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What Good is the Federal Circuit?

    By Kevin E. Noonan —

Federal Circuit Seal
The Court of Appeals for the Federal Circuit occupies a unique place in the Federal appellate system.  Like the D.C. Circuit and unlike the other circuits, it is not regional and its jurisdiction is not limited to Federal District Courts in a particular geographical area.  Instead, its subject matter jurisdiction is limited to patent infringement decisions from district courts, appeals from the Board of Patent Appeals and Interferences, the Trademark Trial and Appeal Board, the Merit Systems Protection Board, the Court of International Trade, the International Trade Commission, the Court of Appeals for Veterans Claims, the Court of Federal Claims, the Boards of Contract Appeals, the U.S. Government Accountability Office, and arbitrator's decisions in employment disputes for various federal departments and agencies.  But despite this variety, the Court's purpose is not as a catch-all for appellate review but rather is defined by its mandate to harmonize U.S. patent law.  As described on the Federal Judicial Center page regarding the Act establishing the Court (Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25):

In an effort to promote greater uniformity in certain areas of federal jurisdiction and relieve the pressure on the dockets of the Supreme Court and the courts of appeals for the regional circuits, the Congress in 1982 established what is now the only U.S. court of appeals defined exclusively by its jurisdiction rather than geographical boundaries.  The U.S. Court of Appeals for the Federal Circuit assumed the jurisdiction of the U.S. Court of Customs and Patent Appeals and the appellate jurisdiction of the U.S. Court of Claims.  The new court was authorized to hear appeals from several federal administrative boards as well.  Congress abolished the Court of Customs and Patent Appeals and the Court of Claims, reassigning those courts' 12 judges to serve on the Federal Circuit court.

These considerations of the Court's origins make even more curious the colloquy, contained almost entirely in footnotes, to be found between Judges Mayer and Gajarsa, writing for the majority, and Judge Newman, writing in a curious concurrence reading more like a dissent, on the proper role in federal patent policy for the Court.  The case is In re Ferguson, the latest (perhaps deserved) victim to the Court's In re Bilski decision, and would be otherwise thoroughly not notable absent the judges sub rosa institutional debate.

The case involved rejection by the U.S. Patent and Trademark Office's Board of Patent Appeals and Interferences of the claims in U.S. Serial No. 09/387,823, filed September 1, 1999 by Lewis Ferguson, Darryl Costin, and Scott C. Harris (a patent attorney who argued before the Court).  The claims are almost prima facie patent ineligible under Bilski, claiming a "process" as well as a "paradigm":

A method of marketing a product, comprising:
    developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products;
    using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products;
    obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and
    obtaining an exclusive right to market each of said plurality of products in return for said using.

And:

A paradigm for marketing software, comprising:
    a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.

Procedurally, the Examiner rejected the claims based on 35 U.S.C. §§ 102, 103, and 112; these grounds of rejection were not upheld by the Board.  Instead, the Board sua sponte entered a new ground of rejection based on 35 U.S.C. § 101, saying (in a decision rendered in 2004) that "[o]ur interpretation of these claims is that they do not expressly or implicitly require performance of any of the steps by a machine, such as a general purpose digital computer."  On rehearing (in a decision rendered in 2006), the Board entered a new ground of rejection under 35 U.S.C. § 101, in view of the intervening Interim Guidelines for Examination of Patent Applications for Subject Matter Eligibility.  The Board held that the method claims were not patent eligible for being directed to an abstract idea, and that the "paradigm" claims were not within the statutory categories because a "marketing company" was not a machine, manufacture or composition of matter.

The Federal Circuit majority made short work (albeit not as short as the panel in Classen Immunotherapeutics) of the substantive issue of patentability.  Applying the Bilski "machine-or-transformation" test, the Court held that while reciting a patent-eligible category of invention, the method claims were clearly neither tied to a particular machine (citing In re Nuitjen for the required degree of tangibility to qualify as a machine) nor effected a transformation of any article into a different state or thing.  Citing Bilski, practice of the claims at issue did not qualify as a "transformation" because "'[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.'"

