idea” test: – “The abstractness of the ‘abstract ideas’ test to patent eligibility has become a serious problem, leading to great uncertainty and to the devaluing of inventions of practical utility and economic potential.”

13. The Majority Decision Did not try to define the term, but required it to be – “manifestly evident that a claim is directed to a patent ineligible abstract idea.” The court cannot “hunt … for abstractions by ignoring the concrete, palpable, tangible, and otherwise not abstract invention the patentee actually claims”, but must take into account all the recited and implied claim limitations.

14. The Result (1) The majority in the Appeals Court found that: – the claims covered a practical application of a business concept in a specific way that requires computer-implemented steps. – the limitations (in the claims) left broad room for other methods of using intermediaries to facilitate exchanges, and – the claims were drawn to statutory subject matter.

15. CLS Bank v Alice (CAFC en banc) All 10 judges of the Appeals Court re-heard the appeal 5-5 split decision (result: restored trial decision) Claims covering a computerized system for managing risk in financial transactions were invalid on the basis the computer-implemented limitations did not disclose significantly more than an abstract idea

16. Five Judges Favouring Invalidity A patent-eligible claim: – must disclose a process, machine, manufacture, or composition of matter and – must not be drawn to a law of nature, a natural phenomenon or abstract idea. – must provide a substantive limitation over an abstract idea and give rise to a practical effect and – should be assessed flexibly and pragmatically, in a manner adaptive to technological advancement.

17. Judges favouring Invalidity (2) Rejected the method claims: – the added steps of “creating shadow records” and “using a computer to adjust and reconcile the records” provided no substantive limitation over the abstract idea of “reducing settlement risk by effecting trades through a third party intermediary”.

18. Judges favouring Invalidity (3) Rejected the system and device claims: – not substantively distinguishable from the method claims, because the computer elements were described too broadly, – covered any device capable of performing the steps recited in the method claims.

19. Judges Favouring Validity Found the system claims were patent-eligible: – the claims disclosed physical and structural limitations specifically adapted to solve a complex problem. – the limitations were not inherent in the abstract idea – it would be improper for the court to ignore the limitations and decide patent eligibility by assessing the “gist” or “heart” of the invention.

20. Disagreement on Method Claims Chief Judge Rader and Judge Moore rejected the method and device claims as ineligible – those claims merely limited the concept of an escrow in a particular field and did not add a substantive limitation to an abstract idea. Judges Linn and O’Malley held the method and device claims were patent-eligible: – they included the same substantive limitations present in the system claims.

21. Judge Newman’s Reasons In separate reasons, Judge Newman upheld the eligibility of all the claims The concern underlying claiming an abstract idea was truly a concern of overbreadth of the claim, and that question should be evaluated separately from patent eligibility, under sections 102, 103 or 112 of the Patent Act.

22. Chief Judge Rader’s Comments Regretted the lack of certainty in recent case law on patent eligibility, – attributed to a misguided assessment of inventiveness under the “abstract idea” exemption. This uncertainty could be resolved by keeping the inventiveness and patentability analyses separate and focusing the eligibility analysis on the language of the Patent Act.

23. Chief Judge Rader’s concerns Lack of certainty may stifle innovation and is ripe for judicial re-consideration:

24. Quote from Judge Rader “Holding that all of these claims are directed to no more than an abstract idea gives staggering breadth to what is meant to be a narrow judicial exception.” “If all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.”

25. Alice at the US Supreme Court June 19, 2014, unanimous 9-0 decision The patent claims at issue in Alice were not patentable, as they were drawn to a patent- ineligible abstract idea. First, the Court observed that: – laws of nature, natural phenomena, and abstract ideas are implicit exceptions from the subject matter eligible for patent protection under section 101 of the US Patent Act.

26. USSC Reasons for Exclusion The concern driving the exclusion of this subject matter was to avoid monopolization of these “building blocks of human ingenuity”. However, the USSC noted it should “tread carefully in construing this exclusionary principle lest it swallow all of patent law.” The Court then applied the test in Mayo vs. Prometheus

27. The test in Mayo v Prometheus The first step of the test requires that the claims at issue be directed to one of the categories of patent-ineligible subject matter. If yes, the second step of the analysis requires considering whether the additional elements of the claim are sufficient to transform that abstract idea into a patent-eligible application.

