In January 2026, the Federal Circuit issued a nonprecedential opinion in Guardant Health, Inc. v. University of Washington (Slip Op. 2024-1129, Jan. 23, 2026) that, while not binding precedent, is nevertheless highly relevant to patent practice in any technology. The patent at issue, U.S. Patent No. 10,760,127, claims methods for reducing sequencing errors using Duplex Consensus Sequencing (DCS), a technique that pairs double-stranded DNA with unique molecular identifiers before amplification and sequencing. This approach is designed to achieve unprecedented sensitivity in detecting rare variants, a capability critical to applications like early cancer detection and other high-stakes medical diagnostics.

Guardant had challenged the patent before the Patent Trial and Appeal Board (PTAB), arguing that the claims were obvious under 35 U.S.C. § 103, over a combination of references. The elements at issue were:

b) amplifying original strands of at least a portion of the double-stranded adapter-DNA molecules to produce first and second strand copies;

c) sequencing a plurality of first and second strand copies to obtain first and second strand sequence reads for at least a portion of the adapter-DNA molecules;

Slip Op. at 4.

Guardant argued that these two claim elements were disclosed together in a single embodiment in a prior art reference, U.S. Patent Application No. 2009/0298075 A1[1] (Travers ’075). Travers ’075, while primarily directed to PacBio’s SMRT sequencing, expressly described in a single paragraph performing rolling circle replication (RCR) to produce repeated sense and antisense strands, followed by sequencing those amplified products. Washington countered with Travers 2010[2], another publication from PacBio scientists. Travers 2010 described the SMRTbell template, a topologically circular DNA structure with a double-stranded region and single-stranded hairpin loops, which can be sequenced using SMRT technology without any amplification step. In Washington’s view, the general teaching in Travers 2010 that SMRT sequencing does not depend on amplification reinforced their argument that a skilled artisan would need additional motivation to incorporate RCR amplification before SMRT sequencing and might doubt the feasibility of such a combination.

The PTAB agreed with Washington, concluding Guardant had not shown a motivation to combine the amplification concept from Travers ’075 with the sequencing process of SMRTbell templates as taught in Travers 2010, nor a reasonable expectation of success in doing so.[3] But the Federal Circuit disagreed, explaining that when claim elements appear together in one embodiment of a single reference, here, amplification and sequencing in Travers ’075, no separate “motivation to combine”[4] or “reasonable expectation of success”[5] analysis is required as if the elements originated from disparate sources. Because Guardant’s petition relied on a single  paragraph of Travers ’075 itself, and not on modifying the SMRT sequencing process described in Travers 2010, the PTAB’s approach was legally erroneous. The court vacated the PTAB’s ruling and remanded for consideration of whether Travers ’075’s RCR-plus-sequencing disclosure was enabled, a separate requirement for relying on it in an obviousness analysis.

Two key takeaways emerge from the opinion. First, in the context of obviousness, if all disputed claim limitations are disclosed together in one embodiment in a single prior art reference, the analysis does not require a separate finding of motivation to combine those elements. Treating co-disclosed steps as if they came from isolated references improperly burdens the challenger and can distort the obviousness inquiry. Second, even when a prior art reference makes only brief mention of a process or embodiment, in this case, rolling circle replication followed by SMRT sequencing, that disclosure remains prior art “for all that it teaches.” Whether that disclosure is enabled is a separate question that must be addressed before relying on it to establish obviousness.

Now is the perfect time to reassess ongoing patent challenges and diligence frameworks to ensure internal strategies fully reflect this clarified standard. To ensure your patent strategy is ahead of the game, contact your Âé¶čֱȄ attorney for guidance and to proactively review your portfolio.

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[1] U.S. Patent Application No. 2009/0298075 A1

[2] Travers et al., A Flexible and Efficient Template Format for Circular Consensus Sequencing and SNP Detection, 38 Nucleic Acids Research e159 (2010)

[3] Slip Op. at 8.

[4] Slip Op. at 9.

[5] Slip Op. at 13.

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Introduction: A Radical Shift in IP Policy

The  the Trump administration wants to charge patent holders 1% to 5% of their patent’s value to maintain the patent after grant. If implemented, this would mark a dramatic departure from the traditional flat-fee model. Framed as a revenue-raising measure, the plan would drastically reshape the U.S. innovation landscape.

Potential Impacts on Innovators

Small innovators would be disproportionately affected by the newly proposed fees. Smaller entities often rely on the patent system to protect their inventions but lack the financial resources to absorb significant cost increases. As a result of these fee changes, many smaller companies may opt to use other avenues to protect their innovations, such trade secrets, or may forego investing in IP protection altogether. 

Depending on how the value of patents is assessed, larger tech firms, while more capable of absorbing the costs, could respond by filing fewer but more strategically valuable patent applications. This could reduce the prevalence of ‘defensive’ filings and low-value patents, potentially streamlining the system. 

Specifically in the biotech and pharmaceuticals spaces, patent protection is critical due to high risks and long timelines associated with product development. The proposed fees could significantly raise the already substantial costs of bringing new products to market. Small biotech firms may find it difficult to protect or license their breakthroughs, potentially leading to reduced investment at early development stages. Medical device manufacturers face similar pressures, where the cost-benefit balance of patenting may shift unfavorably. 

The proposal could also result in industry consolidation, more strategic partnerships, or a shift toward trade secrets—developments that may hinder open innovation and collaboration. The net effect could be a leaner patent landscape focused on higher-quality applications and a reduction in “patent thickets,” but potentially at the cost of accessibility and innovation diversity.

How Companies Might Adapt

If the proposal moves forward, companies may explore various strategies to mitigate the impact of the new fees. One likely response is increased reliance on trade secrets, especially for software and process innovations that are easier to keep confidential.

Firms may also shift their patenting focus to international jurisdictions with more predictable or affordable IP regimes. Open innovation models, such as defensive publishing or open-source licensing, could gain popularity as a way to prevent competitors from patenting similar inventions.

