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`IN THE
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`United States Patent and Trademark Office
`
`Before the Patent Trial and Appeal Board
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`EBAY INC. and PAYPAL, INC.,
`
`Petitioner,
`
`v.
`
`XPRT VENTURES, LLC
`
`Patent Owner.
`
`CBM2017-00024
`
`Patent No. 7,610,244 B2
`
`PATENT OWNER’S RESPONSE TO THE
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`PETITIONER’S PETITION
`
`(37 C.F.R. Section 42.220)
`
`
`
`Dated: November 1, 2017
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`
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`TABLE OF CONTENTS
`
`TABLE OF AUTHORITIES……………………………iv
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`SUMMARY OF ARGUMENT………………………….1
`
`ARGUMENT…………………………………………….5
`I.
`
`PATENT OWNER’S CHALLENGED
`CLAIMS ARE NOT CBM CLAIMS AND
`THEY RECITE PATENTABLE SUBJECT
`MATTER……………………………………5
`
`A.
`
`
`B.
`
`Challenged Claims Recite Patentable
`Subject Matter……………………………...5
`
`Challenged Claims Are Not CBM Claims…7
`
`II.
`
`PATENTS ARE PRIVATE RIGHTS, AND
`THE PTAB INCORRECTLY
`ADHERED TO A “PUBLIC RIGHTS”
`THEORY IN GRANTING THE PETITION……...10
`
`A.
`
`The U.S. Supreme Court Has
`Historically Treated Patent Rights as
`Private Rights, Not “Public Rights”………..11
`
`B.
`
`The PTAB’S “Public Rights”
`Theory Is Inconsistent With the
`Quid Pro Quo That Underlies the
`Patent System.……………………………..19
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`III. THE IPR AND CBM PROCESSES AS
`ENACTED AND IMPLEMENTED
`ARE CONSTITUTIONALLY INFIRM…………22
`
`
`
`
`i
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`
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`A.
`
`B.
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`The U.S. Supreme Court Has
`Recognized Exceptions To
`Article III Jurisdiction Only In
`Limited Circumstances. ..................... 22
`
`IPR and CBM Proceedings
`Conducted By The PTAB Do Not
`Meet The Supreme Court’s Criteria
`For Agency Adjudication of
`Private Rights .................................... 24
`
`1.
`
`The PTAB Operates More
`Broadly, And With Less
`Independence, Than the
`Tribunals Approved By
`The U.S. Supreme Court .......... 26
`
`2.
`
`3.
`
`The PTAB Has Failed To
`Adopt Fair Procedures To
`Secure Patent Rights ................ 31
`
`The Contrast With Other PTO
`Procedures For Reviewing
`Issued Patents Shows That The
`IPR and CBM Processes Do
`Not Operate In A Fair Or Valid
`Manner .................................... 36
`IV. THE IPR AND CBM SYSTEMS ARE
`ESPECIALLY TROUBLING AS
`APPLIED TO PATENTS ISSUED
`BEFORE THE AIA ..................................... 39
`
`CBM PROCESS UNDERMINES OR
`DENIES A PATENT OWNER’S RIGHT
`TO A JURY TRIAL UNDER THE
`SEVENTH AMENDMENT ........................ 43
`
`V.