The majority was also crystal clear about its unwillingness (absent Supreme Court command) to consider any other test, calling the Bilski test the "'sole,' 'definitive,' 'applicable,' 'governing,' and 'proper' test for a process claim under § 101 . . . ."  And with regard to the applicability of the Court's State Street decision (which this panel agrees was not overturned by Bilski), the Court reminded appellants, and us, that the claims in State Street were directed to a machine, and that "[t]he claim at issue in State Street was thus drawn to a patent-eligible machine implementation of what may have otherwise been a non–patent-eligible abstract idea" (emphasis added).

As for the paradigm claims, the opinion cites both the Nuitjen and Bilski cases for the proposition that inclusion in one of the categories enumerated in the statute is a necessary prerequisite for patent eligibility.  Here, appellants' paradigm claims did not fit into a category, and hence were patent-ineligible.

Judge Newman
Judge Newman (at left) continues to evince her displeasure with the substance of the Bilski decision in her concurrence, where she concurs with the majority's decision but little else.  She begins by reminding everyone that, as she reads it, the Supreme Court's Gottschalk v. Benson opinion does not support the reading of it adopted by the en banc Bilski majority.  Citing footnote 3 of the majority opinion:

Contrary to the concurrence's assertion, we do not contend that this court has overturned State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1373 (1998), but merely note that the "useful, concrete and tangible result test" "is insufficient to determine whether a claim is patent-eligible under § 101," Bilski, 545 F.3d at 959, and "is inadequate," id. at 960 (reaffirming that "the machine-or-transformation test outlined by the Supreme Court is the proper test to apply" (emphasis added)), and that "those portions of our opinions in State Street and AT&T [Corp. v. Excel Commc'ns, Inc., 172 F.3d 1352 (Fed. Cir. 1999),] relying on a 'useful, concrete and tangible result' analysis should not longer be relied on," id. at 960 n.19.

She asserts that the majority suggests that the Bilski decision overturned not only State Street but other precedent (including the Freeman-Walter-Abele test, the "technological arts" test and the "physical steps" test), constituting a "sweeping rejection of precedent [that] simply enlarges the taint on the thousands of patents that were granted in application of these tests."  She also disagrees with the scope of the majority's rationale for deciding the method claims at issue constitute an "abstract idea":

[T]he court disposes of the Ferguson method on the ground that it is an "abstract idea," although it is definite and concrete and limited, and not at all abstract.  The court resolves this dilemma by defining "abstract idea" as anything that does not meet the Bilski machine-or-transformation test.  However, the Ferguson marketing method is not an abstraction, even in Bilski terms.  The Ferguson method "does not pre-empt all uses of a fundamental principle in any field but is limited to a particular use, a specific application.  Therefore, it is not drawn to the principle in the abstract".  Bilski, 545 F.3d at 957.

The court's circular definition of "abstraction" as anything that is not patent-eligible under Bilski can impact the many new methods flowing from the new information technologies.  These methods have enhanced human capabilities, blurring the traditional line between machine and human; their patentability warrants at least consideration in appropriate cases, not disposition in dictum.

At base, Judge Newman is concerned about the consequences of extending Bilski as far as the majority of the Court seem to desire:

Until we are confident in understanding the consequences of our rulings, let us not forget that today's "knowledge economy" arose and thrived under the past law of patent eligibility.  Although I agree that new thinking is warranted, this court's broadside assault on patent-eligible subject matter is unsupported by any stated policy or benefit to either society or commerce.  We are ignorant of whether competitive activity, creative energies, and entrepreneurial initiatives, will founder or be facilitated by this court's dramatic change in the legal framework.  I take note that scholarship is starting to appear, as economists recognize "the new economy."  See, e.g., Richard G. Anderson, The New Economy: How the United States is Adapting to the Knowledge-Based Economy of the Twenty-First Century, Southern Illinois Economic Development Conference 21 (Sept. 21, 2006) (discussing intellectual property rights and the creation of knowledge).  But much more needs to be understood, as this court undertakes to change the legal framework of this economy.