Patent pooling and consortia may become more common, allowing companies to share the costs of filing and maintaining patents. Additionally, provisional filings could be used more strategically to delay full applications and manage financial risk.

Broader Implications

The proposed fee structure raises broader concerns about equity and U.S. competitiveness. Higher fees could exacerbate the divide between well-funded incumbents and new entrants, encouraging market concentration and likely reducing diversity in innovation.

The new fees would almost certainly reduce the overall number of filings. There is a strong argument that reduced filings would result in higher-quality patents. While fewer filings might improve patent quality, the cost barrier could prevent disruptive but underfunded ideas from reaching the market. Fewer patents would also raise the stakes of patent disputes.

On the global stage, the U.S. could lose its competitive edge if innovators relocate R&D to countries with more accessible IP protections. Moreover, tying fees to patent value introduces significant uncertainty, as valuation is inherently subjective and prone to dispute.

Of course, the implications of the impact of the proposed fee structure depends greatly on how the valuation is calculated and how it is applied to the patents.  Does each individual patent get charged a percentage of revenue of a patented method, system, or product even though the system or product may be protected by dozens or hundreds of patents? Or does the percentage fee get distributed over all the patents attributable to the patented method, system, or product? There could be a scenario in which it is actually better for companies to get more patents to reduce the fees if the percentage is applied across an entire patent portfolio. For example, if a bicycle company makes $1M from sales of an innovative bicycle and there are 1,000 patents on the bicycle and the fee is 1% of revenue distributed over the total number of patents, the fees per patent are $10 and $10,000 for the portfolio of 1,000 patents. Given this example reduces the revenue to the government, it is unlikely to be applied in this manner; however, implementation details for the proposal are missing and whatever the details become, patent owners will find ways to reduce what they are to pay.

Potential Legal Challenges to the Proposal

The proposed fee changes are likely to face significant legal challenges. Under 35 U.S.C. § 41, Congress, not the executive branch, has the authority to set patent fees. Historically, courts have deferred to the USPTO on fee-setting when changes are modest and tied to cost recovery. However, a sweeping, revenue-driven increase could be struck down or stayed unless Congress explicitly authorizes it. Any attempt to implement such a change unilaterally would certainly be contested in court, with challengers likely arguing that a drastic fee hike oversteps executive authority.  

Additionally, the Administrative Procedure Act (APA) requires that regulatory changes undergo a notice-and-comment rulemaking process. Failure to comply with this process could result in successful legal challenges. There may also be constitutional concerns. If the fees are prohibitive, small businesses could argue that the fees violate Due Process or Equal Protection clauses, although such claims may be difficult to win.

In sum, the Trump Administration proposal is fraught with questions and uncertainty.  Congress and the courts should work to ensure that whatever the proposal is, it is thoroughly vetted and implemented by the correct branch of government.

In our prior article, we discussed instances in which the U.S. Patent and Trademark Office (USPTO) and the district courts made different findings with regard to patent eligibility under 35 U.S.C. § 101. A recent nonprecedential Federal Circuit decision, Aviation Capital Partners, LLC v. SH Advisors, LLC, No. 24-1099 (Fed. Cir. May 6, 2025), highlights a critical procedural point: District courts are not required to accept findings made by the USPTO as true at the pleading stage — unless those findings are specifically alleged in the complaint.

This issue came to the forefront on appeal after the Delaware District Court dismissed Aviation Capital’s patent infringement complaint under Rule 12(b)(6), finding the asserted patent claims ineligible under § 101. The plaintiff-appellant, Aviation Capital Partners (doing business as Specialized Tax Recovery (“STR”)), argued on appeal that the district court erred by failing to accept the USPTO’s prior eligibility analysis, which favored patent eligibility, as a factual finding at the motion to dismiss stage.

Specifically, STR contended that the USPTO’s conclusion — made during prosecution — that the claims were “integrated into a practical application” and “contained significantly more than an abstract idea” should have been accepted as a true factual finding by the District Court as part of deciding the motion to dismiss. But the Federal Circuit rejected that argument outright, stating:

• STR additionally argues that, in deciding the motion to dismiss, the district court was required to assume as true the Patent Office’s “factual finding that the claims were integrated into a practical application and contained significantly more than an abstract idea.” Appellant’s Br. 23–25. We disagree. “[F]or the purposes of a motion to dismiss we must take all of the factual allegations in the complaint as true . . . .” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (emphasis added). Here, the complaint included no factual findings made by the Patent Office. J.A. 16–32; Oral Arg. at 4:38–5:45 (complaint alleged the Patent Office made two legal determinations but alleged no factual findings). Accordingly, the district court did not err by declining to accept as true any unalleged factual findings that the Patent Office may have made in its § 101 eligibility analysis.[

This passage underscores the procedural rigor applied to motions to dismiss: The court is bound only to the facts actually pled in the complaint. While STR tried to import the examiner’s analysis into the record, the Federal Circuit made clear that any “factual findings” by the USPTO must be explicitly alleged for a district court to credit them at the motion to dismiss stage.

Implications for Litigants and Drafting Complaints Where Examiner Made Comments Regarding § 101 Eligibility

This ruling serves as a practical guidepost for practitioners navigating § 101 disputes post-Alice. Litigants cannot assume that favorable examiner conclusions — such as an “integration into a practical application” — will be treated as facts unless those determinations are squarely and specifically alleged in the complaint.

The USPTO’s current guidance instructs examiners to evaluate whether a claim is “integrated into a practical application” and whether it includes “significantly more” than an abstract idea — criteria that may allow applications to clear the § 101 hurdle during prosecution. Yet, as Aviation Capital confirms, the deference afforded to such examiner determinations may vary, and on a Rule 12(b)(6) motion, only factual allegations specifically made in the complaint must be taken as true. This begs the question — if a patent owner explicitly alleges factual findings made by an examiner during prosecution regarding § 101, is that sufficient to defeat a motion to dismiss? Though nonprecedential, Aviation Capital suggests as much.