`
`ii
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`VI. CBM PROCESS IS UNFAIR TO A
`PATENT OWNER SINCE A PATENT
`INFRINGER CAN ASSERT GROUNDS
`IT COULD HAVE REASONABLY
`ASSERTED IN THE DISTRICT
`COURT ........................................................ 44
`
`CONCLUSION ...................................................... 45
`WORD COUNT CERTIFICATION……………...48
`
`CERTIFICATE OF SERVICE .............................. 49
`
`iii
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`TABLE OF AUTHORITIES
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`CASES:
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`Andrews v. Columbia Gas Transmission Corp.,
`544 F.3d 618 (6th Cir. 2008) ....................... 13
`
`Board of Trustees of the Leland Stanford Junior
`University v. Roche Molecular Systems,
`Inc., 131 S.Ct. 2188 (2011) .......................... 17
`
`Cammeyer v. Newton,
`94 U.S. (4 Otto) 225 (1876) ......................... 12
`
`Cleveland v. United States,
`531 U.S. 12 (2000) ....................................... 11
`
`Commodity Futures Trading Comm’n v. Schor,
`478 U.S. 833 (1986) ………......................... passim
`
`Consolidated Fruit-Jar Co. v. Wright,
`94 U.S. (4 Otto) 92 (1876) ............................. 11
`
`Crowell v. Benson,
`285 U.S. 22 (1932) ........................................ passim
`
`Crozier v. Fried, Krupp Aktiengesellschaft,
`224 U.S. 290 (1912) ...................................... 12
`
`Cuozzo Speed Techs., LLC v. Lee,
`No. 15-446 ................................................... ..31
`
`Enfish, LLC v. Microsoft Corporation,
`(Fed. Cir. 2016)……………………………… 5, 7
`
`
`Evans v. Jordan,
`8 Fed. Cas. 872 (C.C.D. Va. 1813) ................ …15
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`
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`
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`General Motors Corp. v. Romein,
`503 U.S. 181 (1992)…………………………..39
`
`Hartford-Empire Co. v. United States,
`323 U.S. 386 (1945)…………………………..12
`
`Horne v. Department of Agriculture,
`135 S. Ct. 2419 (2015)………………………..12
`
`In re Baxter Int’l, Inc.,
`678 F.3d 1357 (Fed. Cir. 2012)…………….. 33
`
`In re Lunareye, Inc.,
`No. 2016-1413……………………………….31
`
`J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc.,
`534 U.S. 124 (2001).……………………….20
`
`James v. Campbell,
`104 U.S. 356 (1881)………………………….12
`
`Lutz v. Orinick,
`401 S.E.2d 464 (W.Va. 1990)………………..13
`
`Mazer v. Stein,
`347 U.S. 201 (1954)…………………………20
`
`McClurg v. Kingsland,
`42 U.S. (1 How.) 202 (1843)………………..40
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`McCRO, Inc. v. Bandai Namco Games America, Inc.,
`(Fed. Cir. 2016)……………………………5, 7
`
`McCormick Harvesting Mach. Co. v.
`C. Aultman & Co.,
`169 U.S. 606 (1898) ....................................... 12
`
`McKeever v. United States,
`14 Ct. Cl. 396 (1878) ................................... ..17
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`
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`Microsoft Corp. v. i4i Ltd.,
`564 U.S. 91 (2011) ......................................... 13
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`Nidec Motor Corp. v. Zhongshan Broad Ocean Motor
`Co., 2017 WL 3597455 (Fed. Cir. 2017).... 29, 30
`
`Northern Pipeline Constr. Co. v. Marathon
`Pipe Line Co., 458 U.S. 50 (1982) ................. 10
`
`Novartis AG v. Noven Pharms., Inc.,
`853 F.3d 1289 (Fed. Cir. 2017) .................... 32, 33
`
`Novartis Pharm. Corp. v. Watson Labs., Inc.,
`611 Fed. Appx. 988 (Fed. Cir. 2015) ........... 32
`
`Oil States Energy Services, LLC v. Greene’s Energy
`Group, LLC, et al., (Fed. Cir. 2016),
`certiorari granted June 2017..................................passim
`
`Old Colony Trust Co. v. CIR,
`279 U.S. 716 (1929) ....................................... 10
`
`Patlex Corp. v. Mossinghoff,
`758 F.2d 594 (Fed. Cir. 1985) ...................... 37
`
`Pennock v. Dialogue,
`27 U.S. 1 (1829) ...........................................15
`
`RCA v. Radio Engineering Laboratories,
`293 U.S. 1 (1934) ........................................... 13
`
`Richmond Screw Anchor Co., Inc. v. United States,
`275 U.S. 331 (1928) ......................................41, 42
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`Seymour v. Osborne,
`78 U.S. 516 (1871) ....................................... 11
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`Stern v. Marshall,
`564 U.S. 462 (2011) .....................................28
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`Thirty and 141, L.P. v. Lowe’s Home Centers, Inc.,
