Backdrop on the technology, the patents, and the accused infringers -

[5,004,681 and CIP 5,192,553] recite compositions and methods relating to a medical procedure for treating persons with compromised blood and immune systems. The treatment is based on the discovery that blood from a newborn infant’s umbilical cord is a rich source of a type of stem cells useful for rebuilding an individual’s blood and immune system after that system has been compromised by disease or a medical treatment such as chemotherapy.

Stem cells are fundamental (or “immature,” or “primitive”) cells from which specialized (or “mature”) cells derive. Hematopoietic stem cells are stem cells that are ultimately responsible for producing the various specialized cells of the blood and immune (or “hematopoietic”) system. Hematopoietic stem cells produce progenitor cells and more hematopoietic stem cells. The progenitor cells, which are less primitive than the stem cells, in turn give rise to the variety of specialized cells that constitute the blood and immune system. Although hematopoietic stem cells are present in various types of human tissue, they are found in unusually high concentration and potency in umbilical cord blood.

The ’681 and ’553 patents describe a process for collecting a newborn infant’s umbilical cord blood at the time of birth, testing it for suitability for later use, preserving it through cryopreservation, and infusing it into an individual (either the donor or another person, preferably one with a closely matched blood type) whose hematopoietic stem cells have been destroyed. The object of such transplantations is to effect grafting. A successful graft results when the donor’s stem cells migrate into the recipient’s bone marrow, resulting in the renewed production of normal, specialized blood cells and ultimately the reconstitution of the recipient’s entire blood and immune system.

As issued, the ’681 patent contained very broad claims. Claim 1 recited a composition comprising “a plurality of viable human neonatal or fetal hematopoietic stem cells derived from the blood [and a] cryopreservative.” In reexamination, several of the original claims were cancelled. Claim 1 was amended to read as follows:

A cryopreserved therapeutic composition comprising viable human neonatal or fetal hematopoietic stem cells derived from the umbilical cord blood or placental blood of a single human collected at the birth of said human, in which said cells are present in an amount sufficient to effect hematopoietic reconstitution of a human adult; and an amount of cryopreservative sufficient for cryopreservation of said cells.

A cryopreserved therapeutic composition comprising viable human neonatal or fetal hematopoietic stem cells derived from the umbilical cord blood or placental blood of a single human collected at the birth of said human, in which said cells are present in an amount sufficient to effect hematopoietic reconstitution of a human adult; and an amount of cryopreservative sufficient for cryopreservation of said cells.

Each of the defendants offers a service to families of newborn infants in which blood from the infant’s umbilical cord is collected and cryopreserved for possible later use. The defendants represent in their promotional literature that the preserved cord blood may be useful for reconstituting the donor’s hematopoietic system in the event that system is damaged or destroyed as a result of disease or other causes. Some of the promotional literature advises that the preserved cord blood may also be useful for treating closely related members of the infant’s family.

The legal tale so far -

At the conclusion of the trial, the jury returned verdicts for PharmaStem on both patents, finding both patents infringed and not invalid. The jury also rejected the defendants’ counterclaims of inequitable conduct and violation of the antitrust laws.

Following the jury’s verdict finding infringement of both patents by all four appellants, the district court granted the defendants’ JMOL motions and entered a judgment of noninfringement with respect to both patents. The court agreed with the defendants that, in light of the legal theories pressed by PharmaStem at trial, the evidence failed to show that any of the defendants had infringed any of the asserted claims of either patent in suit.

The court denied the defendants’ JMOL motions with respect to various asserted grounds of patent invalidity. PharmaStem now appeals from the JMOL orders on infringement, and the defendants cross-appeal from the court’s refusal to grant JMOL on invalidity.

PharmaStem asserted contributory infringement. The problem was that the defendants provided a service, conduct that didn't amount to a sale, thus not meeting §271(c); the CAFC majority affirming non-infringement.

