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`IN THE
`United States Patent and
`Trademark Office
`Before the Patent Trial and Appeal Board
`
`EBAY INC. and PAYPAL, INC.,
`Petitioner,
`
`v.
`
`XPRT VENTURES, LL
`Patent Owner.
`
`CBM2017-00029 (Patent No. 7,567,937 B2)
`
`PATENT OWNER’S RESPONSE TO THE
`PETITIONER’S PETITION
`
`(37 C.F.R. Section 42.220)
`
`
`
`
`
`
`
`
`
`
`
`Dated: October 23, 2017
`
`
`
`
`
`

`

`TABLE OF CONTENTS
`
`TABLE OF AUTHORITIES ................................................ iii
`
`SUMMARY OF ARGUMENT ............................................. 1
`
`ARGUMENT ......................................................................... 3
`
`I.
`
`II.
`
`PATENT OWNER‘S CHALLENGED CLAIMS ARE
`NOT CBM CLAIMS AND THEY RECITE
`PATENTABLE SUBJECT MATTER ............................ 3
`
`A.
`
`
`B.
`
`Challenged Claims Recite Patentable
`Subject Matter……………………………….3
`
`Challenged Claims Are Not CBM Claims…..4
`
`PATENTS ARE PRIVATE RIGHTS, AND THE
`PTAB INCORRECTLY
`ADHERED TO A ―PUBLIC RIGHTS‖
`THEORY IN GRANTING THE PETITION .............. 6
`
`A.
`
`The U.S. Supreme Court Has Historically
`Treated Patent Rights as Private Rights, Not
`―Public Rights‖ ........................................................ 6
`
`B.
`
`The PTAB‘S ―Public Rights‖ Theory Is
`Inconsistent With the Quid Pro Quo
`That Underlies the Patent System........10
`
`THE IPR AND CBM PROCESSES AS
`ENACTED AND IMPLEMENTED ARE
`CONSTITUTIONALLY INFIRM .......................... 12
`
`III.
`
`A.
`
`The U.S. Supreme Court Has
`Recognized Exceptions To Article III
`Jurisdiction Only In Limited
`Circumstances. ............................................. 12
`
`
`
`
`
`
`
`
`i
`
`
`
`

`

`B.
`
`IPR and CBM Proceedings Conducted
`By The PTAB Do Not Meet The
`Supreme Court‘s Criteria For Agency
`Adjudication of Private Rights .................... 13
`
`1.
`
`2.
`
`3.
`
`The PTAB Operates More Broadly,
`And With Less Independence, Than
`the Tribunals Approved By
`The U.S. Supreme Court .................. 14
`
`The PTAB Has Failed To Adopt
`Fair Procedures To
`Secure Patent Rights ........................ 17
`
`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.................... 19
`
`
`
`IV.
`
`V.
`
`VI.
`
`THE IPR AND CBM SYSTEMS ARE
`ESPECIALLY TROUBLING AS APPLIED TO
`PATENTS ISSUED BEFORE THE AIA ................ 21
`
`CBM PROCESS UNDERMINES OR DENIES
`A PATENT OWNER‘S RIGHT TO A JURY
`TRIAL UNDER THE SEVENTH
`AMENDMENT ....................................................... 23
`
`CBM PROCESS IS UNFAIR TO A PATENT
`OWNER SINCE A PATENT INFRINGER
`CAN ASSERT GROUNDS IT COULD HAVE
`REASONABLY ASSERTED IN THE
`DISTRICT COURT ................................................. 23
`
`CONCLUSION .................................................................... 24
`
`CERTIFICATE OF SERVICE ............................................ 25
`
`ii
`
`
`
`
`
`