`565 F.3d 443 (8th Cir. 2009) ........................ 13
`
`Thomas v. Union Carbide Agricultural Products Co.,
`473 U.S. 568 (1985) ..............................passim
`
`Transparent-Wrap Mach. Corp. v. Stokes &
`Smith Co., 329 U.S. 637 (1947) ................... 11
`
`United States v. Dubilier Condenser Corp.,
`289 U.S. 178 (1933) ..................................... 11
`
`United States v. Tobias,
`899 F.2d 1375 (4th Cir. 1990) ...................... 13
`
`Wallace v. Adams,
`204 U.S. 415 (1907) ..................................... 10
`
`Williams v. United States,
`289 U.S. 553 (1933) ..................................... 10
`
`Yissum Res. Dev. Co. v. Sony Corp.,
`No. 2015-1342 (Fed. Cir.) ............................ 29
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`OTHER AUTHORITIES:
`
`157 Cong. Rec. H4421 ........................................... 43
`
`157 Cong. Rec. H4428 ........................................... 43
`
`H.R. Rep. No. 112-98 ............................................. 35
`
`Pub. L. No. 103-465, § 534 .................................... 42
`
`St. George Tucker, BLACKSTONE’S
`COMMENTARIES: WITH NOTES OF
`REFERENCE TO THE CONSTITUTION
`AND LAWS OF THE FEDERAL
`GOVERNMENT OF THE UNITED
`STATES AND OF THE
`COMMONWEALTH OF VIRGINIA 266 (1803)
`(appendix to vol. 1) ................................................ 19
`
`2 James Kent, COMMENTARIES ON AMERICAN
`LAW 497 (O.W. Holmes, Jr. ed., 12th ed. 1873)
`(1826) .....................................................................16
`
`41 ANNALS OF CONG. 934 (1824)……………...17
`
`John R. Allison et al., Understanding the Realities of
`Modern Patent Litigation, 92 TEX. L. REV. 1769,
`1785 (2014)……………………………..…...........35
`
`B. Zorina Khan, THE
`DEMOCRATIZATION OF INVENTION:
`PATENTS AND COPYRIGHTS IN
`AMERICAN ECONOMIC
`DEVELOPMENT,
`1790-1920, at 182 (2005) ....................................... 18
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`BRIEF OF BIOTECHNOLOGY INNOVATION
`ORGANIZATION (BIO) AND ASSOCIATION OF
`UNIVERSITY TECHNOLOGY MANAGERS
`(AUTM) AS AMICI CURIAE IN SUPPORT OF
`PETITIONER, August 31, 2017…………….passim
`
`Letter from James Madison to Thomas Jefferson
`(Oct. 17, 1788) in 11 THE PAPERS OF JAMES
`MADISON 297 (Robert A. Rutland et al. eds.,
`1977)……………………………………………..18
`
`Randolph J. May & Seth L. Cooper, The
`Constitutional Foundations of Intellectual Property
`131 (2015)……….................................................40
`
`Adam Mossoff, Rethinking the Development of
`Patents: An Intellectual History, 1550–1800, 52
`HASTINGS L.J. 1255
`(2001)………………………………………………..18
`Russell Slifer, “Weakened Patent System Causes
`U.S. to Slip as a Global Leader of IP Protection,”
`The Hill (Aug. 4,
`2017)………………………………………….....36
`
`U.S. Patent & Trademark Office, Fiscal Year 2017
`Congressional Justification 62 (Feb. 9,
`2016)………...…………………………………..26
`
`USPTO, Ex Parte Reexamination Filing Data
`2 (Sept. 30, 2016) ................................................... 38
`
`USPTO, PTAB Trial Statistics ................................ 34
`
`USPTO, Patent Trial and Appeal Board
`Motion to Amend Study, 2016 ................................. 38
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`Edward C. Walterscheid, THE NATURE OF THE
`INTELLECTUAL PROPERTY CLAUSE: A
`STUDY IN HISTORICAL PERSPECTIVE 143
`(2002) .....................................................................16
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`SUMMARY OF ARGUMENT
`
`
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`The Patent Owner presents several arguments herein. First, the challenged
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`claims of the Patent Owner’s patent are not CBM claims and are patentable under
`
`35 U.S.C. § 101. Second, “[p]atents are property to which private rights attach.
`
`Under…[the United States Supreme] Court’s jurisprudence, patents have long been
`
`treated as conveying private rights, not ‘public rights.’ Indeed, it is well-settled that
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`patents are constitutionally protected forms of private property under the Fifth
`
`Amendment’s Takings Clause.”1 Therefore, the USPTO does not have the
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`constitutional authority to conduct patent trials and other adversarial proceedings.
`
`
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`In briefs filed by the Government in Oil States Energy Services, LLC v.
