Month: January 2019

New USPTO Guidance on Patent Eligibility is Good News to Entrepreneurs

By Michael Kwon

Many successful businesses were started by entrepreneurs who turned an invention into a viable product or service. It is hard to imagine the success of our economy, in fact, our society, without the system of inventions and patent protection. Our Founding Fathers recognized the importance of innovation and added patent protection to our Constitution, in Article I Section 8. From the very first patent that President George Washington signed in 1790 to the ten millionth patent, since the current numbering system started in 1836, issued on June 19, 2018, the patent system has been fueling the technological and economic growth of our nation.

The word “patent” means “open” and by granting an inventor the right to exclude all others from making, using, or selling the invention, the patent allows an inventor to literally open up his invention to the world. Such an open patent publication lets others learn from it and improve upon the idea. Once an improvement is made, the improved invention is then patented and left open to the world for further improvement. This cycle of improvement is the engine of innovation for our technology and economy.

To encourage innovation, the courts held that the threshold for patent eligibility was very low and easy to meet, leaving it to the other patent requirements to determine the invention’s patentability. In recent years, however, the Supreme Court made several imprecise decisions that ended up creating a quandary in the field of patent eligibility.

In response, the U.S. Patent and Trademark Office (USPTO) announced new guidance for determining patent eligibility.

Patentability Requirements and Patent Eligibility

For an invention to be patentable, it must meet certain requirements:

  • “Novelty.” The invention has to be new. It would be hard to convince a patent examiner that one has invented the wooden chopsticks, which have been in general public use for thousands of years. (Incidentally, however, a few dozen patents have been issued for various forms of chopsticks including “gravity chopsticks” that supposedly avoid germs and dirt.)
  • “Utility.” The invention must be useful to the society. One cannot get a patent for a chemical compound whose sole function is to cause a massive headache, for example.
  • “Non-obviousness.” An invention is not patentable if it is an obvious improvement from an existing invention. For instance, one cannot get a patent by taking an existing patent for a bicycle and “improving” it by adding a light for night-time biking. Although no longer the standard, Justice Douglas succinctly described non-obviousness: an invention “must reveal the flash of creative genius!”

In addition to meeting the novelty, utility, and non-obviousness requirements, an invention has to be in one of the following four categories to be eligible for patent consideration:

  • “Process” such as a method for conducting secure financial transactions over the internet by authenticating a customer’s identity;
  • “Machine” such as a new vacuum cleaner that roams around a room and cleans it;
  • “Manufacture” such as a new snow shovel that requires less effort to shovel snow; and
  • “Composition of matter” such as a new drug or a new glue.

Since the Patent Act of 1790 through the Patent Act of 1952 and the America Invents Act (or “Patent Reform Act of 2011”), just about any manmade invention was eligible for patent consideration. An inventor had a clear idea of what would qualify as patent eligible. In recent years, however, patent eligibility has become murky and confusing because of a few imprecise decisions by the Supreme Court.

U.S. Supreme Court Decisions

In 2012, the Supreme Court shocked the world of patent law with its ruling in Mayo Collaborative Servs. v. Prometheus Labs. In an opinion by Justice Breyer, the Supreme Court unanimously ruled that “basic tools of scientific and technological work” were not eligible for patent and that “one must do more than simply state” the law of nature. The Court was concerned that granting exclusive rights to natural phenomena would impede innovation.

More shocking than the ruling itself was the Court’s confusing explanation that, to be patent eligible, an invention required an “inventive concept” to ensure that the claim amounts to “significantly more” than a claim upon a natural law itself. The Court did not explain what “inventive concept” was, however.

In 2014, in an opinion by Justice Thomas for Alice Corp. v. CLS Bank Int’l, the Supreme Court doubled down on the Mayo test and expanded it to exclude abstract ideas from patent eligibility. The Court distinguished between basic “building blocks” and inventions that integrate them into “something more,” and created a test for determining patent eligibility: First, determine whether the claims are directed to one of the patent-ineligible concepts. Second, if so, determine whether the claims include additional elements that transform the claims into patent-eligible applications. Unfortunately, however, this two-step Alice test added to the confusion over patent eligibility.

