Is the State of Patent Eligibility Law Driving Away Investment in the United States?

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Warren Buffett – one of the most famously successful investors of all time -- once said: “Never invest in a business you cannot understand.” And Peter Lynch, another one of the world’s all-time top investors said: “Never invest in an idea you can’t illustrate with a crayon.” When the U.S. Court of Appeals for the Federal Circuit (CAFC) rules that a digital camera is an “abstract idea” and therefore constitutes patent-ineligible subject matter, even a lay person will immediately know that something is wrong with the state of patent eligibility law under Section 101 of the Patent Act. This threshold aspect of U.S. patent law has long ago ceased being capable of “illustration with a crayon,” and has surely progressed to the point where no rational person can understand it. Will investors follow the advice of Buffett and Lynch, and turn away from patent-reliant businesses? Have they already begun doing so? Will the flight of investment money away from patents accelerate? All of these consequences seem to be inevitable unless the U.S. Supreme Court or Congress fix the problem.[1] 

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In Yu v. Apple Inc.,[2] a 2-1 split 3-judge panel of the CAFC affirmed a district court’s dismissal of a patent infringement complaint on the basis of patent subject matter ineligibility under 35 U.S.C. § 101. The CAFC agreed with the trial judge that claims reciting “An improved digital camera” and its component image sensors, lenses, and associated circuitry for a digital camera using two lenses and sensors are directed to the abstract idea of using one image to enhance another.  This holding rightfully earns derisive laughter from lay people, and that is not good for patents, patent law, or the patent system, generally. To many patent lawyers, it is simply one more compounded error built upon a “card house” of previous CAFC mistakes in the court’s interpretation, implementation, and application of the U.S. Supreme Court’s 2014 Alice decision.[3] The CAFC has well and truly taken us on a journey down the Alice “rabbit hole.”

To understand how far astray the CAFC has wandered from common sense, one need only compare the actual language of Yu’s now-invalid claim 1 to the majority’s characterization of that claim. Here is the claim in its entirety:

The majority agreed with the trial judge’s conclusion that claim 1 “is directed to the abstract idea of taking two pictures (which may be at different exposures) and using one picture to enhance the other in some way.” As noted, however, the CAFC’s decision was not unanimous; Circuit Judge Newman has not “drunk the Alice Kool-Aid” on which her colleagues seem hopelessly intoxicated. Judge Newman begins her dissenting opinion by explaining what should seem to be clear enough common sense to any rational person:

It may come as a surprise to read the famous words of the U.S. Supreme Court in the 1980 decision Diamond v. Chakrabarty regarding patentable subject matter eligibility under Section 101:[4] when the Patent Act of 1952 was enacted into law (and it has not changed since then), Congress “intended statutory subject matter to ‘include anything under the sun that is made by man.’” An improved digital camera surely and easily satisfies both criteria. Moreover, the Supreme Court warned at that time that when analyzing patent subject matter eligibility under Section 101 of the Patent Act, “courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’” It might come as a bigger surprise to realize that Diamond v. Chakrabarty has not been overruled or legislatively superseded, and remains good Supreme Court law today, albeit in theory only and not in practice under current CAFC precedent.

It would have been bad enough had the CAFC only affirmed a district judge’s ruling that a digital camera is an abstract idea. But wait – there’s more! Embarking on its claim dissection in search of “something more” under Step 2 of its Alice analytical framework, the majority explained that the claimed digital camera is really nothing more than the abstract idea of enhancing photographs because using multiple pictures to enhance each other has been known by photographers for over a century, and the claims recited only generic and conventional, well-understood, routine components to apply the abstract idea. Where in Section 101 did Congress express these “limitations and conditions” on patentable subject matter eligibility? There is nothing of the sort, a point – perhaps the main point – forcefully argued in the remainder of Judge Newman’s dissenting opinion in Yu v. Apple.

On the one hand, CAFC precedent tells us that when a patentee defends subject matter eligibility of her patent claim, the fact that the U.S. Patent and Trademark Office found the claimed subject matter both novel and nonobvious is irrelevant. Yet when the alleged patent infringer challenges that same claim under Section 101 as being directed to patent-ineligible subject matter, it is highly relevant that the claim recites only generic and conventional, well-understood, and routine components – all of which are considerations of novelty under Section 102 and nonobviousness under Section 103 of Title 35, United States Code. The CAFC is simply playing a classic “heads, I win; tails, you lose” game, unwinnable by the patentee. As Circuit Judge Newly succinctly stated: “A device that uses known components does not thereby become an abstract idea [under Section 101], and is not on that ground ineligible for access to patenting.” And, “Section 101 ineligibility does not arise simply because a device embodies minor and predictable differences from the prior art, as the majority holds.”

The economic impact of Alice and its CAFC progeny on investment in technology in the United States cannot be overstated. In 2017, just three years after Alice was decided by the Supreme Court, commentators published a law review article about the effect of Alice on the U.S.’s position in the global competition for cutting edge technological investment and advancement; they titled the article, “Turning Gold Into Lead: How Patent Eligibility Doctrine Is Undermining U.S. Leadership In Innovation.”[5] The situation has only gotten worse since then, as Circuit Judge Newman observed:

Soon after the Inter Partes Review (IPR) system was created by the Leahy-Smith America Invents Act in 2011, the Patent Trial and Appeal Board’s (PTAB) rate of invalidating challenged patents in IPRs was relatively high. Failing to acknowledge that the weakest patents were the first to be challenged, some stakeholders loudly call for the courts and Congress to both substantively and procedurally “fix” the “patent death squad” (i.e., the PTAB). Where are the loud calls today to “fix” the CAFC’s inconsistent and unpredictable Section 101 jurisprudence, which has already done and will continue to do far more damage to the U.S. patent system than anything the PTAB “patent death squad” could ever do, by orders of magnitude? Whether, and if so, when, common sense will be restored to Section 101 jurisprudence is anyone’s guess.

Finally, it is worth noting that in its Final Report[6] issued March 19, 2021, the U.S. National Security Commission on Artificial Intelligence singled out the legal uncertainties in current U.S. patent eligibility doctrine as a national security concern:

There is no more urgent problem needing fixing in the U.S. patent system than the CAFC’s misunderstanding and misapplication of 35 U.S.C. Section 101 and Supreme Court precedent concerning patent subject matter eligibility.