`
`Greene’s Energy Group, LLC, et al., in which the U.S. Supreme Court granted
`
`certiorari in June 2017 to address the following question:
`
`Whether inter partes review-an adversarial process used by the
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`Patent and Trademark Office (PTO) to analyze the validity of
`
`1 BRIEF OF BIOTECHNOLOGY INNOVATION ORGANIZATION (BIO) AND
`
`ASSOCIATION OF UNIVERSITY TECHNOLOGY MANAGERS (AUTM) AS
`
`AMICI CURIAE IN SUPPORT OF PETITIONER, page 2, August 31, 2017
`
`[hereinafter “AMICI CURIAE BRIEF OF BIO AND AUTM IN OIL STATES”].
`
`
`
`1
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`
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`existing patents-violates the Constitution by extinguishing
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`private property rights through a non-Article III forum without
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`a jury,
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`the “Government contends that patents are ‘quintessential public rights’ and
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`compares them to federal employee benefits, veterans’ benefits, and Social
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`Security benefits. But contrary to the Government’s position, the historical
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`treatment of patents shows that they are not analogous to statutory benefits
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`deemed public rights. Treating them as such would devalue patent rights and
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`disrupt well-settled investment-backed expectations…[In Oil States, the U.S.
`
`Supreme] Court should reaffirm that patent rights are private, not ‘public
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`rights.’” (quoting AMICI CURIAE BRIEF OF BIO AND AUTM IN OIL
`
`STATES, page 2)
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`
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`In the current CBM proceeding, an adversarial proceeding as inter partes
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`review (IPR), the PTAB, a non-Article III forum, should not be analyzing the
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`validity of the Patent Owner’s patent, a private property right. The PTAB should
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`at least give deference to the U.S. Supreme Court until it renders a decision in Oil
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`States. A possible finding of invalidity by the PTAB of the challenged claims prior
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`to the Supreme Court’s ruling, a ruling that may bar the PTAB from conducting
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`
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`2
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`
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`adversarial inter partes review (IPR) and CBM proceedings and find such
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`proceedings unconstitutional, would provide the Petitioner with a gift which it may
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`exploit as “evidence” in the district court patent infringement case between the
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`Patent Owner and the Petitioner. The PTAB can prevent such gamesmanship and
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`unfair tactics against the Patent Owner by giving deference to Chief Justice John
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`Roberts and the eight Justices of the Supreme Court.
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`
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`Third, the IPR and CBM processes are “particularly suspect as applied
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`retroactively to patents issued prior to the enactment of the AIA in 2011.” Id. The
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`Patent Owner’s patent in the current CBM process issued in 2009. “Because
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`property rights vest upon the issuance of a patent, Congress cannot undermine or
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`nullify those rights after-the-fact. The current IPR [and CBM processes as enacted
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`by the AIA offer] no special safeguards to protect vested rights. Instead, they
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`eliminate statutory and constitutional protections afforded patents in Article III
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`courts, resulting in many cases in the complete destruction of property rights.” Id.
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`at page 4.
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`
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`The CBM process further undermines issued CBM patents, because for
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`technologies other than covered business method, post-grant review is only
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`available for patents with a priority date later than March 15, 2013. As of
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`3
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`
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`September 16, 2012, post-grant review became available for covered business
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`method patents irrespective of their priority date.
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`
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`Fourth, a party charged with infringement of a CBM patent can initiate a
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`CBM challenge, although under the final rules, a party that has been served a cease
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`and desist letter is likely to be considered to have been charged with infringement
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`for purposes of petitioning for post-grant review of a CBM patent. Thereby, the
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`CBM process undermines or denies a patent owner’s right to a jury trial by, in the
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`majority of cases, the PTAB deciding the validity of the patent owner’s claims
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`before a jury has been empaneled.
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`
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`Fifth, CBM review also includes unique estoppel provisions that are less
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`extensive than post-grant review. Specifically, estoppel under CBM review extends
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`only to grounds actually asserted but not to grounds that reasonably could have
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`been asserted. In the district court, the Petitioner did not allege any of the Patent
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`Owner’s claims, including the challenged claims in the present CBM proceeding,
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`are directed to non-patentable subject matter under 35 U.S.C. § 101. This ground
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`could have been asserted by the Petitioner in the district court case, but the
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`Petitioner did not assert this ground. In the present CBM proceeding, the
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`Petitioner is doing an end run around the district court by asserting this ground
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`4
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`many years after it could have asserted it in the district court case as a defense, for
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`example, to the Patent Owner’s complaint. Consequently, the Patent Owner is
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`subjected to unnecessary financial and time expense.