Here's the CAFC taking carte blanche on obviousness determination -

Obviousness is a legal conclusion that we review de novo. The statutory standard requires us to decide whether the subject matter of the claimed invention “would have been obvious at the time the invention was made to a person of ordinary skill in the art to which [the subject matter of the invention] pertains.” 35 U.S.C. § 103(a); Eli Lilly & Co. v. Zenith Goldline Pharms., Inc., 471 F.3d 1369, 1377 (Fed. Cir. 2006); DyStar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356, 1360 (Fed. Cir. 2006). Underpinning that legal issue are factual questions relating to the scope and content of the prior art, the differences between the prior art and the claimed invention, the level of ordinary skill in the art, and any relevant secondary considerations, such as commercial success, long-felt need, and the failure of others. See Eli Lilly, 471 F.3d at 1377; DyStar, 464 F.3d at 1360; Medichem, S.A. v. Rolabo, S.L., 437 F.3d 1157, 1164 (Fed. Cir. 2006). Under Third Circuit law, which in this case dictates the standard for reviewing the denial of the motion for JMOL, we review the district court’s action “de novo by reapplying the JMOL standard” applied by the district court. Seachange Int’l, Inc. v. C-COR Inc., 413 F.3d 1361, 1368 (Fed. Cir. 2005). Thus, in reviewing the denial of the JMOL motion on the issue of obviousness, we examine the evidence in the light most favorable to the verdict and determine whether a reasonable jury could have found all the facts necessary to support the verdict of nonobviousness, i.e., whether substantial evidence supports the verdict. See Caver v. City of Trenton, 420 F.3d 243, 262 (3d Cir. 2005); Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1546 (Fed. Cir. 1983).

Drinking KSR Kool Aid, a CAFC panel majority of Bryson and Prost applies hindsight delusion -

The defendants contend that the two patents in suit are invalid for obviousness based on a combination of several prior art references. In such a case, the burden falls on the patent challenger to show by clear and convincing evidence that a person of ordinary skill in the art would have had reason to attempt to make the composition or device, or carry out the claimed process, and would have had a reasonable expectation of success in doing so. See Medichem, 437 F.3d at 1164; Noelle v. Lederman, 355 F.3d 1343, 1351–52 (Fed. Cir. 2004); Brown & Williamson Tobacco Co. v. Philip Morris, Inc., 229 F.3d 1120, 1121 (Fed. Cir. 2000); see also KSR Int’l Co. v. Teleflex Inc., 127 S. Ct. 1727, 1740 (2007) (a combination of elements “must do more than yield a predictable result”; combining elements that work together “in an unexpected and fruitful manner” would not have been obvious).

In view of the prior art references, the first part of that test is plainly satisfied here. The idea of using cryopreserved cord blood to effect hematopoietic reconstitution was not new at the time the inventors filed the applications that matured into the ’681 and ’553 patents. Two of the prior art references—articles by Ende and Knudtzon—suggest using cord blood for that purpose. Two others—an article by Koike and a doctoral dissertation by Vidal—suggest cryopreservation and storage of the cord blood until needed. Accordingly, this is not a case in which there is any serious question whether there was a suggestion or motivation to devise the patented composition or process.

The more difficult question is whether the prior art would have given rise to a reasonable expectation of success in creating the process claimed in the ’553 patent and the composition claimed in the ’681 patent. In addressing that question, the parties focus on whether the inventors had a reasonable expectation that cord blood could be successfully used in transplants for hematopoietic reconstitution.

The defendants argue that the prior art suggested using cryopreserved cord blood for hematopoietic reconstitution and showed that persons of skill in the field would have had a reasonable expectation that the use of cord blood in transplants would be successful. For that reason, according to the defendants, the asserted claims were obvious as a matter of law.

On the question whether the inventors had a reasonable expectation of success, the district court relied principally on testimony by PharmaStem’s expert, Dr. Irwin Bernstein... The problem with Dr. Bernstein’s testimony about the prior art references is that it cannot be reconciled with statements made by the inventors in the joint specification and with the prior art references themselves.

Contrary to Dr. Bernstein’s contention that the prior art did not disclose the presence of stem cells in cord blood, the inventors cited several prior art references and stated flatly that “hematopoietic stem cells have been demonstrated in human umbilical cord blood.” Moreover, the inventors noted that the prior art references showed that the concentration of stem cells in cord blood was “at a much higher level than in the adult.”

PharmaStem’s argument that stem cells had not been proved to exist in cord blood prior to the experiments described in the patents is contrary to the representation in the specification that the prior art disclosed stem cells in cord blood. Admissions in the specification regarding the prior art are binding on the patentee for purposes of a later inquiry into obviousness. See Constant v. Advanced Micro Devices, Inc., 848 F.2d 1560, 1570 (Fed. Cir. 1988) (“A statement in the patent that something is in the prior art is binding on the applicant and patentee for determinations of anticipation and obviousness.”); Sjolund v. Musland, 847 F.2d 1573, 1577–79 (Fed. Cir. 1988) (patent specification admitted that certain matter was prior art, and thus “the jury was not free to disregard [that matter]” and “must have accepted [it] as prior art, as a matter of law”); In re Fout, 675 F.2d 297, 300 (CCPA 1982); In re Nomiya, 509 F.2d 566, 571 (CCPA 1975).