Takeaway

The Aviation Capital decision is a sharp reminder that litigators must be deliberate in pleading factual support for eligibility. To preserve arguments based on examiner findings, those examiner findings must be more than background — they must be alleged facts in the complaint, not just cited conclusions.

Otherwise, courts remain free to assess eligibility from a clean slate. And as this decision reaffirms, that assessment may diverge from what the USPTO previously concluded.

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[1] Aviation Capital Partners, LLC v. SH Advisors, LLC, No. 24-1099 at 7 (Fed. Cir. May 6, 2025).

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Governed by 19 U.S.C. § 337, the U.S. International Trade Commission (“ITC”) is empowered to investigate unfair acts in the importation of articles into the United States.  The ITC can be a powerful forum for owners of U.S. patents as it may issue exclusion orders barring infringing articles from entering the United States. Although the ITC is an independent federal agency, it is natural to wonder whether the Trump administration’s policies – including, in particular its “America First Trade Policy” issued on January 20 – could affect litigation before the Commission.

While the day-to-day handling of investigations before the ITC is unlikely to be affected by the specific trade policies of a particular administration, § 337 provides for a presidential review period, during which the president can review and potentially veto an exclusion order entered by the Commission in an investigation.  This power has rarely been exercised, but the history of presidential review in investigations involving standard essential patents (“SEPs”) provides an example where the policies of an administration can directly impact ITC practice.

It started in 2013 when the Obama administration overturned an ITC order that would have excluded various Apple iPhone and iPad products from the United States market.  In that investigation, Samsung alleged that Apple infringed patents that had been declared essential to certain telecommunications standards, and, in overturning the import ban, the U.S. Trade Representative acting on behalf of the Obama administration cited a “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” jointly issued by the Department of Justice and the U.S. Patent and Trademark Office on January 8, 2013.

The Obama-era Policy Statement cautioned that granting exclusion orders for infringement of standard essential patents – which are typically accompanied by commitments to license on terms that are fair, reasonable and non-discriminatory (“FRAND” or “F/RAND”) – may result in the patent owner engaging in “patent hold up” by demanding a higher royalty for the use of its patent than would have been possible before the standard was set, and that such behavior may harm consumers.  Accordingly, the 2013 Policy Statement concluded that “[a]lthough [] an exclusion order for infringement of F/RAND-encumbered patents essential to a standard may be appropriate in some circumstances, we believe that, depending on the facts of individual cases, the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.”

During President Trump’s first term, the administration issued its own “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments” on December 19, 2019.    This 2019 Policy Statement identified “concerns that the 2013 policy statement has been misinterpreted to suggest that a unique set of legal rules should be applied in disputes concerning patents subject to a F/RAND commitment,” such that “injunctions and other exclusionary remedies should not be available in actions for infringement of standards-essential patents.”  The 2019 Policy Statement warned that “such an approach would be detrimental to the carefully balanced patent system.” Accordingly, the USPTO and DOJ withdrew the 2013 Policy Statement in favor of a policy where “the existence of F/RAND or similar commitments [] may be relevant and may inform the determination of appropriate remedies,” but “the general framework for deciding these issues remain[ed] the same as in other patent cases.”

This back-and-forth continued with the Biden administration, but to a lesser extent.  After soliciting written submissions and hearing a variety of views on both sides of the issues, on June 8, 2022, the Biden administration issued a “Withdrawal of 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments,” which stated in a footnote that it was also not reinstating the Obama-era 2013 Policy Statement.  .  Accordingly, the 2022 Withdrawal concluded that conduct by SEP holders and standards implementers should be reviewed “on a case-by-case basis to determine if either party is engaging in practices that result in the anticompetitive use of market power or other abusive processes that harm competition.”

It remains to be seen whether the USPTO, DOJ and NIST will reinstate the 2019 Policy Statement in President Trump’s second term.  The policy statement put into effect during President Trump’s first term was withdrawn by President Biden, but in a way that did not reinstate the earlier Obama-era policy, and the 2022 Withdrawal does not on its face articulate any view of available remedies for infringement of standard essential patents that is inconsistent with the 2019 Policy Statement.  Nevertheless, one would reasonably expect that the second Trump administration would be inclined to favor a policy where available remedies for infringement of standard essential patents would not materially differ from the remedies available for infringement of other patents.

However, earlier this month the International Trade Commission issued a notification suggesting that the Commission’s thoughts on this issue may not be so predictable.  On March 4, 2025, the ITC published a Notice in the Federal Register relating to Investigation No. 337-TA-1380, which involved an allegation by Nokia that Amazon infringes certain patents declared essential to video compression standards which carry with them a commitment to license on RAND terms.  The Notice indicates that the Commission has determined to review the Initial Determination of the Administrative Law Judge in its entirety, and it solicits written submissions from the parties on various issues, including the following SEP-specific questions:

1. When the complainant alleges that an asserted patent is a standard essential patent, subject to reasonable, and nondiscriminatory (RAND) licensing terms, is the complainant precluded from seeking an exclusion order and/or cease and desist order based on infringement of that patent? Should the Commission consider RAND licensing obligations as a legal or equitable defense (i.e., as part of its violation determination) under section 337(c), 19 U.S.C. 1337(c)) or as part of its consideration of the public interest factors under section 337(d)(1) and (f)(1)? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the public interest factors of 337(d)(1) and (f)(1) preclude issuance of such an order.
2. In the event a violation is found, does the information regarding the parties’ RAND obligations and licensing attempts inform any particular public interest factor that the Commission should consider under section 337(d)(1) and (f)(1)? If so, please identify which factor it informs and explain why, including the relevant evidence of record. As part of its public interest analysis, should the Commission determine whether any prior license offer made by the patent holder covering the accused products is reasonable and non-discriminatory? If so, what evidence should the Commission consider in determining whether offers are reasonable and non-discriminatory based on the record of this investigation?