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`ARGUMENT
`
`I. PATENT OWNER’S CHALLENGED CLAIMS ARE NOT CBM
`CLAIMS AND THEY RECITE PATENTABLE SUBJECT MATTER
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`A. Challenged Claims Recite Patentable Subject Matter
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`The challenged claims of the Patent Owner’s patent are patentable under 35
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`U.S.C. § 101. The following analysis is consistent with the 2014 Interim Guidance
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`on Patent Subject Matter Eligibility and the examples it provides; the July 2015
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`Update; the 2016 Update; and with the Federal Circuit’s decisions in at least Enfish
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`LLC v. Microsoft Corporation, et al., No. 2015-1244, 2016 WL 2756255 (Fed. Cir.
`
`May 12, 2016), and MCRO, Inc. d/b/a Planet Blue v. Bandai Namco Games
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`America, Inc. (Fed. Cir. 2016).
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`Step 1 of the analysis regarding patent-eligible subject matter requires a
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`determination of whether the claimed invention is directed to one of the four
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`statutory categories (i.e., “process, machine, manufacture, or composition of
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`matter, or any new and useful improvement thereof,” quoting 35 U.S.C. § 101).
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`Here, the invention of the challenged claims is directed to a payment system and/or
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`
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`5
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`
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`method. Payment systems and methods are patentable, see, e.g., the following
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`recently issued patents: U.S. Patent Nos. 9,786,005 (issued on October 10, 2017);
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`9,779,393 (issued on October 3, 2017); 9,741,045 (issued on August 22, 2017);
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`9,710,812 (issued on July 18, 2017 to the Petitioner); 9,704,152 (issued on July 11,
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`2017); and 9,607,293 (issued on March 28, 2017). Therefore, the Patent Owner’s
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`invention as recited by the challenged claims is directed to a statutory category of
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`invention.
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`Step 2 of the analysis requires (a) the determination of whether the claimed
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`invention is directed to subject matter encompassing a judicially-recognized
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`exception (i.e., law of nature, natural phenomena or abstract idea). If not, the
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`claim is patent eligible. If the claim is directed to a judicially-recognized
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`exception, then step 2 requires (b) a further analysis of whether the claim includes
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`elements or a combination of elements that are sufficient to ensure that the claim
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`amounts to “significantly more” than the judicial exception itself. In other words,
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`does the claim as a whole recite something significantly different than the judicial
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`exception (See, Guidance For Determining Subject Matter Eligibility of Claims
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`Reciting Or Involving Laws of Nature, Natural Phenomena, & Natural Products,
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`March 4, 2014, page 3).
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`6
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`The Patent Owner respectfully submits that the challenged claims are not
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`directed to a law of nature, natural phenomenon or abstract idea based on the 2014
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`Guidance, the 2016 Update and recent Federal Circuit opinions, see, e.g., Enfish
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`and MCRO. Therefore, the claims do not require further analysis of whether they
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`recite significantly more than a judicial exception (i.e., Step 2(b)).
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`B.
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`Challenged Claims Are Not CBM Claims
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`
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`The Office, in granting the Petitioner’s petition, is of the incorrect opinion
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`that the challenged claims are CBM claims and are directed to an abstract idea. A
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`CBM patent, as defined in the AIA, means “a patent that claims a method or
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`corresponding apparatus for performing data processing or other operations used in
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`the practice, administration, or management of a financial product or service,
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`except that the term does not include patents for technological inventions.”
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`
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`It is respectfully submitted that the challenged claims are directed to novel
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`and non-obvious improvements in computer-related technology (i.e., technological
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`inventions) as demonstrated by the claims having been found patentable by the
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`Office more
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`than 8 years ago. During prosecution,
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`the Patent Owner
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`technologically and patentably distinguished the then pending claims over the prior
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`art of record by addressing the technological and patentable features recited by the
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`
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`7
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`
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`claims, including those recited by challenged claims 1, 2, 15, 19, 20, 34, 40, 47, 48,
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`52, and 53.
