Even if Alice-Mayo is legally predictable, it generates investment-killing uncertainty about patent protection and drives investment overseas

6. An article was published late last year analyzing a decade’s worth of patent eligibility decisions by the Federal Circuit, and they concluded that “under one of the most well-established metrics for measuring the predictability in the law, [Section] 101 proved to be more predictable than other areas of patent law over the past decade.” This is the opposite of what is claimed by many industry experts and even some current and former federal judges. How do you explain this disconnect?

As is common with many academic articles, the conclusion by Professors Nikola Datzov and Jason Rantanen only appears superficially to contradict the many complaints about the Mayo-Alice inquiry by Federal Circuit judges, lawyers, inventors, and representatives from companies that rely on patents in their business models. On closer inspection, the Datzov and Rantanen analysis confirms the legitimate calls for reform by these numerous judges, lawyers, industry stakeholders, and commentators. For example, Datzov and Rantanen state that “the rate at which the Federal Circuit reaches an ultimate outcome that the patent claims are not directed to eligible subject matter has fairly consistently remained around 90% since 2014.”23 I and many other witnesses who testified at the hearing on January 23, 2024, as well as a majority of the witnesses who testified at the three days of hearings in 2019, reported the same number—because this excessive rate of patent invalidation under the Mayo-Alice inquiry is a problem. Economists and empirical researchers have long recognized in civil litigation that if appeals courts are reaching the same decision in 90% of the cases, this represents an unbalanced doctrine or legal decision-making institution that is not properly functioning according to normal operating conditions in a legal system.24 In sum, something is out of whack institutionally, legally, or both; in this case, it is the Mayo-Alice inquiry.

Beyond the blithe acceptance of a 90% invalidation rate for patent claims as representative of normal operating conditions in courts, there are several problems with the article by Professors Datzov and Rantanen. First, Professors Datzov and Rantanen conflate legal unpredictability and commercial unpredictability. As I have explained in numerous amicus briefs in patent eligibility cases over the past decade, the Mayo-Alice inquiry is indeterminate insofar as courts are using it to invalidate patents on inventions that have long been upheld by courts as patent eligible before the Mayo-Alice inquiry was created by the Supreme Court. I have also acknowledged in these amicus brief that the Mayo-Alice inquiry is predictable in a more narrow sense: courts almost always invalidate patents as ineligible when they apply this legal framework. This creates unpredictability for innovators in the biopharma and high-tech sectors who rely on the patent system to make long-term investments costing billions of dollars.25 Innovators cannot reasonably predict that they will receive reliable and effective property rights to secure a return on their investments in creating and commercializing new innovations; in fact, their only safe prediction is that there is a 90% chance their patent will be invalidated by a court. Thus, a reasonable businessperson concludes not to make the investment in the new technology or drug, or to shift the investment overseas to a country in which they can be certain they will receive legal protection for their fruits of their inventive labors.

This is what one scholar has identified as “investment-killing uncertainty,” which he rightly recognizes as the primary form of uncertainty in a legal system that “creates a problem that must be addressed by policy makers and suggests appropriate action” in enacting reform.26 Investment-killing uncertainty, which can be the result of a legal doctrine being applied consistently, is the unpredictability and indeterminacy that lawyers and economists speak about when they speak of the function of property rights in incentivizing investments and commercialization activities (as I explained above in my answer to Question 3(a)). Datzov and Rantanen agree with judges and others calling for reform when they find a 90% invalidation rate in the Federal Circuit’s application of the Mayo-Alice inquiry, and this agreement confirms there is an unbalanced, anti-patent bias inherent in the Mayo-Alice inquiry that must be reformed, just as nonobviousness doctrine required reform in the 1952 Patent Act given the high rates of invalidation of patents under the Supreme Court’s “flash of creative genius” test.

Datzov and Rantanen’s questionable decision to blithely accept massively lopsided decisions lacking dissents as evidence of investment-spurring predictability is further confirmed by their review of the Patent Trial and Appeal Board (PTAB) decisions. Datzov and Rantanen’s review of the Federal Circuit’s affirmance rate of the PTAB’s § 101 decisions is especially relevant given the PREVAIL Act, and the STRONGER Patents Act before this, introduced by members of this committee. The PREVAIL Act imposes important procedural and substantive reforms on an agency tribunal that many lawyers, judges, and stakeholders in the innovation economy have repeatedly identified as institutionally and legally unbalanced, and which the Federal Circuit has not reined in. Yet, Datzov and Rantanen find nothing wrong with a 100% affirmance by the Federal Circuit of PTAB decisions invaliding patents under § 101 in nine years over a span of ten years (2012-2022)—there was only one year the rate dropped to 93.3% (2020). Datzov and Rantanen conclude that “PTAB judges have been doing a good job of correctly and predictably determining when the patent claims are ineligible.”27 Given the extensive, necessary reforms of the PTAB in the PREVAIL Act, this is a surprising claim that further highlights the problematic nature of the study by these two academics.

There is much else that can be said about this study beyond its fundamental and improper equivocation between difference senses of predictability in the patent eligibility debates. For reform advocates supporting PERA, there is massive commercial and investment unpredictability created by a decade of decisions applying the Mayo-Alice inquiry to invalidate patents at rates of 90% or more. (Whether these inventions or discoveries would satisfy the patentability requirements for novelty, nonobviousness, and disclosure is a separate question, and one that the USPTO and a court would assess if they moved past the threshold legal inquiry of whether an invention is patent eligible.) For Datzov and Ratanen, a doctrine producing 90% patent invalidation rates—and 100% affirmance rates of § 101 invalidation decisions by the PTAB—are acceptable because they reflect legal predictability. But this is not predictable protection of property rights that secures investments and promotes the creation of new commercial business models in the innovation economy that drive economic growth.