`

`
`
`
`
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`
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`
`
`
`
`
`
`
`
`TABLE OF AUTHORITIES
`
`CASES:
`
`Andrews v. Columbia Gas Transmission Corp.,
`544 F.3d 618 (6th Cir. 2008) ...................................... 8
`
`Board of Trustees of the Leland Stanford Junior
`University v. Roche Molecular Systems,
`Inc., 131 S.Ct. 2188 (2011) ........................................ 9
`
`Cammeyer v. Newton,
`94 U.S. (4 Otto) 225 (1876) ....................................... 7
`
`Cleveland v. United States,
`531 U.S. 12 (2000) ..................................................... 6
`
`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) ........................................ 6
`
`Crowell v. Benson,
`285 U.S. 22 (1932) ........................................... passim
`
`Crozier v. Fried, Krupp Aktiengesellschaft,
`224 U.S. 290 (1912) ................................................. 7
`
`Cuozzo Speed Techs., LLC v. Lee,
`No. 15-446............................................................... 17
`
`Enfish, LLC v. Microsoft Corporation,
`(Fed. Cir. 2016)…………………………………... 3, 4
`
`
`Evans v. Jordan,
`8 Fed. Cas. 872 (C.C.D.Va. 1813) ............................ 8
`
`General Motors Corp. v. Romein,
`503 U.S. 181 (1992) ................................................. 21
`
`iii
`
`

`

`Hartford-Empire Co. v. United States,
`323 U.S. 386 (1945) ................................................... 7
`
`Horne v. Department of Agriculture,
`135 S. Ct. 2419 (2015) ............................................... 7
`
`In re Baxter Int’l, Inc.,
`678 F.3d 1357 (Fed. Cir. 2012) .......................... 17, 18
`
`In re Lunareye, Inc.,
`No. 2016-1413.......................................................... 17
`
`J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U.S.
`124 (2001) ................................................................ 11
`
`James v. Campbell,
`104 U.S. 356 (1881) ................................................... 7
`
`Lutz v. Orinick,
`401 S.E.2d 464 (W.Va. 1990) .................................... 8
`
`Mazer v. Stein,
`347 U.S. 201 (1954) ................................................. 11
`
`McClurg v. Kingsland,
`42 U.S. (1 How.) 202 (1843).................................... 21
`
`McCRO, Inc. v. Bandai Namco Games America, Inc.,
`(Fed. Cir. 2016) ...................................................... 3, 4
`
`McCormick Harvesting Mach. Co. v.
`C. Aultman & Co.,
`169 U.S. 606 (1898) .................................................. 7
`
`McKeever v. United States,
`14 Ct. Cl. 396 (1878) ............................................... ..9, 10
`
`Microsoft Corp. v. i4i Ltd.,
`564 U.S. 91 (2011) .................................................... 7
`
`iv
`
`
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`
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`
`
`
`
`

`

`Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co., 2017
`WL 3597455 (Fed. Cir. 2017) ..................................15, 16
`
`Northern Pipeline Constr. Co. v. Marathon
`Pipe Line Co., 458 U.S. 50 (1982) ............................. 6
`
`Novartis AG v. Noven Pharms., Inc.,
`853 F.3d 1289 (Fed. Cir. 2017) ............................... 17
`
`Novartis Pharm. Corp. v. Watson Labs., Inc.,
`611 Fed. Appx. 988 (Fed. Cir. 2015) ...................... 17
`
`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) .................................................. 6
`
`Patlex Corp. v. Mossinghoff,
`758 F.2d 594 (Fed. Cir. 1985) ................................. 20
`
`Pennock v. Dialogue,
`27 U.S. 1 (1829) .........................................................9
`
`RCA v. Radio Engineering Laboratories,
`293 U.S. 1 (1934) ...................................................... 7
`
`Richmond Screw Anchor Co., Inc. v. United States,
`275 U.S. 331 (1928) .................................................22
`
`Seymour v. Osborne,
`78 U.S. 516 (1871) ..................................................... 6
`
`Stern v. Marshall,
`564 U.S. 462 (2011) .................................................15
`
`Thirty and 141, L.P. v. Lowe’s Home Centers, Inc.,
`565 F.3d 443 (8th Cir. 2009) ...................................... 8
`
`Thomas v. Union Carbide Agricultural Products Co., 473 U.S.
`568 (1985) .........................................................passim
`v
`
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`
`
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`
`
`
`

`

`Transparent-Wrap Mach. Corp. v. Stokes &
`Smith Co., 329 U.S. 637 (1947) ................................. 6
`
`United States v. Dubilier Condenser Corp.,
`289 U.S. 178 (1933) ................................................... 6
`
`United States v. Tobias,
`899 F.2d 1375 (4th Cir. 1990) .................................... 8
`
`Wallace v. Adams,
`204 U.S. 415 (1907) ................................................... 6
`
`Williams v. United States,
`289 U.S. 553 (1933) ................................................... 6
`
`Yissum Res. Dev. Co. v. Sony Corp.,
`No. 2015-1342 (Fed. Cir.) ........................................ 16
`
`
`
`vi
`
`

