Taxing the Patent Laws

This past October, Rep. Howard Berman (D. Calif.) introduced the Patent Quality Assistance Act of 2004 (H.R. 5299, the “PQA Act”). The PQA Act seeks to implement many of the recommendations of the much-publicized FTC (October 2003) and National Research Council (April 2004) reports. The bill has been referred to the Judiciary Committee, which is not expected to act on it before the end of the 108th Congress. Rep. Berman introduced the bill at the end of this Congress, however, “with the intent of framing the debate going into the 109th Congress.” 150 Cong. Rec. 1935.

This, of course, is not the first time Rep. Berman has proposed legislation affecting patents. On Oct. 3, 2000, for example, he introduced the “Business Method Patent Improvement Act of 2000″ (H.R. 5364, the “2000 BMPI Act”). On April 3, 2001, he introduced two bills, one having the same name and purposes as the 2000 BMPI Act (H.R. 1332) and the “Patent Improvement Act of 2001″ (H.R. 1333).

As some of the titles suggest, much of this legislation is directed at problems believed caused by business method patents. These bills would attempt to address these problems in various ways, but the solution advanced by the recent PQA Act is the most extreme. Section 8 of the PQA Act would add a new subsection (d) to 35 U.S.C '103 which would provide that a “business method invention shall be presumed obvious … if the only significant difference between the combined teachings of the prior art and the claimed invention is that the claimed invention is appropriate for use with a computer technology … ” (emphasis added). There would be an exception when the “ application of the computer technology is novel” or when “the computer technology is novel and not the subject of another patent or patent application.” The presumption would be rebuttable “upon a showing by a preponderance of the evidence that the invention is not obvious [sic; would not have been obvious] to persons of relevant skill in all relevant arts.”

In his remarks in support of the bill, Rep. Berman described this provision as being similar to that in the BMPI Acts. Those acts, however, would have lowered the standard, or quantum of proof, required to invalidate business method patents to a preponderance of the evidence. Recommendation 2 of the FTC report calls for a similar lowering of the standard for all validity challenges regardless of subject matter. The National Research Council report had no specific recommendation on this issue.

Thus, neither the BPMI Acts nor the FTC report suggested shifting the burden of proof, as does the proposed PQA Act. Shifting the burden is plainly a more radical proposal than simply lowering it, at least as far as business method patents are concerned.

Certain omissions from Section 8 of the PQA Act, such as of definition (“business method invention,” “appropriate for use with a computer technology”) and of precedence (with respect to the presumption of validity conferred by 35 U.S.C. '282) suggest that it may be intended as a straw in the wind, but that is not to say it should not be taken seriously. In the debate Rep. Berman hopes to frame, at least two questions will need discussion. The first is whether it could ever be appropriate to transpose the presumption of validity into a presumption of invalidity. The second is whether it is wise to single out one particular type of subject matter, such as computer implemented business methods, for this or any other type of special treatment under the patent laws.

Recommendation 2 of the FTC report has inspired commentary on the wisdom of lowering the standard of proof required to invalidate a patent. As many will recall, before the formation of the Court of Appeals for the Federal Circuit in 1982, the regional circuits differed on the standard of proof required to invalidate a patent. This variation sprang from the notion that the quantum of proof required for invalidation arises from a presumption of administrative correctness. Thus, if the PTO had not made at least an implicit determination on an issue during examination, such as patentability of a claim over a given reference, then there was no logical basis for requiring a higher standard of proof when deciding the validity of that claim over that reference.

Shortly after its creation, the Federal Circuit eradicated conditional lowering of the standard, consistently ruling that the burden is always on the party asserting invalidity, and that the burden cannot ever be met with anything less than clear and convincing evidence. (Of course, the statutory presumption of validity of 35 U.S.C. '282 merely allocates the burden and does not dictate a standard. The standard is purely the work of the judiciary.)

But no regional circuit before 1982 ever sought to turn the presumption against the patentee. The PQA Act proposes to do just that. Perhaps it is ultimately intended that the presumption of obviousness should apply only during prosecution, but the bill in its present form contains no such limitation. It is difficult to conceive, however, how this reverse presumption could be applied to an issued patent in litigation, especially against a patent where the presumption was applied and overcome in the PTO. So the answer to the first question is that perhaps business methods could be deemed prima facie obvious in the PTO, but there is no room for a reverse presumption against issued patents in litigation. A further question is whether the reverse presumption could be retroactively applied against existing patents without there being a taking. (A similar objection was raised unsuccessfully against re-examination, which for the first time involuntarily subjected issued patents to a lowered standard. But that is clearly a different case because the lowered presumption was a byproduct of being back in the PTO and did not affect the presumptions as applied in the district courts.)

