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You belong to an elite group – the highly intelligent readers of Blawgletter, one of the 10 all-time most popular Trials and Litigation law blogs on Justia.

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As I wrote in the first post, “The Contingency will allow readers to access all of the Blawgletter posts and going forward will focus on the challenges and opportunities of sharing risk with clients in high-stakes business disputes.”

I will continue to comment on important court decisions in The Contingency, but a new emphasis -- on how developments in the law will affect risk-sharing by business clients and lawyers -- aims to make the content need-to-know material instead of the like-to-know kind.

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DNA and Pricing Patents Fall to Mayo and Alice

Unpatentable subject matter

A pair of Federal Circuit opinions last week rejected patents involving patent-ineligible subject matter.

What does that include, you ask?

As Blawgletter noted last year in "You Still Can't Patent Ideas":

Section 101 of the Patent Act allows patents on "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof". 35 U.S.C. 101. But, the Supreme Court has held, it does not make laws of nature, natural phenomena, or abstract ideas patentable. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2116 (2013). Those things "are the basic tools of scientific and technological work". Gottschalk v. Benson, 409 U.S. 63, 67 (1972).

We went on to discuss the then-new ruling by the Supreme Court on "business method" patents that fail the section 101 test because they involve "abstract ideas" in Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014).

Alice applied the analytical framework that the Court announced in a "laws of nature" case it decided two years earlier -- Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (U.S. Mar. 20, 2012). The framework calls for a two-step process:

First, we determine whether the claims at issue are directed to a patent ineligible concept. Id. at 1297. If the answer is yes, then we next consider the elements of each claim both individually and “as an ordered combination” to determine whether additional elements “transform the nature of the claim” into a patent-eligible application. Id. at 1298. The Supreme Court has described the second step of this analysis as a search for an “inventive concept”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id. at 1294;

Ariosa Diagnostics, Inc. v. Sequenom, Inc., No. 14-1139 (Fed. Cir. June 12, 2015).

The cases

The two cases concerned paternal DNA -- "cffDNA" -- floating in the bloodstream of pregnant women and a method for helping merchants charge the highest gettable price in light of changing market conditions. The Federal Circuit in both instances affirmed the district courts' rejection of the patents as relating to unpatentable subject matter.

In the "laws of nature" case, the court ruled that patent failed the "inventive concept" requirement of Mayo:

The method at issue here amounts to a general instruction to doctors to apply routine, conventional techniques when seeking to detect cffDNA. Because the method steps were well-understood, conventional and routine, the method of detecting paternally inherited cffDNA is not new and useful. The only subject matter new and useful as of the date of the application was the discovery of the presence of cffDNA in maternal plasma or serum. 

Ariosa Diagnostics, slip op. at 11. 

The "abstract ideas" case made a similar thudding sound:

At best, the claims describe the automation of the fundamental economic concept of offer-based price optimization through the use of generic-computer functions. Both the prosecution history and the specification emphasize that the key distinguishing feature of the claims is the ability to automate or otherwise make more efficient traditional price-optimization methods. . . . But relying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible.

OIP Technologies, Inc. v. Amazon.com, Inc., No. 112-1696, slip op. at 7-8 (Fed. Cir. June 11, 2015) (citing Alice, 134 S. Ct. at 2359).

Meaning

Ariosa and OIP underscore the high stakes and uncertain outcome of challenges to patentability in cases involving biological material or business methods. The Federal Circuit's latest decisions make clear that the "inventive concept" requirement of the Mayo framework requires more than using concepts by means of "conventional" techniques. Uses like that simply do not "transform" the idea into patentable subject matter.

So long Blawgletter, hello The Contingency

With this post, Blawgletter ends a run that started on January 1, 2007. We wish to thank our loyal readers for their high intelligence, extraordinary good looks, and excellent sense of humor. We invite you to become loyal readers of The Contingency, which begins its journey on Tuesday, June 16. Stand by for info on subscribing.

The Value of Class Actions Just Fell. Again.

Another Term, another chance to gut class actions

If you've watched the Supreme Court over the last several years, you may have marveled at how earnestly some of the justices have worked to render Rule 23 a dead letter. Behold:

• You have to arbitrate class claims individually. AT&T Mobility, LLC v. Concepcion, 531 U.S. 321 (2011).

• You can't use statistical methods we don't find compelling to prove class claims. Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (2011).

• No, really, you have to arbitrate class claims individually, no matter what. American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013).

• Hey, didn't you hear what I said about not using statistical methods to prove class claims? Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).

The Court split 5-4 in all four cases, with the same five justices in the majority (Chief Justice Roberts and Justices Alito, Kennedy, Scalia, and Thomas) and the same four justices dissenting (Justices Breyer, Ginsburg, Kagan, and Sotomayor) every time.

We exaggerate only a little

In Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), the Court did uphold a crucial principle in securities fraud class actions -- that class plaintiffs may take advantage of a presumption that the securities buyers relied on the defendants' failure to disclose material information. And in Erica P. John Funds, Inc. v. Halliburton, 131 S. Ct. 2179 (2011), the Court did rule that class plaintiffs need not show "loss causation" in order to establish grounds for class certification of a securities fraud case.

But both rulings related to securities law violations, which hurt rich people more than poor ones, and in the 2014 decision the Court also ruled that defendants must have the chance to show at the class certification stage that the nondisclosure didn't inflate the price of the securities.

