Dennis Crouch's Patently-O: 1 new topics, including “My Rant on Versata: Non-existent Statutory Analysis Continues”

My Rant on Versata: Non-existent Statutory Analysis Continues

Posted: 10 Jul 2015 09:10 AM PDT

by David Hricik

Over on the main page, Dennis has done a good job laying out the court’s “analysis” in Versata v. SAP of whether section 101 is a defense to invalidity. The court recognized that, by the text of the statute, it is not.

But, it reasoned that because, today, section 101 challenges are a cottage industry, that that interpretation must be wrong. It cites to dicta from old Supreme Court cases. And, it says basically, “well, people are doing it so it must be right.”

Um, wrong: See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says. Courts can get something wrong for a long time; a judge’s Constitutionally required job is not to continue the nonsense; it is to stop it.

The fact is that no court has ever actually analyzed whether 101 is a defense, particularly after 1952, when (I believe) Congress meant to get rid of this “inventive concept” and other nonsense that courts had, previously, read into the word “invention” in what was then 101. Congress put all of those odd requirements into the objective section 103. But… the point is: no court has analyzed the text — about whether “eligibility” is a defense to any infringement suit (and obviously not in CBM proceedings), and when this court did, it recognized the text did not support Section 101 as an invalidity defense.

That should have been the end of the inquiry, absent (a) an absurd result; (b) ambiguity; or (c) some other narrow exception to ignoring the plain text. But the panel went further, and suggested that some sort of history precluded giving the statutory text its plain meaning. (I wrote a book on statutory interpretation; I won’t bore you with the details.)

Let’s go past the text and look for some strong reason to ignore its plain meaning. What is this evidence?

Courts sometimes use the purpose of a statute to interpret it. Likewise, they look at legislative history to discern meaning or to find purpose. What if there was some huge committee report droning on about 101 and so on? We should likely take that into account.

But it’s not there.

The legislative history shows that the purpose CBM was adopted to address shortcomings with the PTO's ability in the late 1990's to find prior art, and that was Congress's intent. The House report makes clear that the purpose was to deal with the perception that in the late 1990's, the PTO had not found the best prior art to apply under sections 102 and 103:

A number of patent observers believe the issuance of poor business-method patents during the late 1990's through the early 2000's led to the patent ''troll'' lawsuits that compelled the Committee to launch the patent reform project 6 years ago. At the time, the USPTO lacked a sufficient number of examiners with expertise in the relevant art area. Compounding this problem, there was a dearth of available prior art to assist examiners as they reviewed business method applications. Critics also note that most countries do not grant patents for business methods.

The Act responds to the problem by creating a transitional program 1 year after enactment of the bill to implement a provisional post-grant proceeding for review of the validity of any business method patent. In contrast to the era of the late 1990's-early 2000's, examiners will review the best prior art available….

H. Rep. 112-98, at p. 54 (June 1, 2011) (emphases added). Thus, the committee report shows that the purpose of the amendments adding CBM is consistent with the statute’s plain text: to allow people to bring CBM to show that the invention was not new or would have been obvious in light of "the best prior art available." The report emphasized the lack of "a sufficient number of examiners with expertise in the relevant art area."

Conversely, nothing in the House report mentions the failure to recognize "abstract ideas" or the failure to properly apply Section 101. Further, it is absurd to suggest that in the late 1990s lack of access to prior art or lack of sufficient examiners with familiarity with prior art had any impact on the ability to determine what is a "law of nature," or "abstract idea," or the like. Indeed, courts are doing this now on 12(b)(6) motions based on their own “evidence”(?) of what is known, etc.

So, so far: purpose and history, based on the “good” legislative history (committee reports and such usually get more weight than other stuff), 101 is not a defense.

What about random statements of legislators? Once you get into random statements, the legislative history of the AIA on this transitional program is, like almost all legislative histories in this granular level, murky. I have reviewed the remarks made on the Floor of the Senate, and there is no doubt that a few members of Congress mentioned business method patents. A fair reading is that at least some members of Congress thought the source of the problem to be addressed was with "abstract" patents, while others believed the failure to consider the most pertinent prior art was the source of the problem.

I have also considered other aspects of the legislative history that this panel didn’t cite. For example, then-Director Kappos observed: "a key House Committee Report states that 'the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282.' H.R. Rep. No.112-98, at 47 (2011)." Yet, it is undeniable – and the Versata court held — that the text of the adopted statute points to only two subsections of Section 282, and so this sentence from that report flatly contradicts the enacted statute. (It accurately reflects the text at the time Kappos spoke; but Congress didn’t adopt it.) A sentence in a committee report that directly contradicts the enacted language does not control. As with most bills, the legislative history of the AIA contains many statements that are not the law, and a few that contradict the enacted statute.

Others have pointed to this statement from a senator from Arizona, Senator Kyl: "section 101 invention issues" were among those "that can be raised in post-grant review." 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011). Relying on this statement for the proposition that eligible subject matter is covered by the text is doubly problematic. Foremost, "section 101 invention issues" is not in the enacted text, as the Versata court correctly held. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator's statement as having been enacted into federal law. Doing so jeopardizes the Constitutional requirements of enactment and presentment. This is especially true where, as here, that statement contradicts the plain text as well as other more weighty evidence of legislative intent. Those sources – which, if entitled to any weight — are entitled to more weight than one Senator's floor statement – contradict Senator Kyl's subjective interpretation of the statute. Again, however, I believe none of this matters here.