28. Application of the Test Applying that test the USSC found that: – the claims were directed to an abstract idea they were drawn to intermediated settlement, which is a “fundamental economic practice”. – the additional elements of the claims were not sufficient to “transform” the abstract idea into a patent-eligible application, the method claims merely required generic computer implementation of the abstract idea and did not cover patent-eligible matter.

29. USSC on Computers and Patentability The use of a computer to improve an existing technological process could be patentable subject matter However, given the ubiquity of computers, merely reciting generic computer implementation to turn an abstract idea into patent-eligible subject matter would permit monopolization of the abstract idea by a drafting exercise.

30. Fall in Patent Litigation The number of new patent cases filed in Federal Court has dropped by a significant 40% as compared to this time last year. – 548 cases filed in September 2013 – 329 cases filed in September 2014 Steady decline in patent infringement filings Many “business method” and other computer-implemented patents being held invalid

31. I/P Engine, Inc v AOL Inc Patent claims directed to Internet search filtering methods using both content-based and collaborative-based searching Trial Court - patents valid and infringed; damages award of $30 million.

32. I/P Engine on Appeal On appeal, the majority of the CAFC reversed Judge Mayer applied Alice v CLS – claims were patent-ineligible on the basis that the inventive concept was “non-technological” and related simply to techniques for organizing information. – patent eligibility required advances that are “significant and well-defined” – the application of an idea in a claim must be clearly limited, particularly in the field of software inventions

33. Concerns about Specificity The need for specificity is particularly acute in the software arena where claims tend to be exceedingly broad development proceeds at breakneck speed, and innovation often occurs despite the availability of patent protection rather than because of it.

34. Planet Bingo LLC v. VKGS LLC CAFC, August 2014, – The patents at issue lacked eligible subject matter under 35 USC §101. The method and system claims recite – storing a player’s set (or sets) of bingo numbers, – retrieving that set and playing that set in a game of bingo, – while simultaneously tracking the bingo sets, tracking player payments and verifying winning numbers.

35. Bingo Claims The Court found that these claims “consisted solely of mental steps which can be carried out by a human using pen and paper.” Consequently, in the Court’s view, the patents’ claims recited nothing more than a patent-ineligible abstract idea Planet Bingo’s argument that it was impossible for the method to be performed mentally by a human, finding that the claims were not limited to an application involving such vast numbers.

36. Planet Blue vs. Activision September 22, 2014, US District Court, California Planet Blue asserted claims of U.S. Patent Nos. 6,307,576 and 6,611,278 against several gaming companies District Court held the asserted claims invalid – they were directed to an abstract idea – pre-empted the field of autonomic lip synchronization for computer-generated three-dimensional (3D) animations using a rules-based morph target approach.

37. Comments on Patent Drafting The patents themselves provided a ‘casual’ and ‘honest’ description of the prior art that demonstrated how the majority of the claimed elements were previously known. Judge Wu remarked: – “[o]ne unintended consequence of Alice, and perhaps of this and other decisions to come, is an incentive for patent applicants to say as little as possible about the prior art in their applications.”

38. Planet Blue Claims not Specific Claims failed to recite any specific default correspondence rules used to achieve the automatic lip and facial synchronization. Instead, the user would have to manually set up the default correspondence rules prior to implementing the method. The claims merely stated “an abstract idea while adding the words ‘apply it’.” Use of the default correspondence rules was the inventive concept; the claimed default correspondence rules were merely an abstract idea.

39. More Invalidity Findings Since Alice v CLS Bank, US courts have invalidated eleven software patents as patent- ineligible under 35 USC 101, and have not ruled a single software patent to be patent- eligible. The invalidated patents were directed to computer implemented methods which have been routinely implemented without a computer.

40. BuySafe Inc v Google Inc The CAFC invalidated claims directed to methods for guaranteeing a party’s performance of an online commercial transaction. Claim 1 recited a method in which – (1) a provider’s computer receives a request from a requesting party to perform the transaction, – (2) the computer processes the request by underwriting the requesting party to guarantee the transaction, and – (3) the computer offers a transaction guaranty that binds to the transaction upon closing.