[The cited] collection of prior art shows (1) that bone marrow transplants can result in hematopoietic reconstitution; (2) that cord blood, like bone marrow but unlike adult blood, contains large numbers of progenitor cells; and (3) that the high concentration of primitive progenitor cells in cord blood suggests that in humans, as in mice, the cells responsible for hematopoiesis migrate at about the time of birth from fetal organs to the bone marrow. Under those circumstances, it was reasonable for the inventors of the patent, like the authors of the prior art references, to infer the presence of high concentrations of stem cells in cord blood, even though the prior art studies did not offer conclusive proof of their presence.

The majority conclusion is that the inventors did creditable research confirming a previous suspicion, as contrasted with inventing something novel.

While the inventors may have proved conclusively what was strongly suspected before—that umbilical cord blood is capable of hematopoietic reconstitution—and while their work may have significantly advanced the state of the science of hematopoietic transplantations by eliminating any doubt as to the presence of stem cells in cord blood, the mouse experiments and the conclusions drawn from them were not inventive in nature. Instead, the inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention. See KSR, 127 S. Ct. at 1732 (“Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress . . . .”); Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1367–69 (Fed. Cir. 2007) (simply because the formation and properties of a new compound must be verified through testing does not mean that the compound satisfies the test for patentability “since the expectation of success need only be reasonable, not absolute”); In re Merck & Co., 800 F.2d 1091, 1097 (Fed. Cir. 1986) (“Obviousness does not require absolute predictability.”). Good science and useful contributions do not necessarily result in patentability.

This court’s decision in In re O’Farrell, 853 F.2d 894, 903 (Fed. Cir. 1988), provides useful guidance for determining whether the expectation of success from a particular line of inquiry is great enough to render a resulting invention obvious. The court noted that obviousness “does not require absolute predictability of success. Indeed, for many inventions that seem quite obvious, there is no absolute predictability of success until the invention is reduced to practice.” 853 F.2d at 903. On the other hand, the court explained, an invention would not be invalid for obviousness if the inventor would have been motivated “to vary all parameters or try each of numerous possible choices until one possibly arrived at a successful result, where the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful.” Id. Likewise, an invention would not be deemed obvious if all that was suggested “was to explore a new technology or general approach that seemed to be a promising field of experimentation, where the prior art gave only general guidance as to the particular form of the claimed invention or how to achieve it.” Id.; see also Medichem, S.A. v. Rolabo, S.L., 437 F.3d 1157, 1166–67 (Fed. Cir. 2006).

This case is not one in which “the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful,” nor is it one in which the prior art “gave only general guidance as to the particular form of the invention or how to achieve it.” O’Farrell, 853 F.2d at 903. The prior art suggested cryopreserving cord blood from a single infant and transplanting that blood into a patient to achieve hematopoietic reconstitution... [T]he joint specification indicates that each step of the cryopreservation and transplantation procedure had been spelled out in the prior art.

PharmaStem focuses entirely on the purported novelty of its proof that stem cells are present in fetal blood, a demonstration that Dr. Bernstein testified was necessary to give transplant physicians sufficient confidence in the use of cord blood for hematopoietic reconstitution to try the procedure on humans. As we have explained, however, providing proof sufficient to justify conducting in vivo procedures on humans, while useful, is not a test of patentability. The evidence at trial demonstrated that the patentees did not invent a new procedure or a new composition; instead, they simply provided experimental proof that the cord blood could be used to effect hematopoietic reconstitution of mice and, by extrapolation, could be expected to work in humans as well.

The majority's bottom line -

We affirm the district court’s judgment as to the infringement issues. With respect to the counterclaim of invalidity for obviousness, however, we reverse the judgment and direct the entry of judgment for the defendants.

Judge Newman bares her fangs in dissent.

After a three week trial the jury sustained the validity of these patents, the district court in a thorough opinion upheld the verdicts of validity, and validity was confirmed in three reexaminations by the Patent and Trademark Office. Today my colleagues on this panel hold that the inventions in the '681 patent and its continuation-in-part the '553 patent are obvious to them, and not infringed.

The undisputed evidence at trial was that these long-sought life-saving inventions were achieved amid general scientific skepticism, despite the extensive research that was being conducted by many scientists in this field, as set forth in the patents in suit. The discoveries of these inventors were met with universal acclaim and widespread utilization, including the founding of many commercial enterprises, all of which are reported to have licensed the patents except for these defendants. Unimpressed by these considerations, my colleagues on this panel now reconstruct these inventions by selection and inference, with perfect hindsight of the discoveries. The evidence at trial was that this achievement eluded persons working in the field, despite speculation concerning its potential and recognition of its value if it could actually be achieved; despite the powerful interest in such a life-saving advance. Instead, my colleagues simply reweigh selectively extracted evidence, ignore the actual peer response and acclaim at the time these inventions were made, and decide that this long-sought advance would have been obvious to this court.

