Why it matters: On July 5, 2016, the Federal Circuit in Rapid Litigation Management Limited v. CellzDirect, Inc. held that a method of repeatedly freezing and thawing liver cells to retain their viability for medical procedures was patent-eligible. In so doing, the Court reversed a district court ruling that had held the method to be non-patentable under Section 101 of the Patent Act because its claims were drawn to a "law of nature." The CellzDirect decision was noteworthy because it was the first time the Federal Circuit had upheld patent claims relating to a "law of nature" or "natural phenomenon" invention since the Supreme Court's 2014 landmark decision in Alice Corp. v. CLS Bank. The Federal Circuit's decision in CellzDirect followed closely on the heels of the Supreme Court declining to review the Federal Circuit's 2015 decision in Sequenom, Inc. v. Ariosa Diagnostics, leaving in place the Federal Circuit's seemingly contradictory invalidation of a patent for a novel fetal diagnostics test on Section 101 "law of nature" grounds. All of this prompted the U.S. Patent and Trademark Office to issue a memo to its examiners on July 14, 2016, containing additional guidance on the patent eligibility of life sciences method claims in light of CellzDirect and the Supreme Court's denial of certiorari in Sequenom.

Detailed decision: Following is a recap of CellzDirectSequenom and the memo issued to examiners by the U.S. Patent and Trademark Office (USPTO) trying to make sense of it all.

Cellzdirect and Sequenom

On July 5, 2016, the Federal Circuit in Rapid Litigation Management Limited v. CellzDirect, Inc. held a method of freezing and thawing liver cells (hepatocytes) to retain their viability for medical procedures to be patent-eligible. This was noteworthy because it was the first time the Federal Circuit had upheld patent claims relating to a "law of nature" or "natural phenomenon" invention since the Supreme Court's 2014 landmark decision in Alice Corp. v. CLS Bank.

In its opinion, the Federal Circuit presented the two-step test to ascertain patent eligibility established in Alice as follows:

The Supreme Court has recently articulated a two-part test for distinguishing patents that claim one of the patent-ineligible exceptions from those that claim patent-eligible applications of those concepts… Step one asks whether the claim is "directed to one of [the] patent-ineligible concepts" [i.e., "judicial exceptions" developed by the courts including laws of nature, natural phenomena or abstract ideas] … If the answer is no, the inquiry is over: the claim falls within the ambit of § 101. If the answer is yes, the inquiry moves to step two, which asks whether, considered both individually and as an ordered combination, "the additional elements 'transform the nature of the claim' into a patent-eligible application." … Step two is described "as a search for an 'inventive concept' " … At step two, more is required than "well-understood, routine, conventional activity already engaged in by the scientific community," which fails to transform the claim into "significantly more than a patent upon the" ineligible concept itself.

The Federal Circuit noted that the case was on appeal from a grant of summary judgment by the district court, which had applied the two-step Alice test to the claimed process of repeatedly freezing/thawing liver cells to preserve them for future use and found that (i) under the first step, the claims were directed toward an ineligible "law of nature" and thus not patent-eligible under Section 101 of the Patent Act; and (ii) under the second step, the claimed process lacked the requisite "inventive concept" that would have served to override the conclusion in the first step.

The Federal Circuit reversed. With respect to the first step of the Alice test, the Court disagreed with the district court's conclusion that the claims were drawn to ineligible "law of nature" subject matter, making a distinction between the production method relating to the freezing/thawing of the cells and the "natural phenomenon" of the cells themselves: "It is enough in this case to recognize that the claims are simply not directed to the ability of hepatocytes to survive multiple freeze-thaw cycles. Rather, the claims of the '929 patent are directed to a new and useful laboratory technique for preserving hepatocytes. This type of constructive process, carried out by an artisan to achieve 'a new and useful end,' is precisely the type of claim that is eligible for patenting" under Alice.