Since the 1952 Patent Act, the courts held that patent eligibility was easy to meet and that the other requirements – novelty, utility, and non-obviousness – would do the necessary screening of claims. By overturning precedent cases and ignoring legislative history, the Supreme Court created confusing restrictions that effectively render some of the most exciting scientific discoveries and technological advances of the twenty-first century ineligible for patent protection. Things like personalized medicine, artificial organs, artificial intelligence, and medical diagnostics are not patent eligible.

Many in the patent field, including several Federal Circuit judges, expressed their deep concerns over this confusion. Some have called the Supreme Court decisions extraordinarily-shortsighted and, specifically, the Mayo opinion the worst opinion issued in patent law.

The USPTO Proposal – Thank you, Mr. Iancu!

Since Alice, the Supreme Court has denied a long line of patent appeals involving the question of patent eligibility, sidestepping opportunities to clarify what some call “unintelligible test for patent eligibility.” As major industry groups such as the American IP Law Association (AIPLA) and Intellectual Property Owners Association (IPO) joined law professors and industry watchers in voicing their concerns, and with no sign of resolution from the Supreme Court or the Congress, the USPTO proposed new guidance on patent eligibility.

In his speech at the IPO Annual Meeting in September 2018, the new director of the USPTO Andrei Iancu proposed the following steps for determining patent eligibility.

First, Iancu defined “basic tools of scientific and technological work” as:

  • “Pure discoveries of nature, such as gravity, electromagnetism, DNA, etc.” (citing Association for Molecular Pathology v. Myriad Genetics, Inc.);
  • “Fundamental mathematics like calculus, geometry, or arithmetic per se” (citing Gottschalk v. Benson);
  • “Basic ‘methods of organizing human activity,’ such as fundamental economic practices like market hedging and escrow transactions” (citing Bilski v. Kappos and Alice); and
  • “Pure mental processes such as forming a judgment or observation.”

Second, Iancu is most concerned with eligibility issues surrounding abstract ideas and he proposed three categories of abstract ideas:

  • “Mathematical concepts like mathematical relationships, formulas, and calculations”;
  • “Certain methods of organizing human interactions, such as fundamental economic practices, commercial and legal interactions; managing relationships or interactions between people; and advertising, marketing, and sales activities”; and
  • “Mental processes, which are concepts performed in the human mind, such as forming an observation, evaluation, judgment, or opinion.”

Third, Iancu explained that once the subject matter of the claims is determined to be a “process, machine, manufacture, or composition of matter,” a patent examiner would determine if the subject matter is within one of the enumerated categories of exceptions. According to Director Iancu, “This is the new approach. . . . If the claims do not recite subject matter falling into one of these categories, then the . . . [patent eligibility] analysis is essentially concluded and the claim is eligible.”

Conclusion

Many in the industry are optimistic and hopeful that the boundaries set by the new guidance will minimize uncertainty and encourage innovation. For inventors and entrepreneurs, this can only be good news.

Each year the USPTO receives over 600,000 patent applications. Although China receives more patent applications (1.38 million) than the U.S., followed by Japan (318,000), South Korea (204,000), and Germany (68,000), the U.S. patent is the most prestigious and coveted patent in the world. It has been a powerful engine for innovation, often with worldwide influence.

The new USPTO guidance on patent eligibility may not be perfect, but, given the constraints of judicial precedent, it is a reasonable approach and a significant step in the right direction. Combined with the creativity and determination of entrepreneurs, the new guidance will help keep the engine of innovation running at full speed.

This post was written on January 25, 2019.

At the time of this post, Michael Kwon is a second year student at Penn State Dickinson Law. Michael founded the Dickinson IP Law Society and served as its inaugural president. He currently serves as an associate editor of Jus Gentium Journal of International Legal History.