In addition, the March 4 Notice solicited written submissions from not just the parties, but also any interested government agencies or other interested parties on the issues of remedy and the public interest, which would seemingly include addressing the above two questions and, in general, Amazon’s argument in the case that an exclusion order would be against the public interest because it would exclude articles that practice SEPs.  Such submissions were due on March 13, though approved late submissions continue to be filed, and the target date for completion of the Investigation is currently May 14, 2025.

The questions are interesting, particularly in view of the Obama administration’s directive in 2013 that “in any future cases involving SEPs that are subject to voluntary FRAND commitments, the Commission should be certain to (1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards-essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up.”

Following that directive, the Commission has considered the issue in the past, and although it typically followed the 2013 Obama administration’s directive to consider the issues, it virtually always found that SEPs should not receive any type of “special treatment” at the ITC.  However, based upon the Commission’s recent Notice, it appears that the Commission may be thinking more critically about the issue of defenses and exclusionary remedies for infringement of SEPs, with the history of these various Policy Statements showing that there is not a singular policy view, both from administrations with different perspectives and from parties with divergent interests. And with the target date for completion of the Nokia/Amazon Investigation just two months away and with comments having just recently been submitted, we may soon learn how the ITC intends to treat the Obama-era directive in the context of current trade policy.

In its recent decision in Lashify, Inc. v. International Trade Commission, the Federal Circuit opened the door for patent owners to include expanded categories of domestic investment to satisfy the economic prong of the domestic industry requirement under Section 337(a)(3)(B). App. No. 2023-1245, Opinion (Mar. 5, 2025). Post-manufacture activities that previously were not considered—like sales, marketing, warehousing, quality control, and distribution—are now likely includable as domestic industry investments for purposes of establishing a domestic industry under Section 337(a)(3)(B). This is a significant departure from International Trade Commission (ITC) precedent and will likely open the door to a greater number of ITC investigations involving foreign-manufactured articles.

One of the unique aspects of ITC practice is its requirement that the complainant prove the existence of a domestic industry in order to obtain the coveted exclusion order. This requirement involves two prongs—the technical prong, which requires the complainant prove that it practices the patent at issue; and the economic prong, which requires the complainant prove with respect to the articles protected by the patent: (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in exploitation, including engineering, research and development, or licensing. 19 U.S.C. § 1337(a)(3). The Federal Circuit’s decision in Lashify addressed the economic prong.

Since its enactment in 1988, the ITC’s interpretation of Section 337(a)(3)(B) has effectively barred domestic investments directed solely to post-manufacture activities such as sales, marketing, warehousing, quality control, and distribution from establishing the existence of a domestic industry. The ITC often referred to these activities as those of an “ordinary importer,” failing to alone meet the economic prong of the domestic industry requirement because such activities contribute nothing to the actual manufacture of the article. Where manufacture of the article occurs outside of the United States, no additional steps occur in the United States to make the article salable, and thus no cognizable domestic industry activities remain for purposes of establishing the economic prong. Over the years, this interpretation of Section 337(a)(3) has effectively required some form of domestic manufacture or assembly activity to satisfy the economic prong of the domestic industry requirement. This is likely not the case anymore.

Lashify sells artificial eyelash extensions, applicator tools and products, and lash-extension storage containers. While Lashify conducts research and development in the United States, it manufactures its products overseas and ships them to U.S. customers who purchase the products via Lashify’s website. Customers are then able to use a variety of Lashify-provided resources to apply them, such as educational videos on social media, online chats, and video-call sessions. Lashify owns patents directed to these products, including a least one utility patent directed to, for example, certain lash-fusion technology; and design patents directed to, for example, a certain storage cartridge for eyelash extensions. Lashify filed a complaint before the ITC, in which it alleged that importers of similar products were violating Section 337 by infringing these patents.

The Administrative Law Judge (“ALJ”) at the ITC denied Lashify relief under the statute, determining, inter alia, that Lashify did not satisfy the economic prong of the domestic industry requirement. In reaching this determination, the ALJ excluded expenses relating to sales, marketing, warehousing, quality control, and distribution, following decades of ITC precedent considering these investments alone insufficient to meet the economic prong of the domestic industry requirement. The ALJ reasoned that because there were “no additional steps required to make these products saleable” upon arrival into the United States, and because the quality control measures were “no more than what a normal importer would perform upon receipt,” no domestic industry existed under Section 337(a)(3)(B).

The Commission agreed to review the ALJ’s decision and affirmed. The majority agreed with the ALJ that Lashify had not satisfied the economic prong of the domestic industry requirement, reasoning that “it is well settled that sales and marketing activities alone cannot satisfy the domestic industry requirement.” The majority reached the same conclusion with respect to warehousing, quality control, and distribution.

Lashify appealed to the Federal Circuit. The Federal Circuit vacated the ITC’s determination and remanded the investigation to the ITC for redetermination of satisfaction of the economic prong of the domestic industry requirement. The Federal Circuit concluded that the ITC’s determination relied upon an incorrect interpretation of Section 337(a)(3)(B). The Federal Circuit rejected the ITC’s conclusion that Lashify’s analysis was “overinclusive and not supported” because it “included expenses related to warehousing, distribution, and quality control” as well as “sales and marketing expenses.” The Federal Circuit found no support for these categorical exclusions in the text of the statute, relying heavily on its plain text and a thorough review of the legislative history surrounding the 1988 enactment.

The Federal Circuit observed that the provision “straightforwardly states that domestic industry ‘shall be considered to exist if there is in the United States, with respect to the articles protected by the patent . . . concerned, . . . significant employment of labor and capital.’” 19 U.S.C. § 1337(a)(3)(B). Absent some limitation, the Federal Circuit concluded:

[T]he provision covers significant use of “labor” and “capital” without any limitation on the use within an enterprise to which those items are put, i.e., the enterprise function they serve. In particular, there is no carveout of employment of labor or capital for sales, marketing, warehousing, quality control, or distribution. Nor is there a suggestion that such uses, to count, must be accompanied by significant employment for other functions, such as manufacturing. The Commission’s holdings attribute limitations to clause (B) not found there.