Other kinds of class cases

Class actions involving consumer fraud (Concepcion), antitrust law violations (Behrend and Italian Colors), and short-changing workers through discriminatory practices (Dukes) didn't fare nearly so well. In each case, the little person stood against the behemoth corporation -- and got a shellacking.

Last week, the Court took another class action case that aims to benefit the regular Joe and Josephine. In Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (U.S.), the Court will address -- big shout out to our friends at SCOTUSblog -- these questions:

(1) Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and (2) whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.

The problem, as the petitioner Tyson Foods sees it, arises from the fact that class plaintiffs used averages to show how much time Tyson didn't pay, in the aggregate, for class members' donning and doffing gear they needed to wear to work at Tyson's pork processing plant in Storm City, Iowa. Using averages, Tyson insists, means that "hundreds" of the 3,344 class members did not suffer any compensable damages.

What will happen

Employment discrimination, consumer fraud, and antitrust claims almost always pit weak economic actors against far more powerful ones. Tyson Foods has the same David v. Goliath orientation. Blawgletter -- who will sign off with our last post on June 15 to begin The Contingency on June 16 -- expects that what happened to the plaintiffs in Concepcion, Dukes, Italian Colors, and Behrend will also occur to those in Tyson Foods.

Although the Court will not state the rule this way, the Court will come close to saying that class plaintiffs must present a near-perfect statistical model if they wish to use statistics to support a finding that questions common to class members predominate over individual ones. Justices Scalia and Thomas Some justices seem to think that forcing a defendant to pay an amount equal to the total harm it caused the class should never happen if any class member did not suffer recoverable damages.

Perfection becomes the enemy of the good, in their view. Or, more likely, the enemy of what they may see as a bad thing -- defendants having to pay for 100 percent of the harm they caused.

Get ready for The Contingency

My new law blog will go live on Tuesday, June 16, 2015. Please stand by for info on how to find The Contingency, how to subscribe, and other fun facts.

Seven Years, and a Verdict, Down the Drain

Snares

Patent law features so many traps that even the wary fall in one now and then. It happened again last week. This time the ruling concerned standing, an issue that goes to the power of a court to decide a case.

A narrow license

The case involved a patent on "Gelatinous Elastomer Compositions and Articles". Alps South sued The Ohio Willow Wood Company for infringing the patent by making and selling prosthetic liners.

Alps never owned the patent. Instead, before filing suit in 2008, it signed a license with the patent owner, Applied Elastomerics. But Applied granted Alps a license to practice the patent only in the field of prosthetic liners.

Motion on standing

Ohio WIllow Wood moved to dismiss the case on the ground that Alps lacked standing. Alps responded by signing a new license with Applied. This one eliminated the field restriction (prosthetic liners only). The district court denied the motion.

As trial approached, the trial judge expressed concern about Alps' standing and urged it to join Applied to the case. Alps declined the request.

The case went to trial before a Florida jury. After more than a week of evidence, the juror found for Alps in all respects and awarded Alps almost $4 million for Ohio Willow Wood's infringement of the patent.

Standing from the start

Ohio Willow Wood's appeal raised several questions, but it won on standing. The Federal Circuit therefore had no need to delve into the merits.

The court noted that a plaintiff generally must have the right to bring suit -- it must have standing to sue -- at the time it brings the case. A corollary to the standing-from-the-start rule posits that the plaintiff cannot cure a lack of standing retroactively.

The corollary knocked out Alps' case. The license it got from Applied before filing the action against Ohio Willow Wood didn't give Alps enough rights to qualify as a "patentee" for purposes of the standing requirement in 35 U.S.C. 100(d) and 281. The later elimination of the field of use restriction in the Applied license cured the problem as of the date of the amendment. But "[t]he party asserting patent infringement is “required to have legal title to the patents on the day it filed the complaint and that requirement can not be met retroactively.” Alps South, LLC v. The Ohio Willow Wood Company, No. 13-1452, slip op. at 10 (Fed. Cir. June 5, 2015) (quoting Abraxis Bioscience, Inc. v. Navinta, LLC, 625 F.3d 1359, 1366 (Fed. Cir. 2010)).

The court conceded that it permits retroactive curing of an initial lack of standing if the plaintiff joins the patent owner after filing suit. But that didn't happen in the Alps case. And the panel said it couldn't ignore its precedent barring a cure that involves a nunc pro tunc license amendment.

Highlighting risk

Alps highlights the riskiness of patent infringement cases. Unless your client has always owned the patent, its status as an assignee or licensee may expose it to a motion to dismiss for lack of standing. Because such a motion implicates the court's jurisdiction -- its basic authority to handle and decide the case -- the defendant may raise a standing question at any time. It may bring the issue up after an adverse verdict and judgment, as Ohio Willow Wood did. And the loss of such a motion essentially wipes out everything that happened in the trial court.

Observations

Before bringing a patent infringement case, your client needs either to own the patent she will sue on or at least to have all of the "substantial" rights in the patent under an assignment, exclusive license, or similar agreement. Insist on reviewing any assignment or license of the patent to your client to make sure it conveys enough rights to pass muster under Supreme Court and Federal Circuit requirements for standing.

That could save you and your client seven years of work and a jury verdict.