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`
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`The specification in the Background of the Invention section of the instant
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`patent sets forth the drawbacks of prior art payment systems and methods which
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`the claims address. In particular, the specification states:
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`Accordingly, there exists a need for effecting a real-time
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`payment for an item won on an electronic auction which overcomes
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`the drawbacks provided above. Further, there exists a need for
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`allowing the winning bidder to effect payment for an item won on an
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`electronic auction without having to type and transfer credit card
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`information over an electronic network. Further still, there exists a
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`need for allowing a winning bidder who does not own a credit card or
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`feels uneasy transferring credit card information via the electronic
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`network to effect payment for an item won on an electronic auction
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`without having to mail a check, a money order, or other payment
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`document to the seller. Finally, there exists a need for allowing an
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`operator of an electronic auction web site to get paid its commission
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`in real-time at the conclusion of an auction.
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`
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`8
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`
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`Since the subject matter of the challenged claims provide technological
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`solutions to the drawbacks set forth in the specification and/or recite patentable
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`technological features, the Patent Owner’s patent is not a CBM patent (since “the
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`term does not include patents for technological inventions”), and, by extension, the
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`challenged claims are therefore not “an abstract idea” under 35 U.S.C. § 101.
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`Further, by the Office’s withdrawal of the rejections of the challenged
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`claims over the prior art of record during the prosecution of the patent by finding
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`Applicant’s arguments regarding the technical and technological differences
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`between the claimed subject matter and the prior art teachings persuasive, is a
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`strong indication the challenged claims were found by the Office to solve technical
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`problems which the prior art fails to do, and therefore the claims are not CBM
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`claims.
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`Accordingly, for at least these reasons, the Patent Owner submits that the
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`challenged claims are not CBM claims and are directed to patent-eligible subject
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`matter, and earnestly solicits withdrawal of the rejection under 35 U.S.C. § 101; a
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`rejection which came over 7 years after the allowance and issuance of the
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`challenged claims by the Office in 2009.
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`9
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`
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`II. PATENTS ARE PRIVATE RIGHTS, AND THE PTAB
`INCORRECTLY ADHERED TO A “PUBLIC RIGHTS”
`THEORY IN GRANTING THE PETITION
`
`The Government in Oil States Energy Services, LLC v. Greene’s Energy
`
`Group, LLC, et al. argues in its filing before the U.S. Supreme Court that “patents
`
`are ‘quintessential public rights’ and insists that they ‘confer rights that ‘exist only
`
`by virtue of statute.’’… It compares them to federal employee benefits, veterans’
`
`benefits, and Social Security benefits…Historically, [the Supreme] Court has
`
`treated the category of ‘public-rights’ cases as including disputes over customs
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`duties (Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 68
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`(1982) (plurality opinion)); membership in Indian tribes (Wallace v. Adams, 204
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`U.S. 415, 423- 24 (1907)); taxes (Old Colony Trust Co. v. CIR, 279 716, 723-24
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`(1929)); and claims against the United States (Williams v. United States, 289 U.S.
`
`553, 563-64 (1933)).” (quoting AMICI CURIAE BRIEF OF BIO AND AUTM IN
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`OIL STATES, pages 4-5)
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`“But patents are fundamentally different from the examples cited by the
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`Government [in Oil States] or treated as ‘public rights’ by [the U.S. Supreme]
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`Court. Moreover, the Government’s ‘public rights’ theory would breach the bargain
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`between the inventor and society that lies at the foundation of the patent system.”
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`Id. at page 5
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`10
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`
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`A.
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`The U.S. Supreme Court Has Historically
`Treated Patent Rights as Private Rights, Not
`“Public Rights”
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`“It has been long understood that patents confer traditional property rights
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`on patent owners. ‘A patent is property.’ United States v. Dubilier Condenser
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`Corp., 289 U.S. 178, 187 (1933). It is freely assignable, Transparent-Wrap Mach.
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`Corp. v. Stokes & Smith Co., 329 U.S. 637, 642 (1947), and is treated ‘a species of
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`property’ ‘of the same dignity as any other property.’ Id. at 643. See also
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`Cleveland v. United States, 531 U.S. 12, 23 (2000) (re-affirming that a patent is
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`protected “property”); Consolidated Fruit-Jar Co. v. Wright, 94 U.S. (4 Otto) 92, 96
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`(1876) (‘A patent for an invention is as much property as a patent for land.’);
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`Seymour v. Osborne, 78 U.S. 516, 533 (1871) (‘Inventions secured by letters patent
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`are property in the holder of the patent, and as such are as much entitled to
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`protection as any other property, consisting of a franchise, during the term for
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`which the franchise or the exclusive right is granted.’); 35U.S.C. § 261 (‘[P]atents
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`shall have the attributes of personal property.’).