The Federal Circuit went on to conclude that there was no other rationale for imparting a categorical limitation to Section 337(a)(3)(B), precluding reliance on these types of investments from the context of the statute or its legislative history. The Federal Circuit thus directed the ITC, on remand, to “count Lashify’s employment of labor and capital even when they are used in sales, marketing, warehousing, quality control, or distribution, and the Commission must make a factual finding of whether those qualifying expenses are significant or substantial based on ‘a holistic review of all relevant considerations.’”

The Federal Circuit’s decision in Lashify is likely to have a significant impact on ITC practice. Foremost, it is likely to make the ITC available to businesses and industries previously excluded from the venue on the basis of the foreign manufacture of the imported article. Now, foreign manufacture of the article is not likely to be a bar to a patent owner’s ability to claim significant or substantial domestic investment in labor and capital under Section 337(a)(3)(B), even when such labor and capital is devoted to activities that do not make the product saleable or amount to anything more than those post-manufacture activities performed by an ordinary importer. Companies who perform such purely post-manufacture activities—as long as such investments are significant—will have the ability to claim such activities constitute domestic investment for purposes of meeting the economic prong of the domestic industry under Section 337(a)(3)(B).

Last week, in Osseo Imaging, LLC v. Planmeca USA Inc., No. 2023-1627 (Fed. Cir. Sept. 4, 2024), the Federal Circuit held that “[a]n expert need not have acquired the skill level prior to the time of the invention to be able to testify from the vantage point of a person of ordinary skill in the art.”  Instead, “an expert can acquire the necessary skill level later and develop an understanding of what a person of ordinary skill in the art knew at the time of the invention.”  Up until this decision, it was not uncommon for parties to argue that an expert must have qualified as a person of ordinary skill in the art (“POSITA”) at the time of invention.  The Federal Circuit’s decision should preclude such arguments going forward and broaden the pool of potential experts for parties to consider.

In the district court, a jury found that Planmeca infringed Osseo’s three asserted patents directed to a dental and orthopedic image modeling system. The jury further found that certain claims of the asserted patents were not invalid for obviousness.  After the verdict, Planmeca argued in its renewed motion for judgment as a matter of law (“JMOL”), that the district court erred by allowing Osseo’s expert witness, Dr. Kia, to testify concerning infringement and non-obviousness.  Planmeca argued that, because Dr. Kia acquired his expertise 10 years after the time of invention, the court was required to disregard his testimony.  The district court disagreed, holding that Planmeca was not entitled to JMOL because substantial evidence supported the jury’s verdict. Planmeca appealed the district court’s decision.

The Federal Circuit affirmed, reasoning that “[it] agree[d] with the district court that the proposed timing requirement is not a basis for excluding Dr. Kia’s expert testimony as a matter of law.”  The court explained as follows:

“To offer expert testimony from the perspective of a skilled artisan in a patent case—like for claim construction, validity, or infringement—a witness must at least have ordinary skill in the art.”  Kyocera Senco Indus. Tools Inc. v. Int’l Trade Comm’n, 22 F.4th 1369, 1376–77 (Fed. Cir. 2022).  All that is required “to be qualified to offer expert testimony on issues from the vantage point of an ordinarily skilled artisan in a patent case” is that “an expert must at a minimum possess ordinary skill in the art.”  Id. at 1377.  Our precedent is clear—nothing more is required.

The Court further explained that its Kyocera decision did not impose a timing requirement for being qualified as a POSITA.  According to the court, the issue in Kyocera “was simply whether an expert who did not qualify as a person of ordinary skill in the art—at any time—could present reliable testimony as a technical expert,” and the court in Kyocera “said no.”  Since it was undisputed that Dr. Kia was a POSITA, the fact that he obtained that requisite knowledge after the time of invention was not a basis to disregard his testimony.

Despite the court’s relatively firm rejection of any timing requirement, the court went on to explain that the timing of when an expert obtains his or her knowledge is still relevant to the expert’s credibility at trial:

In practice, the fact that the expert was not a person of ordinary skill at the time of the invention may well be used during cross examination to undermine the credibility of the expert. Relatedly, an expert who later acquires the requisite knowledge could avoid such potential damage to her credibility by explaining to the judge and jury how she gained the perspective of a person of ordinary skill at the time of the invention.

The court’s decision has a few practical implications.  First, litigants will likely stop arguing to exclude an expert simply because he or she obtained the requisite level of knowledge after the time of invention.

Second, the court’s decision increases the number of prospective experts because it is now clear an expert will not be excluded simply because he or she obtained the requisite knowledge after the time of invention.  Parties interviewing prospective experts should be mindful that the timing is subject to cross-examination, and they should head-off such cross-examination by having the expert address the topic during direct examination.  Finally, the court’s comments about cross-examination could create factual issues concerning an expert’s credibility, which could preclude a court from granting motions for summary judgment that are supported by expert testimony.  When employing an expert that obtained the requisite knowledge after the date of invention, parties should scrutinize their summary judgment evidence to minimize the chances of the expert’s credibility creating a factual issue that precludes summary judgment.

The Mayo/Alice[1] framework for determining subject matter eligibility of patents under 35 U.S.C. §101 has long since antagonized both patent prosecutors and litigators alike, causing significant uncertainty in the realm of software-based technology and innovation. Adding to this uncertainty, the Patent Office applies two-step Alice analysis differently than the district courts, sometimes leading to conflicting determinations from patent examiners and judges reviewing the same claims. Indeed, while the Manual of Patent Examining Procedure (“MPEP”) and other United States Patent and Trademark Office (“USPTO”) guidance on application of the Alice analysis ostensibly interprets and applies Alice and its progeny, the approach made by patent examiners under current guidelines allows for claims to be deemed to be directed to eligible subject matter so long as the judicial exception is “integrated into a practical application” at which point the claims are deemed not directed to a judicial exception.