Thus, for the court, with the answer to step one of Alice being "no" (i.e., the claims were not directed to patent-ineligible subject matter), the inquiry was over. Even assuming arguendo, however, that the claims were found to be patent-ineligible under the first step, the Court said that they would survive under step two of Alice because they "recite an improved process for preserving hepatocytes for later use … The claimed method is patent eligible because it applies the discovery that hepatocytes can be twice frozen to achieve a new and useful preservation process." The Court said that even though the individual steps in the claimed process (freezing, thawing) were well known in the prior art, Alice requires that they be considered as a whole in "ordered combination." Therefore, the Court found that "[h]ere, the claimed process involves freezing and thawing hepatocytes twice. The individual steps of freezing and thawing were well known, but a process of preserving hepatocytes by repeating those steps was itself far from routine and conventional."

The Federal Circuit opined that the claims in CellzDirect were "immediately distinguishable" from claims in other cases both before and after Alice, such as in the 2015 Sequenom case, that were found by the court to be patent-ineligible on "law of nature" or "natural phenomena" grounds because in those cases "we found claims 'directed to' a patent-ineligible concept when they amounted to nothing more than observing or identifying the ineligible concept itself." Specifically with respect to Sequenom, where the Court found claims for an arguably new and novel fetal diagnostics test to be patent-ineligible, the Court said that "the claims recited methods for detecting paternally inherited cffDNA in the blood or serum of a pregnant female … The existence and location of cffDNA is a natural phenomenon; identifying its presence was merely claiming the natural phenomena itself." The Federal Circuit further distinguished Sequenom by noting that it had found no "inventive concept" when applying step two of the Alice test to the facts of that case. When referencing Sequenom, the court cited to the Supreme Court's June 27, 2016, denial of certiorari in that case, which left its decision in Sequenom intact and perhaps explained the court's need to distinguish it from its seemingly contradictory holding in CellzDirect.

July 14, 2016, USPTO Memo to Examiners

With the seemingly "mixed messages" of the Federal Circuit's decision in Cellzdirect and the Supreme Court's denial of certiorari in Sequenom within the same week, Robert W. Bahr, the Deputy Commissioner for Patent Examination Quality for the USPTO, saw fit to issue a memo to examiners on July 14, 2016, containing additional guidance and clarifications on the subject of patent eligibility of life sciences method claims. Entitled "Recent Subject Matter Eligibility Rulings (Rapid Litigation Management v. CellzDirect and Sequenom v. Ariosa)," the memo began by referencing both the Federal Circuit's CellzDirect decision and the Supreme Court's denial of certiorari in Sequenom and assuring examiners that "[t]hese cases do not change the subject matter eligibility framework, and the USPTO's current subject matter eligibility guidance and training examples are consistent with these cases." Specifically with respect to Sequenom, the memo clarified that "[w]hile this panel decision is a precedential Federal Circuit panel decision, the denial of the petition for a writ of certiorari does not elevate its significance in this regard."

The memo went on to state that "[t]he decision in [CellzDirect] does, however, provide additional information and clarification on the inquiry for determining whether claims are directed to a judicial exception (Step 2A of the subject matter eligibility examination guidelines)." The memo summarized CellzDirect and pointed out that "the Federal Circuit highlighted several important points regarding the subject matter eligibility analysis, in particular regarding whether a claim is directed to law of nature (Step 2A)." These include the considerations that (i) "the 'directed to' analysis of a process claim [should be] more than 'merely identify[ing] a patent-ineligible concept underlying the claim' and instead requires an analysis of whether 'the end result of the process, the essence of the whole, was a patent-ineligible concept' "; and (ii) the claims in CellzDirect that "apply a law of nature" are distinguishable from the claims in Sequenom that were found to be directed to a patent-ineligible concept because the Sequenom claims "amounted to nothing more than observing or identifying the ineligible concept itself." The memo stated that the USPTO's current subject matter eligibility guidance, as recently updated in May 2016, and training examples "are consistent with these points."

The memo concluded, "[i]n summary, the USPTO's current subject matter eligibility guidance and training examples are consistent with the Federal Circuit's panel decisions in Rapid Litigation Management and Sequenom. Life sciences method claims should continue to be treated in accordance with the USPTO's subject matter eligibility guidance (most recently updated in May of 2016)."