Even if one can accept the notion of a reverse presumption, however, there remains the question of whether it would be appropriate to single out one class of subject matter for special treatment under the patent laws. This is perhaps the more basic question, and that with the more troubling long term ramifications.

To some extent, the question is moot because the patent statutes already provide for such disparate treatment. For example, 35 U.S.C. '103(b) already provides for differentiated treatment of obviousness as it pertains to applications claiming a biotechnological process as defined in that subsection. 35 U.S.C. '287(c) protects medical practitioners or related health care entities from infringement of a patent claiming a medical activity. In fact, business methods themselves have been singled out as the only subject matter vulnerable to the earlier inventor defense of 35 U.S.C. '273.

Selectively targeting computer implemented business methods with the reverse presumption is, however, different in kind and spirit from these examples. The special treatment of biotechnological process of 35 U.S.C. '103(b) is intended to enhance, rather than detract, from their patentability. 35 U.S.C. '287(c) is motivated more toward promoting public health than against patenting medical practices. And, while the earlier inventor defense can be said to evidence some antagonism toward business methods, 35 U.S.C '271(b)(8) attaches a heavy penalty (attorney fees) to its assertion without a reasonable basis. This last example is, however, the closest of the three.

The PQA Act unquestionably looses its reverse presumption on an unsympathetic victim. The patenting of business methods has come under harsh criticism ever since first sanctioned in State Street. But there is a danger of setting a bad precedent if subject matter which one group or another deems noxious is selectively isolated and attacked independently. There should be an extreme reluctance to complicate the patent law by singling out various kinds of subject matter for disparate treatment, whether that treatment is intended to be favorable or not. If that course is followed to its logical conclusion, then the elegant and principled statute imparted to us by the drafters of the 1952 Patent Act stands in danger of eventually mirroring the convolutions of the tax code.

This past October, Rep. Howard Berman (D. Calif.) introduced the Patent Quality Assistance Act of 2004 (H.R. 5299, the “PQA Act”). The PQA Act seeks to implement many of the recommendations of the much-publicized FTC (October 2003) and National Research Council (April 2004) reports. The bill has been referred to the Judiciary Committee, which is not expected to act on it before the end of the 108th Congress. Rep. Berman introduced the bill at the end of this Congress, however, “with the intent of framing the debate going into the 109th Congress.” 150 Cong. Rec. 1935.

This, of course, is not the first time Rep. Berman has proposed legislation affecting patents. On Oct. 3, 2000, for example, he introduced the “Business Method Patent Improvement Act of 2000″ (H.R. 5364, the “2000 BMPI Act”). On April 3, 2001, he introduced two bills, one having the same name and purposes as the 2000 BMPI Act (H.R. 1332) and the “Patent Improvement Act of 2001″ (H.R. 1333).

As some of the titles suggest, much of this legislation is directed at problems believed caused by business method patents. These bills would attempt to address these problems in various ways, but the solution advanced by the recent PQA Act is the most extreme. Section 8 of the PQA Act would add a new subsection (d) to 35 U.S.C '103 which would provide that a “business method invention shall be presumed obvious … if the only significant difference between the combined teachings of the prior art and the claimed invention is that the claimed invention is appropriate for use with a computer technology … ” (emphasis added). There would be an exception when the “ application of the computer technology is novel” or when “the computer technology is novel and not the subject of another patent or patent application.” The presumption would be rebuttable “upon a showing by a preponderance of the evidence that the invention is not obvious [sic; would not have been obvious] to persons of relevant skill in all relevant arts.”

In his remarks in support of the bill, Rep. Berman described this provision as being similar to that in the BMPI Acts. Those acts, however, would have lowered the standard, or quantum of proof, required to invalidate business method patents to a preponderance of the evidence. Recommendation 2 of the FTC report calls for a similar lowering of the standard for all validity challenges regardless of subject matter. The National Research Council report had no specific recommendation on this issue.