Although my colleagues manage to reconstruct this extensive scientific effort as simple routine that is obvious to judges, the processes of discovery in complex science make it particularly necessary to view the achievement in the context of the knowledge at the time the invention was made, and to judge it as it was judged by scientific peers at that time, with the assistance of the hard fact of commercial success in a field in which the need was great and success had long been eluded. See Graham v. John Deere Co., 383 U.S. 1, 17-18 (1966) ("Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented.") (quoted in KSR International Co. v. Teleflex Inc., 127 S. Ct. 1727, 1734 (2007)).

The panel majority scours the prior art for clues that could fit the eventual achievement, and then rules that the achievement was obvious, no matter that it eluded the others whose work is now compiled by this court so as to invalidate these patents. The "prior art" selected by my colleagues spans many years of scientific interest and effort, yet the ultimate discovery of the presence of stem cells along with or instead of progenitor cells, the successful preservation of these cells, the extensive experimentation with transplantation into animal models and ultimately into humans, and the successful hematopoietic reconstitution of blood that has been destroyed by disease or radiation, was not achieved in the prior art. The judicial determination of "obviousness" should be made in the context of the state of knowledge at the time these inventions were made. Nor should the courts lose sight of the powerful policy that underlies the patent law, whereby recognition and protection of technological and scientific advance is legally established in order to serve the public interest in having the benefit of such advance through economic enterprise.

My colleagues ignore not only the scientific experts who testified at the trial, but also the PTO examiners who conducted the three reexaminations. In Dickinson v. Zurko, 527 U.S. 150 (1999) this court was reminded of its obligation to give appropriate deference to agency expertise, including that of the PTO. The references that are analyzed by the panel majority, in its sua sponte finding of obviousness, were before the PTO for examination and multiple reexaminations. My colleagues do not explain where the PTO went wrong; instead, they rearrange the past, criticize the acclaim heaped on these inventors, and propose that if the people in this field knew what this court knows, they would not have been so impressed. To the contrary: the acclaim sounded by even these defendants is a powerful testament to how this invention was viewed.

The ultimate solution of a previously intractable problem can indeed appear to become apparent in hindsight after the final successful step is taken. Yet that final step in this case was not taken by those who came before, and was clearly not "obvious" to contemporaries, who acclaimed the achievement. Even the defendants' expert witness acknowledged that before the work of these inventors "stem cells could not be conclusively proved to be present in cord blood." Maj. op. at 42. Nonetheless this court rejects the testimony and admissions of the defendants, and uses present knowledge of the inventors' success to find that it was obvious all along.

The significance of the inventors' work was in evidence... Such evidence assists in replacing judicial hindsight with objective determination as of the time of the invention. See Vandenberg v. Dairy Equip. Co., 740 F.2d 1560, 1567 (Fed. Cir. 1984) (in "determining the question of obviousness, inquiry should always be made into whatever objective evidence of nonobviousness there may be"). In Graham v. John Deere Co, 383 U.S. 1, 17-18, 36 (1966) the Court counseled that "Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., "serve to guard against slipping into use of hindsight and to resist the temptation to read into the prior art the teachings of the invention in issue," cited in KSR v. Teleflex, 127 S. Ct. at 1734.

It is often far easier to recognize the problem than to find and demonstrate the solution. The patent law recognizes that advances of great power may be based as much on persistent and skilled investigation as on the flash of creative genius, for both serve to transcend that which was previously achieved. See 35 U.S.C. '103 ("Patentability shall not be negatived by the manner in which the invention was made.") My colleagues go too far in limiting the patent system to the serendipitous and the unexpected. Maj. op. at 35 ("while their work may have significantly advanced the state of the science of hematopoietic transplantations by eliminating any doubt as to the presence of stem cells in cord blood," they "merely used routine research methods to prove what was already believed to be the case"). Further, these scientists not only established the presence of stem cells, but also enabled their development for preservation and hematopoietic reconstitution.

The court's approach reflects misperception of the scientific process as well as the patent purpose. Scientific methodology usually starts with a hypothesis based on what is already known; the record shows that several scientists mentioned the idea of rebuilding destroyed blood cells. However, none achieved this long-sought goal, and the record shows the extreme skepticism concerning even the possibility of this achievement. The district court found that there was "tremendous skepticism in the transplant field regarding the use of cord blood as a transplant tissue," and that the jury could have found that "prior to the inventions of the Patents-in-suit, those in the field of hematopoietic reconstitution would not have expected cord blood to be a successful transplant tissue." Nonetheless, my colleagues deny the value of this long-sought result.