`

`OTHER AUTHORITIES:
`
`157 Cong. Rec. H4421 ......................................................... 22
`
`157 Cong. Rec. H4428 ......................................................... 22
`
`H.R. Rep. No. 112-98........................................................... 19
`
`Pub. L. No. 103-465, § 534 .................................................. 22
`
`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) .............................................................. 10
`
`2 James Kent, COMMENTARIES ON AMERICAN
`LAW 497 (O.W. Holmes, Jr. ed., 12th ed. 1873)
`(1826) .....................................................................................9
`
`41 ANNALS OF CONG. 934 (1824)…………..…………...9
`
`John R. Allison et al., Understanding the Realities of Modern
`Patent Litigation, 92 TEX. L. REV. 1769, 1785
`(2014)…………………………………………………........19
`
`B. Zorina Khan, THE DEMOCRATIZATION OF
`INVENTION: PATENTS AND COPYRIGHTS IN
`AMERICAN ECONOMIC DEVELOPMENT,
`1790-1920, at 182 (2005) .................................................... 10
`
`INNOVATION
`BIOTECHNOLOGY
`OF
`BRIEF
`(BIO) AND ASSOCIATION OF
`ORGANIZATION
`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)……………………………………………………..10
`
`Randolph J. May & Seth L. Cooper, The Constitutional
`Foundations of Intellectual Property 131 (2015)……….....21
`
`Adam Mossoff, Rethinking the Development of Patents: An
`Intellectual History, 1550–1800, 52 HASTINGS L.J. 1255
`(2001)……………………………………………………….10
`
`Russell Slifer, ―Weakened Patent System Causes U.S. to
`Slip as a Global Leader of IP Protection,‖ The Hill (Aug. 4,
`2017)………………………………………………............19
`
`U.S. Patent & Trademark Office, Fiscal Year 2017
`Congressional Justification 62 (Feb. 9, 2016)………...……14
`
`USPTO, Ex Parte Reexamination Filing Data
`2 (Sept. 30, 2016) ................................................................ 20
`
`USPTO, PTAB Trial Statistics ............................................. 18
`
`USPTO, Patent Trial and Appeal Board
`Motion to Amend Study, 2016 .............................................. 20
`
`Edward C. Walterscheid, THE NATURE OF THE
`INTELLECTUAL PROPERTY CLAUSE: A STUDY IN
`HISTORICAL PERSPECTIVE 143 (2002) ..........................9
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`

`
`
`
`The Patent Owner presents several arguments herein. First, the challenged claims of the
`
`SUMMARY OF ARGUMENT
`
`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 patents are constitutionally protected forms of private
`
`property under the Fifth Amendment‘s Takings Clause.‖ 1 Therefore, the USPTO does not have
`
`the constitutional authority to conduct patent trials and other adversarial proceedings.
`
`
`
`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 Patent and
`Trademark Office (PTO) to analyze the validity of existing patents-violates the
`Constitution by extinguishing private property rights through a non-Article III
`forum without a jury,
`
`the ―Government contends that patents are ‗quintessential public rights‘ and compares them to
`
`federal employee benefits, veterans‘ benefits, and Social Security benefits. But contrary to the
`
`Government‘s position, the historical treatment of patents shows that they are not analogous to
`
`statutory benefits deemed public rights. Treating them as such would devalue patent rights and
`
`disrupt well-settled investment-backed expectations…[In Oil States, the U.S. Supreme] Court
`
`should reaffirm that patent rights are private, not ‗public rights.‘‖ (quoting AMICI CURIAE
`
`BRIEF OF BIO AND AUTM IN OIL STATES, page 2)
`
`
`
`In the current CBM proceeding, an adversarial proceeding as inter partes review (IPR),
`
`the PTAB, a non-Article III forum, should not be analyzing the validity of the Patent Owner‘s
`
`patent, a private property right. The PTAB should at least give deference to the U.S. Supreme
`
`Court until it renders a decision in Oil States. A possible finding of invalidity by the PTAB 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
`
`