Today's new capabilities of acquiring and using knowledge are producing myriad creative advances.  This court has offered no explanation of the interests and policy that we intend to serve by removing such advances from the legal framework of the patent system.  See, e.g., Milton Katz, The Role of the Legal System in Technological Innovation and Economic Growth, The Positive Sum Strategy 169 (1986) (explaining that the legal system plays a part in facilitating and promoting "business enterprise, technological innovation, and economic thought").

This court's retreat into the methods of the past is unworthy of our responsibility to support innovation in the future.  Major adjustment in established law should be based on changing industrial or intellectual or equitable needs — of which no evidence is before this court.  The only need of which I am aware is that of the current harsh economic times, when the need is of enhanced incentives to innovation and investment in new things and new industries, not reduction in the existing incentives.

At the end of this passage, Judge Newman drops a footnote in response to a footnote in the majority opinion; a comparison of these notes illustrates the most interesting philosophical question raised in this case:

Majority note 7:

The essence of the concurrence is an argument premised on policy and philosophical grounds.  We disagree with this approach, as it is not the role of courts to make such arguments but rather the responsibility of Congress to consider amending the patent laws as necessary to recognize and allow for innovation in the future.

Judge Newman note 1:

I take note of the panel majority's criticism of my views as "policy" related.  Indeed, the major concern with my colleagues' aggressive elimination of patent access in areas of modern commerce is their failure to consider the policy effects.  The success of the common law derives from its relation to the policy that it implements.  As Justice Holmes stated:

The very considerations which judges most rarely mention, and always with an apology, are the secret root from which the law draws all the justices of life.  I mean, of course, considerations of what is expedient for the community concerned.  Every important principle which is developed by litigation is in fact and at bottom the result of more or less definitely understood views of public policy; most generally, to be sure, under our practice and traditions, the unconscious result of instinctive preferences and inarticulate convictions, but nonetheless traceable to views of public policy in the last analysis.

It is stunning, in a way, that Judges Gajarsa and Mayer question the Court's role in considering patent policy in making their decisions.  The majority's footnote 7 properly recognizes Congress as
the ultimate arbiter of how it will exercise its Article I power to grant patents (provided, of course, that the Supreme Court does not conclude that its Acts are outside Constitutional boundaries).  But the Federal Circuit's role, as the only specialized appellate court in the federal judicial system, has always been to consider the policy implications of its decisions; even the Supreme Court has recognized the Federal Circuit's "special expertise" in this area.  Congress created the Court expressly with the aim of harmonizing U.S. patent law, a goal made difficult if not impossible without some consideration of the policy implications of its decisions.  Now it seems that at least two members of the Court believe this is not their role and eschew any suggestion that "policy" is a valid factor for their deliberations.  If the Federal Circuit is not to be involved in patent policy, then it can fairly be asked:  "What good is the Federal Circuit?"

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7 responses to “What Good is the Federal Circuit?”