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`Indeed, [the Supreme] Court has long held that patents are constitutionally
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`protected forms of private property, equivalent to other undisputed forms of
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`property, under the Fifth Amendment’s Takings Clause. ‘A patent confers upon the
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`11
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`patentee an exclusive property in the patented invention which cannot be
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`appropriated or used by the government itself, without just compensation, any
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`more than it can appropriate or use without compensation land which has been
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`patented to a private purchaser.’ Horne v. Department of Agriculture, 135 S. Ct.
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`2419, 2427 (2015) (quoting James v. Campbell, 104 U.S. 356, 357- 58 (1881)). [The
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`Supreme] Court has opined that it is ‘long [] settled’ that ‘a patent is property,
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`protected against appropriation both by individuals and by government’ under the
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`Takings Clause. Hartford-Empire Co. v. United States, 323 U.S. 386, 415 (1945).
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`In Cammeyer v. Newton, 94 U.S. (4 Otto) 225 (1876), [the U.S. Supreme]
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`Court explained that ‘an invention [secured by a valid letter-patent] is property in
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`the holder of the patent, and . . . is as much entitled to protection as any other
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`property.’ Id. at 234-35 (citations omitted); see also McCormick Harvesting Mach.
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`Co. v. C. Aultman & Co., 169 U.S. 606, 609 (1898) (‘It has become the property of
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`the patentee, and as such is entitled to the same legal protection as other
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`property.’). In Crozier v. Fried, Krupp Aktiengesellschaft, 224 U.S. 290 (1912),
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`[the Supreme] Court applied to the patent context ‘the well-established and indeed
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`elementary requirements in favor of property rights essential to be afforded in
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`12
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`
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`order to justify the taking by government of private property for public use.’ Id.
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`at 306.
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`That patents confer private rights is also reflected in the fact that,
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`historically, patents have enjoyed a presumption of validity and were subject to
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`invalidation only upon a challenger meeting a heightened standard of proof.
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`Microsoft Corp. v. i4i Ltd., 564 U.S. 91, 95 (2011). In RCA v. Radio
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`Engineering Laboratories, Inc., 293 U.S. 1 (1934), [the U.S. Supreme] Court
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`explained that a patent’s ‘presumption of validity’ is ‘not to be overthrown except
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`by clear and cogent evidence,’ id. at 2, and ‘an infringer who assails the validity of
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`a patent . . . bears a heavy burden of persuasion,’ beyond a ‘dubious
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`preponderance.’ Id. at 8. As with other important private rights, a patent could be
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`ruled to have improperly issued only upon a showing of clear and convincing
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`evidence. For example, only clear and convincing proof can contest a will, see,
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`e.g., Lutz v. Orinick, 401 S.E.2d 464, 467 (W.Va. 1990); reform a deed, see Thirty
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`and 141, L.P. v. Lowe’s Home Centers, Inc., 565 F.3d 443, 446 (8th Cir. 2009); or
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`establish adverse possession or a prescriptive easement, see, e.g., United States v.
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`Tobias, 899 F.2d 1375, 1378 (4th Cir. 1990); Andrews v. Columbia Gas
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`Transmission Corp., 544 F.3d 618, 631 n.13 (6th Cir. 2008).
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`13
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`
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`The Government’s ‘public rights theory [in Oil States] is also contrary to the
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`constitutional conception of the nature of the patent property right. In contrast to
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`many Article I powers, which are typically broad and open- ended, the
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`Constitution is much more particular in prescribing the means by which the
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`Congress can promote the progress of science and useful arts: by ‘securing . . . to .
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`. . Inventors the exclusive Right to their . . . Discoveries.’ Art. I, § 8, cl. 8.