`

`the challenged claims prior to the Supreme Court‘s ruling, a ruling that may bar the PTAB from
`
`conducting adversarial inter partes review (IPR) and CBM proceedings and find such
`
`proceedings unconstitutional, would provide the Petitioner with a gift which it may exploit as
`
`―evidence‖ in the district court patent infringement case between the Patent Owner and the
`
`Petitioner. The PTAB can prevent such gamesmanship and unfair tactics against the Patent
`
`Owner by giving deference to Chief Justice John Roberts and the eight Justices of the Supreme
`
`Court.
`
`
`
`Third, the IPR and CBM processes are ―particularly suspect as applied retroactively to
`
`patents issued prior to the enactment of the AIA in 2011.‖ Id. The Patent Owner‘s patent in the
`
`current CBM process issued in 2009. ―Because property rights vest upon the issuance of a patent,
`
`Congress cannot undermine or nullify those rights after-the-fact. The current IPR [and CBM
`
`processes as enacted by the AIA offer] no special safeguards to protect vested rights. Instead,
`
`they eliminate statutory and constitutional protections afforded patents in Article III courts,
`
`resulting in many cases in the complete destruction of property rights.‖ Id. at page 4.
`
`
`
`The CBM process further undermines issued CBM patents, because for technologies
`
`other than covered business method, post-grant review is only available for patents with a
`
`priority date later than March 15, 2013. As of September 16, 2012, post-grant review became
`
`available for covered business method patents irrespective of their priority date.
`
`
`
`Fourth, a party charged with infringement of a CBM patent can initiate a CBM challenge,
`
`although under the final rules, a party that has been served a cease and desist letter is likely to be
`
`considered to have been charged with infringement for purposes of petitioning for post-grant
`
`review of a CBM patent. Thereby, the CBM process undermines or denies a patent owner‘s right
`
`to a jury trial by, in the majority of cases, the PTAB deciding the validity of the patent owner‘s
`
`claims before a jury has been empaneled.
`
`
`
`Fifth, CBM review also includes unique estoppel provisions that are less extensive than
`
`post-grant review. Specifically, estoppel under CBM review extends only to grounds actually
`
`asserted but not to grounds that reasonably could have been asserted. In the district court, the
`
`Petitioner did not allege any of the Patent Owner‘s claims, including the challenged claims in the
`
`present CBM proceeding, are directed to non-patentable subject matter under 35 U.S.C. § 101.
`
`
`
`2
`
`

`

`This ground could have been asserted by the Petitioner in the district court case, but the
`
`Petitioner did not assert this ground. In the present CBM proceeding, the Petitioner is doing an
`
`end run around the district court by asserting this ground many years after it could have asserted
`
`it in the district court case as a defense, for example, to the Patent Owner‘s complaint.
`
`Consequently, the Patent Owner is subjected to unnecessary financial and time expense.
`
`ARGUMENT
`
`I.
`
`
`PATENT OWNER’S CHALLENGED CLAIMS ARE NOT CBM CLAIMS
`AND THEY RECITE PATENTABLE SUBJECT MATTER
`
`
`A.
`
`Challenged Claims Recite Patentable Subject Matter
`
`The challenged claims of the Patent Owner‘s patent are patentable under 35 U.S.C. § 101.
`
`The following analysis is consistent with the 2014 Interim Guidance on Patent Subject Matter
`
`Eligibility and the examples it provides; the July 2015 Update; the 2016 Update; and with the
`
`Federal Circuit‘s decisions in at least Enfish 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 America, Inc. (Fed. Cir. 2016).
`
`Step 1 of the analysis regarding patent-eligible subject matter requires a determination of
`
`whether the claimed invention is directed to one of the four statutory categories (i.e., ―process,
`
`machine, manufacture, or composition of matter, or any new and useful improvement thereof,‖
`
`quoting 35 U.S.C. § 101). Here, the invention of the challenged claims is directed to a payment
`
`system and/or method. Payment systems and methods are patentable, see, e.g., the following
`
`recently issued patents: U.S. Patent Nos. 9,786,005 (issued on October 10, 2017); 9,779,393
`
`(issued on October 3, 2017); 9,741,045 (issued on August 22, 2017); 9,710,812 (issued on July
`
`18, 2017 to the Petitioner); 9,704,152 (issued on July 11, 2017); and 9,607,293 (issued on March
`
`28, 2017). Therefore, the Patent Owner‘s invention as recited by the challenged claims is
`
`directed to a statutory category of invention.
`
`Step 2 of the analysis requires (a) the determination of whether the claimed invention is
`
`directed to subject matter encompassing a judicially-recognized exception (i.e., law of nature,
`
`natural phenomena or abstract idea). If not, the claim is patent eligible. If the claim is directed
`
`
`
`3
`
`