Practitioners should appreciate the nuances between the Alice analysis in prosecution and litigation in order to obtain issued patents that will also withstand scrutiny when an opposing party rigorously challenges the claims under the Alice framework in the district court.

Alice Before the Courts

The two-step Mayo/Alice analysis first articulated by the U.S. Supreme Court is well-known to patent litigators. The court must first “determine whether the claims at issue are directed to a patent-ineligible concept” relating to the judicial exceptions of a law of nature, natural phenomenon, or an abstract idea (i.e., “Step One”).[2] If Step One is satisfied, then the court must “consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application” (i.e., Step Two).[3] Step Two of the Alice analysis constitutes a search for an “inventive concept” which is an element or combination of elements in the claim “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”[4]

In short, courts only apply the above two steps: (1) determine whether the claims are directed to a patent-ineligible concept; if yes, (2) determine whether the claim elements, in combination, recite an inventive concept amounting to significantly more than a patent upon the ineligible concept itself. These two steps comprise the inquiry for subject matter eligibility before the courts. It should be noted that courts have rarely found inventive concepts as part of their Step Two analysis, so the determination on Step One largely controls the inquiry.

Alice Before the Patent Office

MPEP §2106 provides Patent Office guidance on how examiners address the Alice subject matter eligibility analysis during prosecution. The following flow chart is meant to aid examiners addressing these issues.

As can be seen, Step 2A corresponds to Step One of Alice applied by district courts, and Step 2B corresponds to Step Two. However, unlike in the Alice analysis conducted by district court judges, the USPTO has further subdivided step one of Alice (e.g., Step 2A) into two distinct inquiries as shown below[5]:

The second prong of Step 2A asks examiners to determine whether claims that recite a judicial exception nonetheless recite additional elements that integrate the judicial exception into a “practical application.” In addition, the USPTO issued its 2019 Revised Patent Subject Matter Eligibility Guidance in the Federal Register (“2019 Guidance”), which includes the following guidance with respect to Prong Two of Step 2A of the Patent Office process:

Examiners evaluate integration into a practical application by: (a) Identifying whether there are any additional elements recited in the claim beyond the judicial exception(s); and (b) evaluating those additional elements individually and in combination to determine whether they integrate the exception into a practical application, using one or more of the considerations laid out by the Supreme Court and the Federal Circuit, for example those listed below. While some of the considerations listed below were discussed in prior guidance in the context of Step 2B, evaluating them in revised Step 2A promotes early and efficient resolution of patent eligibility, and increases certainty and reliability. Examiners should note, however, that revised Step 2A specifically excludes consideration of whether the additional elements represent well-understood, routine, conventional activity. Instead, analysis of well-understood, routine, conventional activity is done in Step 2B. Accordingly, in revised Step 2A examiners should ensure that they give weight to all additional elements, whether or not they are conventional, when evaluating whether a judicial exception has been integrated into a practical application.[6]

Alice Analysis Side-By-Side

When laid out side-by-side, it is clear that the MPEP’s “integration into a practical application” approach in Prong Two of Step 2A goes beyond the approach taken by district courts by incorporating aspects of Step Two of Alice into Step One.

U.S. Supreme Court Two-Step Alice Approach	USPTO/MPEP Alice Approach
Step One: Determine whether the claims directed to a patent-ineligible concept; and if yes; Step Two: Determine whether the claim elements, in combination, recite an inventive concept amounting to significantly more than a patent upon the ineligible concept itself.	Step 2A Prong One: Determine whether the claim recites a patent-ineligible concept; and if yes Step 2A Prong Two: Determine whether the claim recites additional elements that integrate the patent-ineligible concept into a practical application; and if no   Step 2B: Determine whether the claim recites additional elements that amount to significantly more than the ineligible concept itself.

“Integrated into a Practical Application”

Critically, at Prong Two of Step 2A, examiners analyze whether claims integrate a judicial exception into a practical application and may not strictly determine whether the specific additional elements represent well-understood, routine, conventional activity. For example, the 2019 Guidance specifically instructs “in revised Step 2A examiners should ensure that they give weight to all additional elements, whether or not they are conventional, when evaluating whether a judicial exception has been integrated into a practical application.”[7] But once an examiner decides that the claims integrate the judicial exception into a practical application, the claims are deemed to be patent-eligible without needing to proceed to Step 2B, which some argue would otherwise discount the conventional additional elements (similar to the Court’s application of Alice Step Two).

This approach may lead to scenarios where an examiner determines patent claims are eligible under Alice because the claims integrate a practical application via elements that may otherwise be conventional, and then those same claims are later determined to be ineligible by a district court that separately accounts for the conventional aspects in Alice Step Two and does not consider the “integration” step that is applied during examination in the Patent Office.

Regarding case law on this very issue, Aviation Capital Partners, LLC v. SH Advisors, LLC[8] is illustrative. That case involved a patent infringement action asserting three claims of U.S. Patent No. 10,956,988, which issued on March 23, 2021, relating to determining the taxability status of aircraft. During prosecution of the patent, there was a rejection based on subject matter eligibility under Alice, but after a claim amendment, the examiner determined the claims were patent-eligible because they integrated the abstract idea into a practical application.[9]

The USPTO patent examiner addressed the Alice analysis during prosecution. In litigation, a district court judge at the early motion to dismiss stage  stated that it was not affording deference to the examiner’s approach: “the determination of taxability status is also an abstract idea — as the Patent Office recognized
I give no weight to the Patent Office’s overall determination that the patent was eligible.”[10] There was no discussion by the court about the “practical application” in the Alice Step One analysis. Instead, the court addressed the patent owner plaintiff’s arguments about the examiner’s statements about the “practical application” in Alice Step Two, stating that “[d]espite having a practical application, the claims of the patent offer no new insights or improvements for implementing their abstract idea
I again give no weight to the conclusions of the PTO.”[11]