41. BuySafe Inc v Google Inc (2) The CAFC held that the claim was directed to an abstract idea because – it merely described a transaction performance guaranty, which had been known for centuries, and – the use of a computer to implement the transaction was too generic and added nothing inventive.

42. Eclipse IP v McKinley Equipment U.S. District Court, California Two patents directed to a computer implemented notification system. Court observed that – The patents claimed the abstract steps of “asking someone if they are available to perform a task and then either waiting for them to complete it or contacting the next person”. – these steps have been performed for decades using telephones – performing the same steps on a computer did not render those steps patent-eligible.

43. Association for Molecular Pathology v. Myriad Genetics US Supreme Court, June 2013 – Isolated naturally occurring sequences of genomic DNA (gDNA) are not patentable – Possibly patentable: Complementary DNA (cDNA) – synthetic DNA containing same protein-coding information as a segment of natural DNA Novel methods of manipulating genes or applying information from genes

44. Myriad’s Patents Myriad developed a test to detect an increased risk of breast and ovarian cancer based on mutations in the BRCA1 and BRCA2 genes of a patient Patents claimed isolated DNA having the genetic sequence of those genes and cDNA created from that DNA. Researchers, patients and advocacy groups sought a declaration of invalidity.

45. The Lower Court Decisions A US District Court granted the declaration – isolated DNA was not distinct from naturally- occurring DNA and therefore was unpatentable. Appeals Court reversed the District Court – isolated DNA was patentable on the basis that its chemical structure was distinct from naturally- occurring DNA.

46. Myriad at the Supreme Court Myriad’s claims to isolated DNA were invalid – unpatentable on the basis there was no difference between the genetic information encoded in isolated DNA and that of naturally-occurring DNA. – any differences in chemical structure between the two forms of DNA were insignificant so far as patentability was concerned – Myriad’s claims focused on the genetic information encoded in the DNA and not the chemical structure of the isolated DNA.

47. Isolated vs Natural DNA The Court further held that isolated cDNA was distinct from naturally-occurring DNA, and was therefore patentable: – “…[t]he lab technician unquestionably creates something new when cDNA is made. cDNA retains the naturally occurring exons of DNA, but it is distinct from the DNA from which it was derived. As a result, cDNA is not a “product of nature” and is patent eligible under §101,...”

48. Mayo v. Prometheus Labs US Supreme Court invalidated two patents for the administration and use of thiopurine drugs to treat auto-immune diseases, ruling that the patents claimed a law of nature which was un-patentable subject matter under 35 USC §101. 35 USC §101

49. Prometheus Claims Processes that determine the correct dosage for an individual patient – (1) “administering” the drug to the patient; – (2) “determining” the resulting metabolite levels in the patient’s blood; and – (3) a “wherein” step, comparing the patient’s metabolite level against known metabolite levels, and then adjusting the dosage on the basis of the comparison.

50. Prometheus, US Supreme Court Patents were invalid because the claims merely embodied a natural law, and did not set forth an inventive concept that transformed the natural law into a patentable invention. The “administering step” simply identified the relevant audience; the “determining” step was a routine, pre-solution activity; and the “wherein” steps merely suggested that the physician should take natural laws into account in treating patients.

51. The Court’s Observations The claimed process, when viewed as a whole, did not add anything significant beyond the sum of the steps taken separately. – “[i]f a law of nature is not patentable, then neither is a process reciting a law of nature, unless that process has additional features that provide practical assurance that the process is more than a drafting effort designed to monopolize the law of nature itself.”

52. USPTO Guidance On March 4, 2014 the USPTO issued – Guidance for Determining Subject Matter Eligibility for Claims Reciting or Involving Laws of Nature, Natural Phenomena, & Natural Products Guidance for Determining Subject Matter Eligibility for Claims Reciting or Involving Laws of Nature, Natural Phenomena, & Natural Products – to guide patent examiners when making determinations on subject matter eligibility after the considerable new statements of law in Prometheus and Myriad Prometheus Myriad

53. What the Guidelines Do Examiners will assess any machine, composition, manufacture or process claim that might “recite or involve” a naturally occurring thing according to a factor-based analysis. The examiner will determine the subject matter to be patent-eligible only if, after that analysis, the claim is “significantly different” from that naturally occurring thing.