`

`to a judicially-recognized exception, then step 2 requires (b) a further analysis of whether the
`
`claim includes elements or a combination of elements that are sufficient to ensure that the claim
`
`amounts to ―significantly more‖ than the judicial exception itself. In other words, does the claim
`
`as a whole recite something significantly different than the judicial exception (See, Guidance
`
`For Determining Subject Matter Eligibility of Claims Reciting Or Involving Laws of Nature,
`
`Natural Phenomena, & Natural Products, March 4, 2014, page 3).
`
`
`
`The Patent Owner respectfully submits that the challenged claims are not directed to a
`
`law of nature, natural phenomenon or abstract idea based on the 2014 Guidance, the 2016
`
`Update and recent Federal Circuit opinions, see, e.g., Enfish and MCRO. Therefore, the claims
`
`do not require further analysis of whether they recite significantly more than a judicial exception
`
`(i.e., Step 2(b)).
`
`B.
`
`Challenged Claims Are Not CBM Claims
`
`
`
`The Office, in granting the Petitioner‘s petition, is of the incorrect opinion that the
`
`challenged claims are CBM claims and are directed to an abstract idea. A CBM patent, as
`
`defined in the AIA, means ―a patent that claims a method or corresponding apparatus for
`
`performing data processing or other operations used in the practice, administration, or
`
`management of a financial product or service, except that the term does not include patents for
`
`technological inventions.‖
`
`
`
`It is respectfully submitted that the challenged claims are directed to novel and non-
`
`obvious improvements in computer-related technology (i.e., technological inventions) as
`
`demonstrated by the claims having been found patentable over the prior art of record by the
`
`Office more than 8 years ago. In the Notice of Allowance dated June 11, 2009, the Office states
`
`―Claims 1-10 and 32-41 [includes challenged claims 1 and 9], are allowable over the prior art of
`
`record and has (sic) argued by Applicant‘s representative in their response 4/23/2009.‖ In the
`
`response of 4/23/2009, Applicant‘s or Patent Owner‘s representative technologically and
`
`patentably distinguished the then pending claims over the prior art of record by addressing the
`
`technological and patentable features recited by the claims, including those recited by challenged
`
`claims 1 and 9.
`
`
`
`4
`
`

`

`
`
`The specification in the Background of the Invention section of the instant patent sets
`
`forth the drawbacks of prior art payment systems and methods which the claims address. In
`
`particular, the specification states:
`
`Accordingly, there exists a need for effecting a real-time payment for an item won
`on an electronic auction which overcomes the drawbacks provided above. Further, there
`exists a need for allowing the winning bidder to effect payment for an item won on an
`electronic auction without having to type and transfer credit card information over an
`electronic network. Further still, there exists a need for allowing a winning bidder who
`does not own a credit card or feels uneasy transferring credit card information via the
`electronic network to effect payment for an item won on an electronic auction without
`having to mail a check, a money order, or other payment document to the seller. Finally,
`there exists a need for allowing an operator of an electronic auction web site to get paid
`its commission in real-time at the conclusion of an auction.
`
`
`
`Since the subject matter of the challenged claims provide technological solutions to the
`
`drawbacks set forth in the specification and/or recite patentable technological features, the Patent
`
`Owner‘s patent is not a CBM patent (since ―the term does not include patents for technological
`
`inventions‖), and, by extension, the challenged claims are therefore not ―an abstract idea‖ under
`
`35 U.S.C. § 101.
`
`
`
`Further, by the Office‘s statements/admission in the Notice of Allowance for allowing the
`
`claims, including the now challenged claims, the Patent Owner‘s patent is not a CBM patent.
`
`
`
`Further still, by the Office‘s withdrawal of the rejections of the pending claims over the
`
`prior art of record during the prosecution of the patent by finding Applicant‘s arguments
`
`regarding the technical and technological differences between the claimed subject matter and the
`
`prior art teachings persuasive, is a strong indication the challenged claims were found by the
`
`Office to solve technical problems which the prior art fails to do, and therefore the claims are not
`
`CBM claims.
`
`Accordingly, for at least these reasons, the Patent Owner submits that the challenged
`
`claims are not CBM claims and are directed to patent-eligible subject matter, and earnestly
`
`solicits withdrawal of the rejection under 35 U.S.C. § 101; a rejection which came over 7 years
`
`after the allowance and issuance of the challenged claims by the Office in 2009.
`
`
`
`
`
`
`
`5
`
`