While this decision is currently on appeal, it demonstrates that a district court judge may not agree with the USPTO’s rationale for withdrawing §101 rejections based on the “practical application” approach. Further, even where there is a practical application, some district courts may expect more of “practical application” in Prong Two of Step 2A than a given USPTO examiner in a given case. That said, other court decisions have shown more deference to examiners’ §101 determinations that claims integrate a judicial exception into a practical application at the motion to dismiss stage.[12]

USPTO Doubles Down in 2024 Guidance on Patent Eligibility for AI Inventions

Effective July 17, 2024, the USPTO issued new AI subject matter eligibility guidance.[13] While meant to specifically address inventions related to AI technology, the USPTO doubled down on the inquiry at Step 2A Prong Two relating to asking “whether the claimed invention as a whole integrates the recited judicial exception into a practical application.” Moreover, the updated 2024 Guidance for AI inventions reiterates that “[a]t Step 2A Prong Two or Step 2B, there is no requirement for evidence to support a finding that the exception is not integrated into a practical application or that the additional elements do not amount to significantly more than the exception unless the examiner asserts that additional limitations are well-understood, routine, conventional activities in Step 2B.” These new guidelines do not comment on the varying applications of Alice and its progeny before the USPTO examiners and district court judges.

Bridging the Gap

While the 2019 Guidance and updated 2024 Guidance for AI inventions include citations to case law for prong two of Step 2A, none of the cases cited discuss the first step of the Alice analysis with the “integration of a practical application” approach explicitly — that is, the cited cases have not directly used that language. In fact, the cases provided by the 2019 Guidance arrived at such language from disparate §101 jurisprudence, including cases that addressed the practical application analysis at Alice Step Two relating to searching for the inventive concept.[14]

To be sure, the MPEP does indicate that the analysis of integration into a practical application is appropriate at Step 2B. For example, the MPEP states that for “a claim reciting a judicial exception to be eligible, the additional elements (if any) in the claim must ‘transform the nature of the claim’ into a patent-eligible application of the judicial exception, either at Prong Two or in Step 2B.”[15]

Yet, the MPEP encourages disposition of §101 issues earlier in the eligibility analysis such that the determination of whether a claim is integrated into a practical application will often occur before getting to Step 2B. For example, MPEP § 2106.06(b) allows examiners to utilize a “streamlined eligibility” analysis. The streamlined eligibility analysis is used when the eligibility of the claim is self-evident, e.g., because the claim clearly improves a technology or computer functionality. If there is such an improvement, the claim qualifies as eligible subject matter under § 101 without needing to undergo further analysis. Prong Two of Step 2A encourages examiners to address the integration into a practical application at Step One of Alice instead of Step Two  but, as discussed, does so without accounting for whether the additional elements of the claim are conventional.

Some court decisions do not appear to necessarily subdivide the first step of the Alice analysis in the same way. While there is some overlap between the two steps in Alice, judges have not expressly decided a patent claim was not directed to a judicial exception because it was “integrated into a practical application” at Alice Step One.

While patent examiners are generally expected to follow MPEP and other guidance issued by the USPTO over Federal Circuit decisions, neither are binding on the courts, and some district court decisions do not show deference to USPTO examiner’s § 101 analysis., Moreover, the Federal Circuit has stated that §101 case law controls rather than the 2019 Guidance.[16] The recently updated 2024 Guidance for AI inventions is silent regarding this tension. It is entirely possible the Federal Circuit takes the opportunity in the Aviation Capital Partners appeal to speak more directly on what could be considered a split between the USPTO and district courts on §101 eligibility analysis.

Alternatively, new proposed legislation in the Patent Eligibility Restoration Act may remove uncertainties in the application of §101 before the USPTO and district courts.

Conclusion

Patent applicants facing §101 rejections may want to consider strategies for establishing eligibility that take into account not only MPEP and other USPTO guidance, but also how district courts are approaching similar issues. This could mean providing some analysis beyond on the USPTO’s Step 2A, Prong Two analysis. Depending on the circumstances, such strategies might include creating a record pointing out how any “additional elements” are not routine and conventional and pursuing claims of varying scope within the same patent or across a family. Such a record may be useful in later litigation.

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[1] Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66 (2012); Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014).

[2] Alice, 573 U.S. at 217-18; Mayo, 566 U.S. at 72, 77-79.

[3] Id.

[4] Id.

[5] MPEP §2106.04.

[6] 2019 Revised Patent Subject Matter Eligibility Guidance, 84 Fed. Reg. 50 (Jan. 7, 2019).

[7] 84 Fed. Reg. 50 (Jan. 7, 2019).

[8] Civil Action No. 22-1556-RGA, 2023 U.S. Dist. LEXIS 145104 (D. Del. Aug. 18, 2023).

[9] U.S. Patent 10,956,988 File History, February 18, 2021 Notice of Allowance, p. 5.

[10] 2023 U.S. Dist. LEXIS 145104 at *11.

[11] Id., at *13.

[12] See e.g., Rich Media Club LLC v. Duration Media LLC, No. CV-22-02086-PHX-JJT, 2023 U.S. Dist. LEXIS 120102, at *13-14 (D. Ariz. July 11, 2023) (denying motion to dismiss on §101 grounds, in part because in the Notice of Allowance for the asserted patent, the examiner concluded “[t]he amendment in combination with other limitations form an ordered combination and integrated practical application. 101 withdrawn.”).

[13] 2024 Guidance Update on Patent Subject Matter Eligibility, Including on Artificial Intelligence, 89 Fed. Reg. 137 (July 2024).