 

Sources:

Does the Supreme Court even appreciate the patent eligibility chaos they created? http://www.ipwatchdog.com/2018/11/12/103256/id=103256/

Remarks by Director Iancu at the Intellectual Property Owners Association 46th Annual Meeting https://www.uspto.gov/about-us/news-updates/remarks-director-iancu-intellectual-property-owners-46th-annual-meeting

Confusing Patent Eligibility https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2754323

World Intellectual Property Organization https://www.wipo.int/edocs/infogdocs/en/ipfactsandfigures2018/

The US Patent Office has issued 10 million patents https://www.theverge.com/2018/6/19/17478898/uspto-utility-patents-10-million-issued

Picture Sources:

https://www.kacst.edu.sa/eng/IndustInnov/SPO/Pages/spo.aspx

http://www.ipwatchdog.com/2018/11/12/103256/id=103256/

 

Dickinson Law went on the Road to Exeter High School, Reading PA

By: Samantha Prince

January 15, 2019: Kamron Abedi, President of the Business Law Society, and I traveled to Exeter Senior High School to meet with Engineering and Business Law students!  We presented on protecting IP and licensing considerations.  We also got to see the super cool inventions that the high school senior engineering students created! They even had prototypes built, which was impressive!

The STEM program at Exeter High is innovative and hands-on.  The program actually starts in middle school.  This is what we need to be seeing across the country if we want the United States to stay competitive in the entrepreneurial and discovery space.

There is no age limit to being an entrepreneur! Thank you Exeter for the visit and the shout-out via twitter!

 

 

 

Dickinson Law Hosted World-Renowned Journalists Llewellyn King & Linda Gasparello!

By: Samantha Prince

On January 14, 2019, Llewellyn King and Linda Gasparello, hosts of the PBS TV show White House Chronicle, and world-renowned journalists, visited Dickinson Law!  Llewellyn and Linda started their day by speaking to first year law students about advocating through writing.  They provided pivotal advice for overcoming writer’s block. “Do not let writing become your enemy.” “Get what is in your head into the reader’s head.”

Throughout the day, they spoke to several faculty members on topics that ran the gambit: cyberlaw, smart cities and the fourth industrial revolution; elder law; international human rights; entrepreneurship, etc.  Linda and Llewellyn also met with a group of our law students to talk about student career aspirations and ways to make a difference.  We look forward to our next visit together.

Notably, Llewellyn owned a publishing business for over 35 years and it was his entrepreneurial endeavors and advice that our Entrepreneurship Law students sought to hear about.  While speaking in our class, he gave the students some great advice on both being entrepreneurs and advising them. I thought I’d pass some of this valuable advice on to you:

What’s important for an entrepreneur … “You must know yourself.”

What should serial entrepreneurs do when they keep coming up with new ideas?  “Serial entrepreneurs should hire well.  You can hire people to manage your business then move on to your next idea.  There are people that are good at managing and they can handle that sort of thing for you.”

Professionals advising entrepreneurs need to “tell you how to do what you want to do.  Not tell you how to run your business.”

While all of this is important advice, the latter cannot be stressed enough.  Lawyers need to determine what the entrepreneur wants to accomplish and propose ways to achieve said accomplishment.  They need to be flexible with the entrepreneur and work as an innovative partner, not as a block to entrepreneurial success.

Informative Links:

How to build smarter smart cities | White House Chronicle

The Coming Convulsion of the Fourth Industrial Revolution

Greg Sutliff | Entrepreneur of the Month | January 2019

By: Gregory Archibald

I have the great honor to introduce you to Greg Sutliff, our January, 2019 featured entrepreneur. “Sutliff” is a name familiar to most individuals living in Pennsylvania. Many drivers across the state have purchased their vehicles from one of the Sutliff car dealerships or at the very least heard their catchy jingles over their radios as they cruise down the highway. Greg Sutliff, is just as well-known in the entrepreneurial community. I was fortunate enough to have the opportunity to interview him and gain insight into his views on the entrepreneurial mind and how to raise a successful business.