`

`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 duties (Northern Pipeline Constr. Co. v. Marathon Pipe Line
`
`Co., 458 U.S. 50, 68 (1982) (plurality opinion)); membership in Indian tribes (Wallace v. Adams,
`
`204 U.S. 415, 423- 24 (1907)); taxes (Old Colony Trust Co. v. CIR, 279 716, 723-24 (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 OIL STATES, pages 4-5)
`
`―But patents are fundamentally different from the examples cited by the Government [in
`
`Oil States] or treated as ‗public rights‘ by [the U.S. Supreme] Court. Moreover, the
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`Government‘s ‗public rights‘ theory would breach the bargain between the inventor and society
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`that lies at the foundation of the patent system.‖ Id. at page 5
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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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`
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`―It has been long understood that patents confer traditional property rights on patent
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`owners. ‗A patent is property.‘ United States v. Dubilier Condenser Corp., 289 U.S. 178, 187
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`(1933). It is freely assignable, Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 329 U.S.
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`637, 642 (1947), and is treated ‗a species of property‘ ‗of the same dignity as any other property.‘
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`Id. at 643. See also Cleveland v. United States, 531 U.S. 12, 23 (2000) (re-affirming that a patent
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`is protected ―property‖); Consolidated Fruit-Jar Co. v. Wright, 94 U.S. (4 Otto) 92, 96 (1876) (‗A
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`patent for an invention is as much property as a patent for land.‘); Seymour v. Osborne, 78 U.S.
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`516, 533 (1871) (‗Inventions secured by letters patent are property in the holder of the patent,
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`and as such are as much entitled to protection as any other property, consisting of a franchise,
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`during the term for which the franchise or the exclusive right is granted.‘); 35U.S.C. § 261
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`(‗[P]atents shall have the attributes of personal property.‘).
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`Indeed, [the Supreme] Court has long held that patents are constitutionally protected forms
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`of private property, equivalent to other undisputed forms of property, under the Fifth
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`Amendment‘s Takings Clause. ‗A patent confers upon the patentee an exclusive property in the
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`patented invention which cannot be appropriated or used by the government itself, without just
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`compensation, any more than it can appropriate or use without compensation land which has
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`been patented to a private purchaser.‘ Horne v. Department of Agriculture, 135 S. Ct. 2419, 2427
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`(2015) (quoting James v. Campbell, 104 U.S. 356, 357- 58 (1881)). [The Supreme] Court has
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`opined that it is ‗long [] settled‘ that ‗a patent is property, protected against appropriation both by
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`individuals and by government‘ under the Takings Clause. Hartford-Empire Co. v. United States,
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`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] Court
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`explained that ‗an invention [secured by a valid letter-patent] is property in the holder of the
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`patent, and . . . is as much entitled to protection as any other property.‘ Id. at 234-35 (citations
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`omitted); see also McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 609
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`(1898) (‗It has become the property of the patentee, and as such is entitled to the same legal
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`protection as other property.‘). In Crozier v. Fried, Krupp Aktiengesellschaft, 224 U.S. 290
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`(1912), [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 order to justify
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`the taking by government of private property for public use.‘ Id. at 306.
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`That patents confer private rights is also reflected in the fact that, historically, patents
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`have enjoyed a presumption of validity and were subject to invalidation only upon a challenger
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`meeting a heightened standard of proof. Microsoft Corp. v. i4i Ltd., 564 U.S. 91, 95 (2011).
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`In RCA v. Radio 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 by clear and
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`cogent evidence,‘ id. at 2, and ‗an infringer who assails the validity of a patent . . . bears a heavy
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`burden of persuasion,‘ beyond a ‗dubious preponderance.‘ Id. at 8. As with other important
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`private rights, a patent could be ruled to have improperly issued only upon a showing of clear
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`and convincing 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 and 141, L.P.