  1. EG Avatar
    EG

    Kevin,
    I side with Judge Newman that the Federal Circuit was specifically created to be the primary arbiter of patent law jurisprudence. For other judges on the Federal Circuit bench to say that isn’t their role is to wrongly abdicate the mandate that was handed down by Congress when the Federal Circuit was created in 1982 (I was already a member of the CCPA then, so I was there when this all transpired).
    But the reason other Federal Circuit judges (other than Newman) may understandably be hesistant now to take up this mandate is because SCOTUS has unfortunately (and in my opinion wrongly) usurped that mandate. By previously making this suggesion, I’ve been criticized as saying that there should be no appeal of patent cases to SCOTUS. That’s not what I said or meant at all. Instead, SCOTUS should be far more hesitant than it has recently in taking on cases in the patent area and thus undermining the clear mandate of Congress that the Federal Circuit be the primary arbiter of patent law jurisprudence.
    Let me say that the Federal Circuit doesn’t always get it right on the patent law jurisprudence. The current “machine or transformation” test of Bilski (as applied in Ferguson) is a glaring mistake by the Federal Circuit that cannot be reconciled with prior case law precedent, be it Federal Circuit or SCOTUS. But contrary to what others seem to gleefully think, SCOTUS has created far more chaos and uncertainty by repeatedly reversing the Federal Circuit in KSR, eBay, MedImmune, etc., and leaving a complete patent jurisprudential vacuum in its place (SCOTUS, far more so than the Federal Circuit, is notorious for fumbling its responsibility, as our highest court, to articulate clear jurisprudential guidance to the lower courts). That vacuum doesn’t help anyone, not matter what your view is on a given issue.
    I’m also going to suggest something else that Congress intended when it created the Federal Circuit in 1982 which I’m sure will cause some to howl in disbelief. And that is that the Federal Circuit, at least in the area of patent law, was free to write on a “clean slate” if it chose, including viewing prior SCOTUS precedent on patent law as being advisory, but not binding. Certainly that was the late Chief Judge Markey’s view, and frankly patent law jurisprudence flourished during the 1980’s and into the 1990’s with a fairly consistent pattern of objectively usable patent case law to apply to both the PTO and patent trials. And even more significant, SCOTUS was conspicuous by its absence from opining on patent law jurisprudence during this time.
    By contrast, what we have today is the worst of all worlds in patent law jurisprudence with SCOTUS intermeddling in an area of law it is arrogantly ignorant (and disdainful) of, with a Federal Circuit so “shell-shocked” and hesitant that it’s almost dysfunctional in the role Congress intended for it back in 1982. (The Federal Circuit has also suffered from having a series of fairly weak Chief Judges since Markey stepped down.) Which brings me back to Judge Newman’s clarion cry to take up of the mandate of the Federal Circuit to be the primary arbiter for patent law jurisprudence. If only SCOTUS would only resume it’s former “quietness” of the 80’s and 90’s in the patent law area, the Federal Circuit might have a chance to snatch “order” out of this “chaos.”

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  2. 6 Avatar
    6

    “It is stunning, in a way, that Judges Gajarsa and Mayer question the Court’s role in considering patent policy in making their decisions. ”
    They don’t question the court’s role in considering patent policy in making their decisions. They question the court’s role in solely basing, or even substantially basing their decisions on patent policy instead of what is the blatantly set forth (common) law.

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  3. Kevin E. Noonan Avatar
    Kevin E. Noonan

    Dear 6:
    Welcome back. I have a problem with your comment, which is that patent law is not common law, but rather is a creature of statute. Solely. Congress exercises its powers under Article I of the Constitution by passing laws, and there is no common law component for patents on that basis (unlike trademark which has a common law component).
    Judge Newman’s quotation from Justice Holmes is the comparator here – judges try to effectuate the will of Congress, within constitutional boundaries, and in doing so must consider the implications of their decisions on policy, in this case patent policy. That’s because legislation can be as hard to decipher as a patent claim, due in part to the inefficiencies of language, but also because legislation is frequently a compromise between competing positions, and understanding that is an important part of determining what the law means.
    In other words, all this doesn’t occur in a vacuum. My piece was intended to ask the question, has 10 years of reversals by the Supreme Court made some members of the Federal Circuit question its role? I think is better for the court to say what it thinks the law is, and if the Supreme Court disagrees so be it – but not to abdicate a role that Congress clearly intended when they instituted the court.
    Thanks for the comment.

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  4. Patrick Avatar
    Patrick

    EG, Kevin, I couldn’t concur more with your statements. While it remains unfortunate that there is no better system for appellate patent review than having the Federal Circuit be the “Supreme Court” in this realm, the plain fact is that there IS in fact no better system. The Supreme Court’s complete ineptitude in patent law was ably demonstrated in KSR, which, to me, is enough evidence for Congress that some form of legislation should (and hopefully could, despite SCOTUS’ self-announced mandate of judicial review) be enacted to remove appellate patent review explicitly from the Court’s subject matter jurisdiction. The stakes for commerce are too high otherwise, and I believe as Kevin likely would that this would be a wake-up call to the Federal Circuit that its powers in the patent arena are formidable indeed.