Greg Sutliff began working for his family’s business, Sutliff Chevrolet, in 1947. However, he did not move straight into the working world after graduating from high school. Mr. Sutliff graduated from Brown University in 1953 with his BA in Economics, and soon after served in the U.S. Navy until 1956. After his departure from the Navy, Mr. Sutliff attended Dickinson Law and obtained his Juris Doctorate in 1959. By 1962, Greg Sutliff returned to Sutliff Chevrolet as the general manager of the company.

Entrepreneurs and law students who would like to represent entrepreneurs can learn from Mr. Sutliff.  “…the law student needs to be able to fill in the blanks for the entrepreneur.”  Click here to hear Mr. Sutliff elaborate.

A Valuable Lesson

 “The first thing you need to know about is who you are.”

Throughout our interview, it became clear that Greg Sutliff was truly a man of “firsts,” and was not one to shy away from new ideas or advancements in the industry. In fact, he credits most of his success to being open-minded and adaptive. In the 1960s, Sutliff Chevrolet became one of the first car dealerships to have a computer for keeping track of payroll and inventory. As it was one of the earliest IBM models, no one had developed a program to complete such tasks. To solve this problem, Mr. Sutliff self-learned computer programming and programmed Sutliff Chevrolet’s computer.

In the 1970s, Mr. Sutliff brought an idea he had learned in law school to the automotive business. The “Last in First Out” (LIFO) accounting method, at that time, was not commonly used to organize automotive inventory. However, Mr. Sutliff felt that switching to the LIFO accounting method, though novel, may help his business. When he saw its success, he was quick to bring the new method to accounting firms and other dealerships in the area to allow them to share in the usefulness of his idea.

Hear it (and more) from Mr. Sutliff here.

The Entrepreneurial Mind

“The entrepreneurial mind is a sailing mind. You don’t know what’s going to happen, you don’t know what the wind is going to be, but you figure it out as you go. You have a destination in mind, but the way you go today is not the way you go tomorrow.”

           One key element to success that Mr. Sutliff shared was the importance of knowing not only your own skill sets, but also the skill sets of those around you. He was quick to admit that although he knew he was a strong manager, he was aware that he did not have the skills to work effectively in sales. As such, he knew from an early stage that it was important for him to find employees who possessed this skill set to not only sell cars, but to also teach other employees how to properly sell a car.

Early in his role as general manager of Sutliff Chevrolet, Mr. Sutliff came into contact with an organization that administered a type of workplace personality test that would indicate an individual’s work ethic, as well as the area of the company in which they would be most effective. Mr. Sutliff credits this test with a large portion of the company’s success. When he placed an employee in a position with the test results to back it up, he was confident that the employee would be a productive member of the company.

Watch Mr. Sutliff’s explanation here.

The Element for Success

 What is most important?  Honesty.  “An honest man will not work for a dishonest man.”

When I asked Mr. Sutliff what separated successful entrepreneurs from the rest of the pack, his answer was simple: successful people make themselves different. New ideas happen every day in the business world, but it is the ideas that make a company truly stand out from their competition that provide the foundation for success. For example, Mr. Sutliff and Sutliff Chevrolet offered extended warranties on their vehicles, despite the fact that these same warranties were completely unprofitable for their competition. The idea was a simple one, but Sutliff Chevrolet stood out from the crowd because they made it work. Mr. Sutliff developed a system that allowed customers to prove that they had given their cars the proper routine maintenance. If the cars were properly taken care of, the warranty would be honored, and an inconvenienced customer would be transformed into a loyal client.

Watch the interview here.

Success

 “You need to have dedication. You need to have vision. You need to have a persona that will attract quality people to work for you.”

In addition to the original Sutliff Chevrolet location, Greg Sutliff has operated a Volkswagen store, a Buick GMC Cadillac store, a Cadillac Hummer Saab store, a Ford Store, a national car rental franchise, and helped to develop the Saturn brand. At its peak, Mr. Sutliff had five Saturn stores throughout central Pennsylvania, and sold more Saturn vehicles than all other franchises put together: approximately 48,000 total.

Mr. Sutliff has received the GM Dealer of the Year Award twice, and has presided as president of the National Chevrolet Dealer Council. Mr. Sutliff is a community philanthropist, and has consistently provided generous donations to United Way. Throughout his life, he learned how to sail and became an experienced pilot, all while raising a family.