54. The Analysis The analysis stage – whether and to what degree a claim includes (i) steps or elements added to a natural law or product that result in its application in a significant way, or (ii) features or steps that create a demonstrable difference from what exists in nature. – Examiners are to weigh the factors (12 in all) and determine on balance if the subject matter is significantly different.

55. Effect of the Guidelines A significantly new process for patent applicants to navigate. Claims involving natural materials or functions are assured closer scrutiny. The concepts of balancing and examiner discretion allow for some finesse in making your case.

56. FICPI’s Submissions to USPTO Guidance is a positive step – Bring uniformity to examination of applications – Remove ambiguity for examiners and applicants However, Guidance over-reaches with respect to holdings in Prometheus and Myriad – Will discourage foreign applicants – Will discourage investment in research – Does not consider USSC decisions as a whole

57. FICPI’s Position Isolated natural product may be patentable if: – Different use from naturally occurring products – Provides “enlarged range of utility” – Exhibits “different effect” – “Improves in ay way” the natural function – Serves any other ends – Acts together with another component and resulting function or property is dependent on the effort of the patent

58. Canada – Promised Utility Canadian Patent Act, section 2 Invention = Any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter.

59. Level of Utility Required Depends on the invention and the patent – No specific level of utility is required – If the patent does not promise a specific result, a “scintilla” of utility is enough Sometimes invention relates to new or unexpected utility or advantage over prior art – Where the patent promises a particular utility, then the utility required is measured against that promise.

60. Problems in Interpreting Patent What utility does the patent promise? – Interpretation of the patent Does the invention (as claimed) satisfy that promise? – Did the patentee have data at the filing date that demonstrated the utility – If not, could that utility be soundly predicted from the work of the inventors?

61. Apotex v Wellcome (AZT) The promised utility could be supported by: – Data available to the patentee at the date of filing Need not be disclosed in the patent – A sound prediction A factual basis for the prediction, set out in the patent An articulable and sound line of reasoning, based on the disclosed facts, from which it can be inferred that the promise has been satisfied Assessed at the filing date of the application

62. Eli Lilly vs Novopharm Federal Court of Appeal, 2010 (Olanzapine) – …the promise of the patent is to be ascertained at the outset of an analysis with respect to utility. The promise is to be construed by the trial judge within the context of the patent as a whole, through the eyes of the person skilled in the art in relation to the science and information available at the time of filing. The promise of the patent is fundamental to the utility analysis.

63. Servier vs Apotex Federal Court of Appeal, 2009 (Perindopril) – ACE inhibition vs. treating hypertension Promise: – …all of the compounds claimed will have some level of ACE inhibition and some of the compounds will have sufficient activity to treat hypertension and cardiac insufficiency. – The trial judge found that therapeutic use was possible, but not guaranteed, in the claims, and was upheld on appeal.

64. Sanofi-Aventis v Apotex (Plavix) Patent involved was a selection patent – enantiomer of a previously patented racemate Trial Judge: the ‘777 Patent promised use in humans not merely potential use in humans. That use had not been demonstrated but could be soundly predicted The factual basis for the sound prediction and the line of reasoning were not in the patent.

65. Federal Court of Appeal “The sticking point, in this case as in others, is to determine what it is that must be demonstrated or soundly predicted. This is where the notion of the promise of the patent comes into play.” Should not be assumed that every patent contains an explicit promise of a specific result.

66. Trial Judge Reversed The Trial Judge erred in construing the patent as specifically promising a result when the invention was used in humans and then assessing the utility of the patent against that specific promise. Properly interpreted, the ‘777 Patent made no such promise. As a result, the allegation that the patent was invalid for lack of utility ought to have been dismissed.

67. Leave to Appeal Granted Supreme Court of Canada granted Apotex leave to appeal. Several parties applied for leave to intervene, including AIPPI and FICPI. Apotex withdrew appeal in November, just before the scheduled hearing.

68. FICPI’s Intervention Emphasized importance of harmonization Utility test in Canada has led to a heavier burden on pharmaceutical patent holders in Canada Leads to uncertainty for patent holders and investors Level of utility required should be restored to a low level, regardless of utility promised.