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`Notably, the Intellectual Property Clause calls for ‘securing . . . exclusive Rights’ –
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`pre-existing rights – rather than creating wholly new rights out of whole cloth or
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`bestowing them as a matter of public largesse. The term ‘securing’ implies the
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`recognition of rights that are not created and conferred by the Government, and it is
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`highly doubtful that ‘securing’ a right entails the power to revoke or invalidate it
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`absent special constitutional protections. See Preamble (‘We the People of the
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`United States, in Order to […] secure the Blessings of Liberty to ourselves and our
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`Posterity’) (emphasis added). Moreover, the Constitution recites the ‘exclusive
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`Right,’ not ‘exclusive Benefit’ or ‘exclusive Privilege.’2
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`2 The Constitution recites “Privilege” in several other places, such as “the Privilege
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`of the Writ of Habeas Corpus,” and “all Privileges and Immunities of Citizens in the
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`14
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`
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`Under the patent system created by the Framers, the foundation of a patent
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`right is the inventor’s sweat and ingenuity. The Government’s obligation is to
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`safeguard and perfect pre-existing inchoate property rights earned by the inventor’s
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`own efforts, not to diminish them by making them revocable at the Government’s
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`discretion. Thus, Chief Justice John Marshall explained that ‘[t]he constitution and
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`law, taken together, give to the inventor, from the moment of invention, an
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`inchoate property therein, which is completed by suing out a patent.’ Evans v.
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`Jordan, 8 Fed. Cas. 872, 873 (C.C.D.Va. 1813). An inventor possesses an
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`‘inchoate property which [is] vested by the discovery,’ id. at 874, and ‘perfected by
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`the patent.’ Id. at 873. Justice Story, writing for the Court in Pennock v. Dialogue,
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`27 U.S. 1 (1829), agreed that an inventor had an ‘inchoate right’ even before
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`filing for a patent. Id. at 15-16. This understanding of a patent right is not
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`consistent with the theory that it is merely a ‘public right.’
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`This principle has long been understood for copyrights, which arise from the
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`very same constitutional Clause as patents. Like the inchoate rights vested in an
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`invention, rights in copyrightable work spring into existence at the moment the
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`Several States.” The “exclusive Right” in Art. I, § 8, cl. 8 is the first and only place
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`where the original Constitution recites a “Right.”
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`15
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`
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`work is created, without any requirement to register the work with the Copyright
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`Office. See 17 U.S.C. § 408(a).
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`In his 1792 treatise, Joseph Barnes, one of the early American patent
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`commentators, explained the idea of a patent ‘securing’ a pre-existing right: ‘[A]
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`system for securing property in the products of genius is a mutual contract between
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`the inventor and the public, in which the inventor agrees, on proviso that the public
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`will secure to him his property in, and the exclusive use of his discovery for a
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`limited time, he will, at the expiration of such time, cede his right in the same to
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`the public . . . .’3 In his equally important American Commentaries, Chancellor
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`James Kent classified both copyrights and patents under the heading, ‘Of original
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`acquisition by intellectual labor.’4 As Daniel Webster declared in the House of
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`Representatives in 1824, ‘the right of the inventor’ is ‘the fruit of his mind—it
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`belongs to him more than any other property—he does not inherit it—he takes it by
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`3 Cited in Edward C. Walterscheid, THE NATURE OF THE INTELLECTUAL
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`PROPERTY CLAUSE: A STUDY IN HISTORICAL PERSPECTIVE 143 (2002).
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`4 2 James Kent, COMMENTARIES ON AMERICAN LAW 497 (O.W. Holmes,
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`Jr. ed., 12th ed. 1873) (1826).
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`16
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`
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`no man’s gift—it peculiarly belongs to him, and he ought to be protected in the
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`enjoyment of it.’5
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`This understanding remains true today. ‘Since 1790, the patent law has
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`operated on the premise that rights in an invention belong to the inventor.’ Board of
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`Trustees of the Leland Stanford Junior University Roche Molecular Systems, Inc.,
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`131 S.Ct. 2188, 2192 (2011). ‘[A]n inventor owns ‘the product of [his or her]
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`original thought.’’ Id. at 2195 (citation omitted).
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`The emphasis on the moral claim of the inventor to the fruits of his or her
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`labor was a uniquely American justification for patents under the Constitution. In
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`McKeever v. United States, 14 Ct. Cl. 396 (1878), the Court of Claims compared
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`the British and American schemes, observing that, even in the late nineteenth
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`century, Britain adhered to its traditional view of patents as ‘a grant’ issuing solely
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`from ‘royal favor,’ and therefore it ‘shall not exclude a use[] by the Crown.’ Id. at
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`420. The McKeever Court pointed out the different legal status of patents in the
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`United States,