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`v. Lowe’s Home Centers, Inc., 565 F.3d 443, 446 (8th Cir. 2009); or establish adverse possession
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`or a prescriptive easement, see, e.g., United States v. Tobias, 899 F.2d 1375, 1378 (4th Cir. 1990);
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`Andrews v. Columbia Gas Transmission Corp., 544 F.3d 618, 631 n.13 (6th Cir. 2008).
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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 many Article I
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`powers, which are typically broad and open- ended, the Constitution is much more particular in
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`prescribing the means by which the Congress can promote the progress of science and useful
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`arts: by ‗securing . . . to . . . Inventors the exclusive Right to their . . . Discoveries.‘ Art. I, § 8,
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`cl. 8. Notably, the Intellectual Property Clause calls for ‗securing . . . exclusive Rights‘ – pre-
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`existing rights – rather than creating wholly new rights out of whole cloth or bestowing them as a
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`matter of public largesse. The term ‗securing‘ implies the recognition of rights that are not
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`created and conferred by the Government, and it is highly doubtful that ‗securing‘ a right entails
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`the power to revoke or invalidate it absent special constitutional protections. See Preamble (‗We
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`the People of the United States, in Order to […] secure the Blessings of Liberty to ourselves and
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`our Posterity‘) (emphasis added). Moreover, the Constitution recites the ‗exclusive Right,‘ not
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`‗exclusive Benefit‘ or ‗exclusive Privilege.‘2
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`Under the patent system created by the Framers, the foundation of a patent right is the
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`inventor‘s sweat and ingenuity. The Government‘s obligation is to safeguard and perfect pre-
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`existing inchoate property rights earned by the inventor‘s own efforts, not to diminish them by
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`making them revocable at the Government‘s discretion. Thus, Chief Justice John Marshall
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`explained that ‗[t]he constitution and law, taken together, give to the inventor, from the moment
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`of invention, an 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 ‗inchoate property
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`which [is] vested by the discovery,‘ id. at 874, and ‗perfected by the patent.‘ Id. at 873. Justice
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`2 The Constitution recites ―Privilege‖ in several other places, such as ―the Privilege of the Writ of Habeas Corpus,‖
`and ―all Privileges and Immunities of Citizens in the Several States.‖ The ―exclusive Right‖ in Art. I, § 8, cl. 8 is the
`first and only place where the original Constitution recites a ―Right.‖
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`8
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`Story, writing for the Court in Pennock v. Dialogue, 27 U.S. 1 (1829), agreed that an inventor
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`had an ‗inchoate right‘ even before filing for a patent. Id. at 15-16. This understanding of a
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`patent right is not 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 very same
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`constitutional Clause as patents. Like the inchoate rights vested in an invention, rights in
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`copyrightable work spring into existence at the moment the work is created, without any
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`requirement to register the work with the Copyright Office. See 17 U.S.C. § 408(a).
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`In his 1792 treatise, Joseph Barnes, one of the early American patent commentators,
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`explained the idea of a patent ‗securing‘ a pre-existing right: ‗[A] system for securing property in
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`the products of genius is a mutual contract between the inventor and the public, in which the
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`inventor agrees, on proviso that the public will secure to him his property in, and the exclusive
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`use of his discovery for a limited time, he will, at the expiration of such time, cede his right in
`3 In his equally important American Commentaries, Chancellor James
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`the same to the public . . . .‘
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`Kent classified both copyrights and patents under the heading, ‗Of original acquisition by
`intellectual labor.‘4 As Daniel Webster declared in the House of Representatives in 1824, ‗the
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`right of the inventor‘ is ‗the fruit of his mind—it belongs to him more than any other property—
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`he does not inherit it—he takes it by no man‘s gift—it peculiarly belongs to him, and he ought to
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`be protected in the enjoyment of it.‘5
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`This understanding remai