Hear Mr. Sutliff’s advice for today’s entrepreneurs and lawyers.

Videos containing Mr. Sutliff’s great insights can be viewed through links in the above article.

This post was authored on January 5, 2019.

Greg Archibald, at the time of this post, is a second-year law student at Penn State Dickinson Law. He is from Central Pennsylvania and is interested in civil litigation. Greg is a founding member of the Business Law Society and is currently an Associate Editor of the Dickinson Law Review

A Crack in the Glass Ceiling: California’s New Corporations Law

By: Anahita Anvari

Supreme Court Justice Ruth Bader Ginsburg once said, “There will be enough women on the Supreme Court when there are nine.” Justice Ginsburg’s statement reflects the current push toward gender equality. People across the country are calling for change.

In California, breaking the glass ceiling will start in the corporate boardroom. The state recently passed Senate Bill 826 (“Bill”), which aims to promote gender diversity and equality in the workplace. The Bill will increase gender equality in California, enhance company performance, and draw nationwide attention to gender disparity. This post will give a general overview of the Bill, discuss its positive impacts, and address the concerns of the Bill’s opponents.

The Bill Will Promote Gender Equality by Adding More Women to Corporate Boards

The Bill adds section 301.3 (“Section”) to the California Corporations Code (“Code”). The new section sets forth requirements for the number of women on corporate boards.

By December 31, 2019, any corporation that is subject to the new law must have at least one female on its board of directors. By December 31, 2021, a corporation with a board of five directors must have at least two female directors on its board, and a corporation with a board of six or more directors must have at least 3 female directors. Corporations must increase their total number of board members if no seats on the board become available to females by the effective date. For the purposes of the Bill, a “female” is an individual who identifies as a woman, regardless of their designated sex at birth.

The Bill applies to any domestic or foreign publicly held corporation whose principal executive office (“PEO”) is in California. A publicly held corporation is any corporation with shares on a major United States stock exchange. The PEO is defined by the Securities Exchange Commission as the location of the office where the officers, partners, or managers direct, control, and coordinate business.

The Code does not require California corporations to have their PEO in California. This means that California corporations will not need to comply if their PEO is in a different state. However, foreign corporations and businesses incorporated in a different state will be subject to the Bill if they are publicly held and have a PEO in California.

The Bill also imposes fines for violations. Failure to comply with the law will result in a $100,000 fine in the first year of violation, and $300,000 fine for any subsequent years of noncompliance.

The Bill is Necessary Because of the Prevalence of Gender Inequality in the Workplace

Gender inequality remains widespread in the workplace, as demonstrated by the lack of women on corporate boards and the distinct gender pay gap. The inequality will continue to prevail without an immediate change. For this reason, all companies should consider including women on their Boards rather regardless of whether the Bill applies or not.

Women Are Missing on Corporate Boards

Women are grossly underrepresented on California’s corporate boards, regardless of the size of the corporation.

The Russell 3000 Index (“Index”) tracks the 3,000 largest publicly held companies in the United States. A quarter of California-headquartered companies on the Index have no women on their board of directors. The remaining companies have at least one woman on their board, but these women make up only fifteen percent of the total board seats available.

Smaller companies fare even worse. Women hold roughly eight percent of the board seats of the fifty lowest-revenue California companies. Half of these companies have no women on their board at all.

Women are Paid Significantly Less than Men Throughout Their Careers

Women earn significantly less than men despite occupying roughly the same percent of United States jobs. On average, women earn half of men’s income in the United States – that is fifty cents to the dollar that a man makes.

California is generally performing better, with the pay gap at eighty-nine cents to every man’s dollar. However, an elimination of even a small pay gap would significantly add to the quality of life for women. For instance, without the additional pay to close the pay gap, women in California could afford almost eight additional months of child care or four additional months of rent per year.

Moreover, studies show that the pay gap begins early on in women’s careers. The average woman’s first job post-graduation pays less than a man’s, even though women generally tend to have higher grades in both high school and college. Corporations nationwide promote men at a thirty percent higher rate than they promote women.

