A Meeting of the Patent Minds: Reconciling Patent Eligibility at the USPTO and Federal Circuit

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This past March, several commenters discussed two recent Federal Circuit decisions affirming claim rejections in several patent applications owned by Stanford University: Stanford I[1] and Stanford II[2]. The general commentary was focused on their relevance to biotechnology and machine learning inventions. While these cases are important for those reasons, the opinions may also be a significant and positive development for clarifying patent eligibility jurisprudence. To fully understand the importance of these decisions, a brief overview of several recent developments regarding 35 U.S.C. § 101 is helpful. 

Back in early 2019, the United States Trademark & Patent Office issued revised guidance regarding subject matter eligibility for examining patent applications.[3] One significant change in the guidance from previous examination practice was a new basis for finding a claim patent-eligible. More specifically, the USPTO now recognized an integration of an abstract idea into a “practical application” as an additional basis for overcoming a § 101 rejection. Under the second prong of the USPTO’s subject matter test, examiners should also evaluate whether a patent claim recites additional elements that integrate an abstract idea exception into a practical application of the exception. When the exception is integrated as such, then the patent claim is not directed to the abstract idea exception.  Once a practical application is found, the patent claim is deemed patent eligible and the examiner’s eligibility analysis is concluded.  More importantly, the USPTO noted that this practical application analysis “specifically excludes consideration of whether the additional elements represent well-understood, routine, conventional activity.”[4] 

For the historical legal basis of the revised guidance, the USPTO’s position harkens back to the Supreme Court case of Diamond v. Diehr.[5] In Diehr, the patent application at issue included a system with a digital computer that used an Arrhenius equation to manage curing time of a molding press.[6] The USPTO found a method of operating a rubber-molding press to be unpatentable in view of past Supreme Court precedents. However, the Court of Customs and Patent Appeals (i.e., the precursor to the Federal Circuit) reversed.  The appellate court found the claims directed to “solving a practical problem which had arisen in the molding of rubber products.”[7] Consequently, the Supreme Court agreed with the lower court and also found the claims patent eligible. Even though both the digital computer and molding press were already well-understood, routine, and conventional components at the time of invention, the Supreme Court found the claims patent-eligible by “implement[ing] or appl[ying] [a] formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect.”[8]

Following publication of the USPTO’s revised guidance, the Federal Circuit issued a decision on February 26, 2019, in Athena Diagnostics v. Mayo Collaborative that found a method for diagnosing neurotransmission or developmental disorders to be patent ineligible.[9] Subsequently, the Federal Circuit denied an en banc hearing of the Athena decision.[10] In its en banc denial decision, Circuit Judge Moore issued a dissenting opinion and argued that Supreme Court precedent and Section 101 of the statute clearly permit the eligibility of such inventions. In Judge Moore’s view, Supreme Court precedent simply requires judges to distinguish “between claims that recite a law of nature and simply add the words ‘apply it,’ and claims that recite a concrete application of a law of nature” in order to determine subject matter eligibility.[11] In contrast to Judge Moore’s opinion and three concurring dissenters, Circuit Judges Lourie, Reyna and Chen concurred in the en banc denial on the belief that they “are bound by Supreme Court precedent.”[12] Of these Federal Circuit judges, Circuit Judge Reyna is the author of both Stanford I and Stanford II. 

Returning to Stanford I and Stanford II, the patent claims at issue were directed to a method for resolving haplotype phase and a computerized method for interpreting genetic data, respectively.[13] At the Patent Trial and Appeal Board (PTAB), each PTAB panel applied the USPTO’s revised guidance and found the claims recited mental processes and mathematical concepts. In the absence of a treatment step, the end results of the claims were merely “providing data” and therefore not integrated into any practical application. Thus, the PTAB sustained the examiner’s Section 101 rejections for both patent applications.  

On appeal, the Federal Circuit agreed with the USPTO that the claims were not patent eligible. However, in an opinion by Circuit Judge Reyna, the court did something it hadn’t done before. Judge Reyna in Stanford I stated, “[c]laim 1 recites no steps that practically apply the claimed mathematical algorithm” and “Stanford fails to explain how that combination of elements moves the claimed subject matter beyond the abstract and into the practical.”[14]  In Stanford II, Judge Reyna further elaborated that the claims recite “generic steps of implementing and processing calculations with a regular computer [that] do not change the character of claim 1 from an abstract idea into a practical application” and contends the claim at issue “recites no application, concrete or otherwise, beyond storing the haplotype phase.”[15] By using the logic of the revised guidance in two precedential opinions, Judge Reyna has now opened door for patent owners to use similar reasoning in defense of already-issued patents. Previously, patent owners had cited to the USPTO’s guidance, and Federal Circuit panels merely disregarded the reasoning as having no force of law.  Under legal doctrines of deference, appellate courts are not bound by the USPTO’s interpretation of the case law, but they may still find a particular argument persuasive. Following Stanford I and Stanford II, patent applicants and patent owners may be facing a better situation in advocating consistency among patent eligibility standards. 

Stanford I and II may represent an important change in Section 101 jurisprudence. One of the recent criticisms of the patent-eligibility doctrine is that the USPTO is using a specific interpretation of the case law that would not likely be followed by trial and appellate courts. However, it is also important to note that this is only an initial step in clarifying a bright-line standard for Section 101. Until a Federal Circuit panel finds a claim to be patent eligible under the “practical application” test, Judge Reyna’s comments may be categorized as dicta and with little controlling weight for some district courts or even other 3-judge panels of the CAFC in other cases. In any event, these decisions are a positive development in a longer evolution of Section101 jurisprudence that began with Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014).

If embraced by the CAFC, the reasoning in Stanford I and II would be a valuable step toward eliminating confusion in the case law and improving consistency in the application of the Alice test.  As the CAFC’s subsequent decision in Yu v. Apple Inc.[16] demonstrates – a case in which a claimed digital camera was held to be a patent-ineligible abstract idea – the “practical application” test has not yet firmly taken root in the court.

It is understandable that many commentators disliked the final outcomes of these two court cases and rightfully wish that the panel had found these diagnostic inventions patent eligible.   But one of the biggest complaints of case law is that different judges arrive at different conclusions for very similar patent claims. Once the law is clear, patent applicants and patent owners can proceed with the knowledge of which inventions are actually protected. Until then, every shareholder in the patent system is operating on the belief that their current perspective on Section 101 will be second guessed at a later date.