[14] See e.g., 84 Fed. Reg. 50 (Jan. 7, 2019) (citing BASCOM Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1352 (Fed. Cir. 2016) (concluding that claims could be eligible under Alice Step Two if an alleged inventive concept can be found in the ordered combination of limitations that “transform the abstract idea
into a particular, practical application of that abstract idea.”); CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1315 (Fed. Cir. 2013) (Moore, J., joined by Rader, C.J., and Linn and O’Malley, JJ., dissenting in part) (“The key question is thus whether a claim recites a sufficiently concrete and practical application of an abstract idea to qualify as patent-eligible. Prometheus instructs us to answer this question by determining whether a process involving a natural law or abstract idea also contains an ‘inventive concept.”), ČčŽÚŽÚ’d, 573 U.S. 208 (2014).

[15] MPEP §2106.04 (emphasis added) (citations omitted).

[16] See e.g., cxLoyalty, Inc. v. Maritz Holdings Inc., 986 F.3d 1367, 1375 n.1 (Fed. Cir. 2021) (“Throughout its Final Written Decision, the Board repeatedly referred to the United States Patent and Trademark Office’s 2019 Revised Patent Subject Matter Eligibility Guidance, 84 Fed. Reg. 50 (Jan. 7, 2019). We note that this guidance is not, itself, the law of patent eligibility, does not carry the force of law, and is not binding on our patent eligibility analysis. And to the extent the guidance contradicts or does not fully accord with our caselaw, it is our caselaw, and the Supreme Court precedent it is based upon, that must control.”) (citations omitted).

A version of this article was republished by on June 21, 2024.

This week, the full Federal Circuit overruled its decades-old test for deciding whether a design patent is invalid as obvious. LKQ Corp. v. GM Glob. Tech. Operations LLC, No. 2021-2348, 2024 WL 2280728 (Fed. Cir. May 21, 2024). The en banc court held that the “žéŽÇČő±đČÔ-¶ÙłÜ°ù±ôŸ±ČÔČ”â€ test was “improperly rigid” and that the Graham v. John Deere framework is the correct test going forward.[1] The court’s decision ditches decades of precedent applying the Rosen-Durling test, so the decision will likely create uncertainty for years to come as courts grapple with applying the new test to design patents.

The Rosen-Durling test, first established in the 1990s, requires (1) that a primary reference (a “Rosen reference”) be “basically the same” as the claimed design; and (2) that any secondary references be “so related” to the primary reference that features in one reference would suggest application of those features to the other reference.

LKQ argued that the Rosen-Durling test was overly rigid and inconsistent with KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007). The Federal Circuit agreed, holding that the “basically the same” and “so related” requirements did not “adequately align with KSR, Whitman Saddle, and other precedent, both in terms of its framework and threshold rigidity.”

The court explained that the “basically the same” requirement was inconsistent with Section 103’s “expansive and flexible approach for assessing obviousness,” as well as the Supreme Court’s 1893 decision in Smith v. Whitman Saddle Company.[2] The court explained, using the obviousness analysis in Whitman Saddle, that the “basically the same” requirement was a “rigid rule” and therefore was inconsistent with the Supreme Court’s KSR analysis that “when a court transforms [a] general principle into a rigid rule that limits the obviousness inquiry, . . . it errs.”

The court similarly explained that the “so related” requirement for secondary references under the Rosen-Durling test was inconsistent with § 103 and precedent. The court agreed with LKQ that the “so related” requirement is “analogous to the rigid application of the teaching-suggestion-motivation test rejected by the Supreme Court in KSR.” The court pointed to Whitman Saddle, where the Supreme Court did not ask whether the prior art references were “so related” but, instead, explained that it was not inventive to combine the two references due to record evidence.

After overruling the Rosen-Durling test, the court provided the following guidance on applying the Graham factors to design patents:

• For Graham factor one, the court held that the “analogous art” requirement applied to design patents. The court declined, however, to “delineate the full and precise contours of the analogous art test for design patents.”
• For Graham factor two, the court explained that the proper analysis was to  â€œcompare the visual appearance of the claimed design with that of [the] allegedly infringing design” from the perspective of an ordinary designer in the field of the article of manufacture.
• For Graham factor three, the court explained “that obviousness of a design patent claim is assessed from the viewpoint of an ordinary designer in the field to which the claimed design pertains.”
• Under Graham factor four, the court reaffirmed that the “inquiry focuses on the visual impression of the claimed design as a whole and not on selected individual features.” The court further held that, where the primary reference alone does not render the claimed design obvious, “there must be some record-supported reason (without hindsight) that an ordinary designer in the field of the article of manufacture would have modified the primary reference with the feature(s) from the secondary reference(s) to create the same overall appearance as the claimed design.”
• The court held that secondary considerations of obviousness or nonobviousness apply to design patents, though it noted certain secondary considerations—such as long felt but unsolved needs and failure of others—may not apply to design patents.

The court acknowledged that amici curiae raised concerns about the uncertainty that may result from overruling the Rosen-Durling test, but the court disagreed because the “Graham four-part obviousness test for utility patents has existed for a very long time and there is considerable precedent from which the PTO and the courts can draw when assessing obviousness in the design patent context.”

Takeaways from Decision

It is unclear why it took 17 years for the Federal Circuit to hold that the Rosen-Durling test is overly rigid under KSR. While the court rejected concerns that overruling Rosen-Durling would create uncertainty, there is little doubt that, in practice, courts, Patent Office examiners, and practitioners will need to grapple with applying the Graham factors to design patents. Given how little guidance the court provided, there will be less certainty in determining the obviousness of design patents until courts develop applicable precedent.

Graham factors aside, the court’s decision arguably makes it easier to invalidate design patents because prior art references no longer need to be a “Rosen reference” and secondary references do not need to be “so related” to the primary reference. This may result in an increase in the number of petitions for post-grant review of design patents and will likely factor into a patent owner’s decisions whether to assert design patents in litigation.

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[1] Judge Lourie concurred in the judgment but did not agree that Rosen and Durling needed to be overruled. In his opinion, the existing test could be made less rigid simply by removing the use of “must” and “only” in the analysis of the tests.

[2] The court acknowledged that, “[a]t the time [of Whitman Saddle], patent law did not speak of obviousness.”