Failure to Act Now Will Lead to Harmful Results

Studies have predicted that it could take almost fifty years to achieve gender equality without an immediate change. That could mean no equality until 2055. This date seems especially alarming given the increase in women obtaining higher education. Reports show that higher number of women have been enrolling in college than men for over twenty years.

California can achieve gender equality much sooner by mandating women on corporate boards. women at the highest level will likely have a pipeline effect, encouraging the hiring of more women in leadership roles throughout the company.

The Bill is Beneficial Because Corporations Perform Better When They Have a Woman on Their Board

Corporations that have a woman on their board perform better than those that do not. Profitability is one example. United States corporations with three or more female directors have a forty-five percent higher earnings per share than those who do not. Corporations with at least one woman on their board have a two-percent higher average return on equity than those companies who do not have at least one woman on their board. In fact, all the fifty largest California corporations have at least one woman on their board.

The Policy Behind the Bill Should Supersede the Arguments Against the Bill

  Opponents speculate that the Bill will fail if challenged in court for two reasons: The Equal Protection Clause (“EPC”) and the Internal Affairs Doctrine (“IAD”).

Arguments that the Bill will Violate the Equal Protection Clause are Based on Mere Speculation

The Bill raises questions under the EPC of both the California and United States Constitutions. The EPC of the United States Constitution requires gender-based legislation to pass intermediate scrutiny, meaning that the legislation must advance a substantial government interest. The California EPC applies strict scrutiny. This means that the legislation must serve a compelling government interest and must be the best way to meet that interest.

Opponents argue that the Bill violates both EPC’s because it discriminates based on an individual’s gender. However, the Bill does not exclude males. Rather, the Bill is inclusive of females and promotes equality of both genders. Additionally, the opponents’ argument fails because of its speculation and assumption. The argument assumes that promoting gender equality would not be a significant enough government interest for a court to uphold. The thought that gender equality lacks significance further emphasizes the need to address to the issue. This mindset and gender disparity will prevail without active efforts to change it.

Furthering Equality on Any Level Will Have a Positive Impact Regardless of Internal Affairs Doctrine Limitations

The Internal Affairs Doctrine is a choice of law provision under which a court will apply the law of a corporation’s state of incorporation to its internal affairs. This means that if a corporation is incorporated in Delaware but sued in California, a court would likely apply the laws of Delaware to the case regardless of the PEO existing in California. Opponents to the Bill say that this rule will severely limit the application of the Bill to less than one-hundred corporations.

This argument is also speculative. It is unclear whether corporations with a PEO in California and incorporation in a different state will challenge the Bill in court. Additionally, while the Bill has flaws, strong policy supports it. Governor Jerry Brown noted when he signed the Bill into law that its passage was necessary to draw attention to the prevalent and crippling issue of gender inequality. The Bill will achieve its main goal of drawing attention to the gender parity issue regardless of its outcome if challenged in court.

Conclusion

While it will take more than just one crack to break the corporate glass ceiling of gender inequality, California’s Senate Bill 826 is the first step towards the final shatter. The Bill will make a positive impact on California companies and will draw awareness to the issue of gender inequality.

*This post was authored on December 14, 2018.

Anahita Anvari, at the time of this post, is a second-year law student at Penn State’s Dickinson Law. She is from Southern California and is interested in health care law. Anahita founded the Health Law and Policy Society and is currently serving as an Associate Editor of the Dickinson Law Review.

 

Statutes and Legislative Materials

U.S. Const. amend. XIV, § 1.

C.A. Const. art. I, § 7.

Cal. Corp. Code (2018).

Sen. Bill No. 826 (2017-2018).

Governor Edmund G. Brown, Jr., Office of the Governor: Senate Bill 826 Signing Message, available at https://www.gov.ca.gov/wp-content/uploads/2018/09/SB-826-signing-message.pdf

Photo source: https://www.equilar.com/reports/50-gender-diversity-index-q2-2017.html

Please contact us if you’d like a complete source list.