Q2 in Review: Alice Reined In as Invalidation Rate Drops, While Patent Litigation Picks Up

The end of the second quarter saw trends on patent eligibility come full circle as the US Supreme Court’s decision in Alice, a key defensive tool, has been significantly curtailed by ensuing case law as the ruling reaches its fifth anniversary. RPX data shows that since the Federal Circuit’s decisions in Berkheimer and Aatrix, which may preclude the early resolution of Alice challenges in certain cases, the overall rate of invalidation under Section 101 has declined by more than 20%. As courts continue to refine their approach to patent eligibility, uncertainty over prior caselaw has fueled an ongoing push for legislative reform of Section 101 in Congress. A key Senate subcommittee has released a draft of a bill that offers a clean-slate approach, proposing to abrogate all caselaw addressing patent eligibility—prompting a heated debate that most recently played out in a trio of hearings. This all comes amidst an overall increase in patent litigation, with Q2 outpacing the same quarter last year as well as Q1 2019, while the first half of the year came in just ahead of that same period in 2018.

Additionally, recent antitrust rulings highlight the ongoing tension both within and outside the US government over the role of competition law in disputes over standard essential patent (SEP) licensing. Meanwhile, patent divestitures from Intellectual Ventures LLC and various operating companies continued to ripple throughout the marketplace in the second quarter, spurring litigation from both new and established players.

In the second quarter of 2019, Delaware was the most popular district for patent litigation overall and for both NPE and operating company litigation, counted by defendants added to litigation campaigns. The Central District of California was the second most popular venue for litigation overall and for operating company plaintiffs, while for NPEs the number-two district was the Eastern District of Texas—historically a favored district for NPEs until the Supreme Court issued its decision in TC Heartland.

Notably, the Western District of Texas has broken into the top five for litigation overall, while holding onto fourth place for NPE cases. The Western District has grown in popularity since the confirmation of District Judge Alan D. Albright, who has openly courted the filing of patent cases in his district—in part through the implementation of rules designed to appeal to both plaintiffs and defendants. See RPX’s first-quarter update for details.

A breakdown of those decisions by procedural stage shows that invalidation rates for Rule 12 and summary judgment Alice challenges (by far the two most popular avenues for raising Section 101 issues) have both declined by around 20% since the issuance of Berkheimer and Aatrix. The invalidation rate for patents challenged and adjudicated under Rule 12 (where a court has invalidated at least some claims) has dropped from around 70% to 45%, while the invalidation rate for patents challenged at the summary judgment stage has dipped from 59% to 40%.

As district courts continue to apply Berkheimer and Aatrix, the Federal Circuit has continued to pare back the metes and bounds of Alice in subsequent appeal rulings. On June 25, the appeals court reversed the invalidation of four mobile data syncing patents under Berkheimer/Aatrix, also holding for the first time that the presumption of validity—which requires courts addressing patent validity challenges to presume that the patent is valid, unless the defendant can show otherwise—applies to patent eligibility under Section 101. This decision may make it even more difficult for defendants to raise successful Alice challenges, as the presumption of validity brings with it a higher burden of proof: defendants must show that a patent is ineligible “by clear and convincing evidence” where the presumption applies.

Meanwhile, HP’s petition for Supreme Court review of the Berkheimer decision remains pending. In January, the Supreme Court invited the Solicitor General to submit a brief expressing the views of the US government; that brief has not yet been submitted. Such a brief is likely to hold significant weight with the Court, which generally agrees with the views of the Solicitor General when requested (as shown in a Law360 analysis).

Section 101 in Congress: IP Subcommittee Tackles Patent Eligibility as Draft Bill Sparks Debate

Congress continued to focus on patent eligibility reform in the second quarter as the Senate Judiciary Committee’s Subcommittee on Intellectual Property (or “IP Subcommittee”) pushed forward on a legislative solution. After holding a series of roundtables with industry stakeholders earlier this year, which led to the release of a draft legislative framework in April, Senators Thom Tillis (R-NC, Subcommittee chairman) and Chris Coons (D-DE, ranking member) released a draft bill in May that would eliminate the judicial exceptions to patent eligibility established in cases like Alice and Mayo v. Prometheus. Among other changes, the bill also states that Section 101 “shall be construed in favor of eligibility” and amends the statute—which currently allows patents on “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”—to remove the word “new”. The bill further adds a definition of the term “useful”, as “any invention or discovery that provides specific and practical utility in any field of technology through human intervention”. However, the bill does not go as far as the framework released in April, in part omitting that framework’s inclusion of a list of categories describing subject matter that shall not be patent eligible.