Thus, neither the BPMI Acts nor the FTC report suggested shifting the burden of proof, as does the proposed PQA Act. Shifting the burden is plainly a more radical proposal than simply lowering it, at least as far as business method patents are concerned.

Certain omissions from Section 8 of the PQA Act, such as of definition (“business method invention,” “appropriate for use with a computer technology”) and of precedence (with respect to the presumption of validity conferred by 35 U.S.C. '282) suggest that it may be intended as a straw in the wind, but that is not to say it should not be taken seriously. In the debate Rep. Berman hopes to frame, at least two questions will need discussion. The first is whether it could ever be appropriate to transpose the presumption of validity into a presumption of invalidity. The second is whether it is wise to single out one particular type of subject matter, such as computer implemented business methods, for this or any other type of special treatment under the patent laws.

Recommendation 2 of the FTC report has inspired commentary on the wisdom of lowering the standard of proof required to invalidate a patent. As many will recall, before the formation of the Court of Appeals for the Federal Circuit in 1982, the regional circuits differed on the standard of proof required to invalidate a patent. This variation sprang from the notion that the quantum of proof required for invalidation arises from a presumption of administrative correctness. Thus, if the PTO had not made at least an implicit determination on an issue during examination, such as patentability of a claim over a given reference, then there was no logical basis for requiring a higher standard of proof when deciding the validity of that claim over that reference.

Shortly after its creation, the Federal Circuit eradicated conditional lowering of the standard, consistently ruling that the burden is always on the party asserting invalidity, and that the burden cannot ever be met with anything less than clear and convincing evidence. (Of course, the statutory presumption of validity of 35 U.S.C. '282 merely allocates the burden and does not dictate a standard. The standard is purely the work of the judiciary.)

But no regional circuit before 1982 ever sought to turn the presumption against the patentee. The PQA Act proposes to do just that. Perhaps it is ultimately intended that the presumption of obviousness should apply only during prosecution, but the bill in its present form contains no such limitation. It is difficult to conceive, however, how this reverse presumption could be applied to an issued patent in litigation, especially against a patent where the presumption was applied and overcome in the PTO. So the answer to the first question is that perhaps business methods could be deemed prima facie obvious in the PTO, but there is no room for a reverse presumption against issued patents in litigation. A further question is whether the reverse presumption could be retroactively applied against existing patents without there being a taking. (A similar objection was raised unsuccessfully against re-examination, which for the first time involuntarily subjected issued patents to a lowered standard. But that is clearly a different case because the lowered presumption was a byproduct of being back in the PTO and did not affect the presumptions as applied in the district courts.)

Even if one can accept the notion of a reverse presumption, however, there remains the question of whether it would be appropriate to single out one class of subject matter for special treatment under the patent laws. This is perhaps the more basic question, and that with the more troubling long term ramifications.

To some extent, the question is moot because the patent statutes already provide for such disparate treatment. For example, 35 U.S.C. '103(b) already provides for differentiated treatment of obviousness as it pertains to applications claiming a biotechnological process as defined in that subsection. 35 U.S.C. '287(c) protects medical practitioners or related health care entities from infringement of a patent claiming a medical activity. In fact, business methods themselves have been singled out as the only subject matter vulnerable to the earlier inventor defense of 35 U.S.C. '273.

Selectively targeting computer implemented business methods with the reverse presumption is, however, different in kind and spirit from these examples. The special treatment of biotechnological process of 35 U.S.C. '103(b) is intended to enhance, rather than detract, from their patentability. 35 U.S.C. '287(c) is motivated more toward promoting public health than against patenting medical practices. And, while the earlier inventor defense can be said to evidence some antagonism toward business methods, 35 U.S.C '271(b)(8) attaches a heavy penalty (attorney fees) to its assertion without a reasonable basis. This last example is, however, the closest of the three.

The PQA Act unquestionably looses its reverse presumption on an unsympathetic victim. The patenting of business methods has come under harsh criticism ever since first sanctioned in State Street. But there is a danger of setting a bad precedent if subject matter which one group or another deems noxious is selectively isolated and attacked independently. There should be an extreme reluctance to complicate the patent law by singling out various kinds of subject matter for disparate treatment, whether that treatment is intended to be favorable or not. If that course is followed to its logical conclusion, then the elegant and principled statute imparted to us by the drafters of the 1952 Patent Act stands in danger of eventually mirroring the convolutions of the tax code.