So, at best, there is some slight indication that a few members of Congress thought that “abstract” patents (whatever that might mean”) is the problem.

But it is long-settled there has to be some reason, much stronger than a few random statements, to ignore the plain text of an enacted statute. What controls is the language Congress enacted, not our speculation about the intent of a handful of elected representatives.

Let’s go further.

Sometimes courts interpret statutes in light of existing case law, and that’s what the Versata court relied upon. Well, what about case law, and the notion this court adopted that there’s some sort of “long-standing” understanding that 101 is a defense. This is weird: despite the plain language, and despite Congress knowing that 101 should be a defense, it did not list it. Think about judicial activism for a moment.

And let’s be real here.

First, post-1952 it was not until Myriad that there was a challenge in the Supreme Court to an issued patent based on 101. All the others were fights with the PTO. No one in Myriad litigated whether 101 was a defense in terms of section 282. It’s not, as even this panel recognized.

So, saying there’s some long-standing line of cases from the Supreme Court is simply wrong: there’s now two cases, one just decided (Alice). Further, we all know that 101 defenses were about as rare as a blue zebra until a few years ago.

But maybe there is some long-standing interpretation, even in dicta?

Wrong. If you read the authority relied upon by the court, they don’t support the this “history” at all — instead they undermine it.

Foremost, the Supreme Court case relied upon is Graham v. John Deere Co., 383 U.S. 1 (1966). That famous case about Section 103 had nothing to do with whether "eligible subject matter" was a condition for patentability, and did not decide that issue. Instead, in dicta analyzing the "condition for patentability" in Section 103, the court noted:

The Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103. The first two sections, which trace closely the 1874 codification, express the 'new and useful' tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. The pivotal section around which the present controversy centers is § 103 . . . .

383 U.S. at 12-13.

That statement actually undermines the argument that "eligible subject matter" is a condition for patentability.

Here’s why:

Graham explains that the Patent Act of 1793 had only two conditions for patentability: utility and novelty (both of which were once in the same statute, a precursor to sections 101 and 102). Id. at 10 ("Although the Patent Act was amended, revised or codified some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson's draft of the 1793 Patent Act"). The Graham Court recognized that in 1952 Congress had added a third condition, non-obviousness. See id. at 14 ("Patentability is to depend, in addition to novelty and utility, upon the 'non-obvious' nature of the 'subject matter sought to be patented' to a person having ordinary skill in the art.'") (quoting Section 103).

So… the Graham case suggests — if anything, as it is dicta — that "eligible subject matter" is not a condition for patentability. If Graham stated that utility, novelty, and non-obviousness were the three conditions for patentability, then the Court's statement that there are "three conditions" means "eligible subject matter" is not one: if "eligible subject matter" were also a condition for patentability, then there would be four, not three, conditions.

The panel also cites dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int'l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008). Although the merits of a Section 101 issue was decided in Dealertrack, the patentee did not contend that Section 101 was not a statutory defense, and the court did not decide that issue. Further, dicta in that case traces directly back to the dicta from Graham. So, there is no long line of cases that, somehow, Congress knew about and intended to adopt.

Worse, there is loose language in other cases saying exactly the opposite, that only 102 and 103 are conditions of patentability (i.e., are consistent with the plain text.). For example, the Federal Circuit has stated: "The two sections of part II that Congress has denominated 'conditions of patentability' are § 102 . . . and § 103 . . . ." Myspace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260-61 (Fed. Cir. 2012). The Supreme Court made essentially the same observation in Diamond v. Diehr, 450 U.S. 175, 190-91 (1981).

So… in fact there is no case law supporting this history, and instead the “case history” is, at best, split and unclear.

The important fact to me is that none of these cases parse the statutory text, or examine the purpose and legislative history of the AIA discussed here. Ignoring the actual text in favor of what courts have said a statute says is obviously incorrect. In that regard, the Supreme Court has overridden judicial interpretations of statutes that failed to adhere to the text, and has done so even after decades of having lower courts adhere to those incorrect constructions. See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says.

To sum up, absent some good reason to ignore the plain text, in my opinion random statements from one or two legislators and dicta in cases does not control. Dicta in cases that do not analyze the statutory text do not control. A committee report that flatly contradicts the enacted text does not control. And one Senator's opinion is not enacted statutory text.

I understand why the panel did what it did. But the Constitution is more important than judicial politics.

Finally, let’s be real again: if you look at what Congress did in 1952, it was to get rid of this subjective nonsense. I strongly believe that then Chief-Judge Rader’s opinion, and “additional views” in CLS Bank v. Alice (which, textually, this panel confirmed in holding 101 is not even a listed defense) need to be raised and litigated. Statutes should matter.

(You can find the original version of this, with citations and footnotes at:

http://patentlyo.com/hricik/2014/02/exhaustive-properly-proceedings.html

Patentlyo Bits and Bytes by Anthony McCain

Posted: 10 Jul 2015 09:01 AM PDT