That draft bill has sparked a heated debate that took center stage at three hearings held by the IP Subcommittee in early June, with a variety of stakeholders weighing in on the issues surrounding Section 101 and the bill’s potential impact. Several speakers argued that the uncertain state of the law surrounding eligibility discourages innovation, a group including IP industry trade associations, pharmaceutical companies, and former government officials. Among that group was Paul Michel, former chief judge of the Federal Circuit, who asserted that the current caselaw is “excessively incoherent, inconsistent and chaotic”. Speakers advocating against the bill included the Electronic Frontier Foundation’s Alex Moss, who emphasized how Alice facilitates the early resolution of patent claims and helps parties “wrongly accused” of infringement to get out of litigation without “risking their livelihood or their business”, as well as representatives of certain tech and financial industry trade organizations. Some of the most heated discussions concerned whether the bill would allow patents on genes, with certain speakers warning that the May bill’s language could allow such patents. Senator Coons responded that it would not allow gene patenting, while Senator Tillis asserted that in any event, human genes would not be patentable because the already completed sequencing of the human genome would lead to such claims being rejected as obvious and lacking novelty.

Senators Tillis and Coons have since promised to release another version of the bill after Congress’s July recess that addresses feedback from the hearings, and responded to that feedback in an editorial published on June 21. While the senators addressed and acknowledged the concerns expressed by stakeholders supporting and opposing reform, they expressed skepticism toward some of the concerns raised by the latter. Most notably, they rejected certain witnesses’ defense of the current system as providing “a mechanism to terminate baseless patent infringement lawsuits quickly and efficiently”: “We cannot permit the courts . . . to destabilize our patent system for the sake of deterring nuisance litigation”.

Current USPTO Director Andrei Iancu, meanwhile, has suggested that courts should continue to play a lead role in the patent eligibility debate. In May, Director Iancu stated at a conference that the Federal Circuit could take the initiative to resolve areas of uncertainty and “fix the problem” by taking more cases en banc, allowing it to hold hearings and solicit input from stakeholders. Director Iancu has also argued that the Section 101 guidance released by the USPTO in January has provided meaningful clarity at the examination stage. In a recent speech, delivered in March but published in late June, Director Iancu asserted that the public comments that his office has received in response to the guidance have largely favored the preservation of the current patent eligibility framework.

Sovereign Immunity: Further Judicial Clarity and Unexpected Congressional Action

Since early 2017, courts have grappled with the issue of whether the sovereign immunity held by states and Native American tribes could shield them from IPR. That debate was largely resolved in April as to Native American tribes, when the US Supreme Court declined to review a July 2018 Federal Circuit decision that tribal sovereign immunity does not apply to IPR. On June 14, the Federal Circuit ruled that states similarly lack immunity from IPR, holding in an appeal of IPRs filed against the public University of Minnesota by Broadcom (Avago and LSI) and Ericsson that there was no reason to treat states differently from tribes in this context.

Despite the Supreme Court’s decision not to revisit tribal sovereign immunity from IPR, that issue was subsequently revived by the Senate Judiciary Committee, which on June 27 cleared a bill—the Preserving Access to Cost Effective Drugs (PACED) Act—designed to statutorily bar Native American tribes from asserting sovereign immunity from IPR. The PACED Act was first introduced in the last Congress by then-Senator Claire McCaskill (D-MO), leading a bipartisan group of five senators, before the Federal Circuit issued its decision on the issue last July. However, this time the bill was pushed through by the Judiciary Committee’s Republican members on a party-line vote. Senator Dianne Feinstein (D-CA), the Committee’s ranking member, has spoken out against the bill, arguing that the Federal Circuit has already resolved the issue that it is designed to prevent and asserting that the language is overly broad, to the extent that it may unduly weaken Native American tribal sovereign immunity.

Supreme Court Agrees to Review Whether IPR Time-Bar Decisions Can Be Appealed

Last August, a divided Federal Circuit held that the voluntary dismissal of a district court complaint without prejudice does not prevent a lawsuit from triggering the statutory time bar for inter partes review (IPR), under which a party may not file an IPR more than one year after being served with a complaint. That ruling followed a series of appellate battles over the issue of whether time-bar decisions may be appealed in the first place. Now, the US Supreme Court has partly granted certiorari as to that decision in Dex Media v. Click-to-Call Technologies, agreeing to address the question of whether time-bar decisions are subject to appellate review but declining to review the Federal Circuit’s holding as to the impact of dismissals without prejudice. The Supreme Court’s decision to grant certiorari as to that first question runs counter to a brief in opposition filed in early May by the US government, which argued that the court should deny review altogether.