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  5. EG Avatar
    EG

    Patrick,
    Thanks for your comments and support. The only “mandate of judicial review” that SCOTUS can reasonably and logically support (in my opinion) based on case law precedent is of “constitutional questions” (based on Marbury v. Madison and McCullough v. Maryland). SCOTUS also has original constitutionally based jurisdiction (in equity) of disputes between the states (e.g., what are the correct position of the borders between states). Other than that, Congress has the authority (in my opinion) to deny appeals, and especially petitions for certiorari, to SCOTUS of ANY federally-based statute that does not implicate a constitutional question.
    One wonders how far SCOTUS might push the Patent and Copright Clause in Article I for such “implicit” review. For example, you see language in Graham v. John Deere that suggests there is somehow a “constitutional standard” for patentability of inventions which Congress dare not go below. Frankly, that argument in Graham (which is utter dicta) “won’t hold soap” as my patent attorney dad would say.

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  6. Kevin E. Noonan Avatar
    Kevin E. Noonan

    Dear Patrick and EG:
    As frustrating as the recent Supreme Court jurisprudence has been, I think any argument that the Court cannot be the final arbiter over patent law is unsupportable. I think that the Court has made it very clear that any patent statute that does not “promote the progress” as the Court determines it is ultra vires of the Congressional powers articulated in Article I and that the Court has the power and responsibility to overrule Congress on these grounds. Just look at Justice Thomas’s concurrence in the Wyeth case for an example of this thinking.
    I think the problem is that the Supreme Court has become less insulated from the political pressures on government at all levels, and has not resisted the clarion call that the patent system is “broken” by folks who have an economic interest in a weakened patent system. (Bush v. Gore says all that needs to be said about the political influences and inclinations of the Court.) The system works best when the Supreme Court leaves the Federal Circuit alone to work out the details, and then steps in on significant constitutional issues – the right to a jury determination vel non of what patent claims mean, for example, or the scope of the doctrine of equivalents.
    Keep in mind as well that the Court was advised by the Solicitor General in the last administration that it should hear patent cases much more frequently than in the past, and that the Court rightly looks to the Solicitor’s views on things like patent law that are totally creatures of federal law. (Ironically, the one time the Solicitor told them not to grant certiorari was in the Labcorp case.)
    So unless the members of the Court lose interest in patent law, or decide to exercise judicial restraint, perhaps the best thing the rest of us can do is write, write, write so that petitioners or respondents will have some fodder for Supreme Court clerks to consider the next time there is a patent law question before the Court.
    Thanks for the comments.

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  7. EG Avatar
    EG

    Kevin,
    We may have to “agree to disagree” on this one. Nothing in Article III says that Congress can’t restrict the “judicial power” (including not providing for any other courts besides the Supreme Court), or restricting which cases of federal statutory law (unrelated to constitutional questions) can be reviewed by SCOTUS. Of course, SCOTUS can (and has) done whatever it wanted to, including dismissing “mandatory” appeals on many grounds including lack of ripeness. That SCOTUS might do so in the case of Congress restricting appeals from the Federal Circuit is always possible, but in my opinion, the basis for doing so based anything explicit in the constitution (including Article III) or based on Marbury v Madison/McCullough v Maryland precedent is pretty feeble. But SCOTUS has also said in Graham (on equally feeble grounds) that there is a “constitutional standard” for patentability, so anything is possible.
    If you sense from these comments my skeptism about SCOTUS being consistent or logical in how its decision-making, you would be correct (and I’m not alone among attorneys who feel that way) My poster child for the absurd from SCOTUS is Kelo v City of New London which is one of the worst decisions ever from SCOTUS, completely turning “eminent domain” and the concept of “public use” on its head, and trampling first the first time in memory one our rights guaranteed by the Bill of Rights.

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