Now I will take a minute and pull my tongue out of my cheek, and move onto one cross-marketing opportunity that I have agreed to, because it benefits the readers of this blog and involves what promises to be an outstanding educational opportunity. The American Conference Institute is hosting what looks to be a very broad and in-depth examination of current hot topics in ERISA litigation next October in New York, and this blog has signed on as a media sponsor. As per our continuing non-commercial status, no money in it for us, but it gives readers of this blog an opportunity for a substantial discount if they register in the next couple of weeks for the seminar. Just use my name and tell them I sent you. Just kidding - the actual information and manner of laying claim to the discount is right here.

The brochure for the conference itself can be found here. I signed on as a media sponsor for the same reason I think readers may be interested in the seminar, which is that the list of topics reads like a table of contents for the blog; thus, light dawned over Marblehead here and I realized if you read this blog regularly, you would probably be interested in the subjects being addressed at the conference. Beyond that, you will see the speaker list (here comes the pun) speaks for itself.

Automated Inventing: Should Wishes be Patentable?

In my previous entry, I explained that you could view a human engineer who uses "artificial invention" technology to create a design for a new product as being analogous to an Aladdin who creates a new product by making a wish to a genie, as follows:

Human Inventor --> Wish --> Artificial Invention Technology --> Wish Come True (Product Design)

Based on the history of the patent system, we should expect that people will start filing patent applications for everything in this diagram that comes after the human inventor, namely the wish, the artificial invention technology, and the resulting product design. (In The Genie in the Machine I provide examples of patent applications which have already been filed -- and granted -- on the latter two of these three.) If we want patent law to grant such patents only when doing so will promote innovation, we need to make sure that the legal rules for patentability produce the right outcomes when applied to such patent applications.

First, consider wishes. What exactly do I mean by a "wish"? It is any description of a problem, written in a language that artificial invention software can understand, that the software can use to create a design for a product that solves the problem. For example, if you want to design a frame for an automobile that is as aerodynamic as an existing frame, but weighs 10% less, your wish might describe the aerodynamic requirements of the frame and its maximum weight. Some kinds of artificial invention software can use such a description to generate potential new car frame designs and -- using a simulator -- evaluate how well they match up to the requirements specified in your wish. The software then eliminates designs which fared poorly and modifies designs which performed well, in an attempt to produce even better designs. It then evaluates the new designs based on the criteria specified by your wish. It might repeat this process hundreds of times in an attempt to produce a product design -- what I have been calling the "wish come true" -- which satisfies your wish as closely as possible.

It may seem strange even to ask whether wishes should be patentable. Yet the kinds of wishes I am talking about are similar in some ways to traditional computer programs. Artificial wishes are a combination of instructions and data, written and stored in a physical form that can be processed automatically by a computer to perform a useful function. Therefore many, if not all, of the reasons that traditional software has been subject to patent protection also apply to artificial wishes.

Yet patent protection for software has remained highly controversial for almost 50 years. One reason is that computer programs are more "abstract" in some sense than cotton gins and other traditional nuts-and-bolts machines. Artificial wishes can be even more abstract than traditional programs. Therefore, to the extent that granting overly abstract patent claims can impede innovation, we need to be even more concerned about granting patents for artificial wishes.

We shouldn't, however, throw the baby out with the bathwater. Just as significant advances in software should be entitled to patent protection, even if the patents covering such software are relatively abstract, so too should new and useful artificial wishes be entitled to patent protection, so long as the legal requirements for patentability are applied with particular care to such patents. We should only grant a patent on an artificial wish if such a wish is truly new, useful, and nonobvious (the three fundamental requirements for patentability), if the specification of the patent describes how to use the wish in combination with artificial invention technology to produce new products, and if the patent's claims are written clearly.

I explain why this is the right solution in much more detail in The Genie in the Machine, where I also explain why artificial invention technology itself should be patentable. In my next, and final, blog entry I will explain why computer-generated inventions -- what I have been calling the "wish come true" -- should be patentable, and why it will be particularly tricky to apply patent law's "nonobviousness" standard to such inventions.

I do have a reason for posting on this, beyond wanting to get on board early with a prediction for the outcome (even Paul Secunda, back in his days as the Workplace Prof, would never have called a case before it was even accepted for hearing!), and that is this quote from the restaurant group’s lawyer, courtesy of the National Law Journal:

"One of the most important issues that we are debating in the country today is how health care is to be provided," said Jeff Tanenbaum, chairman of the labor and employment group in the San Francisco office of Nixon Peabody, who represents the Golden Gate Restaurant Association, which filed the petition on June 5. Golden Gate Restaurant Association v. City and County of San Francisco, No. 08-1515.

"This case comes down at a time when that debate is the focus of tremendous attention at the federal level. It is an issue that needs to be addressed at the federal level," he said.
 

I have said it time and time again on this blog, that ERISA preemption serves the admirable, even if perhaps inadvertent, role of forcing health care to be tackled at the only level it can be adequately addressed, the federal one, and not at the level of state governments, which simply don’t have the resources to pull it off, as this article here reminds us yet again (and this one too). I am happy to hear someone else say it as well.

Automated Inventing: The Challenge for Patent Law

As I explained in my previous entry, increasingly powerful computer software is being used to automate the process of inventing. Since such software takes a wide variety of forms, I use the term "artificial invention technology" to refer to all of it. Patent law was originally developed in a time when all inventing was performed manually. Now, however, patent law must be ready to deal with attempts to patent artificial invention technology and the inventions it produces.

In my book, The Genie in the Machine, I explain how patent law can be updated to face this challenge. To give a flavor of how patent law needs to be reformed, let me start by explaining the meaning of the book's title. You can view a computer that is equipped with artificial invention software as a kind of artificial genie. A human inventor can provide such a computer with an abstract description of a problem that he or she wants to solve -- such as creating a toothbrush that can whiten teeth more efficiently than previous toothbrushes. This description, which must be written in a language that the artificial genie can understand, is like a wish for a better toothbrush. The artificial invention software (i.e., the genie) uses this artificial wish to create a computer model of an improved toothbrush -- the wish come true. In some cases, the product itself can be manufactured automatically based on the digital design.

In short, the basic pattern described above can be represented by the following simple diagram:

Human Inventor --> Wish --> Artificial Invention Technology --> Wish Come True (Product Design)

This exposes very clearly the questions that patent law must be prepared to answer, namely whether -- and under which circumstances -- each of the following should be patentable:

- Artificial "wishes" (the input that a human inventor provides to artificial invention technology to create a new product design)
- Artificial invention technology (the computer hardware and software that can create new product designs automatically)
- Wishes come true (product designs created using artificial invention technology)

In my next blog entry I will give a flavor for how patent law can be updated to answer these questions.

This time around I have decided to make use of my editorial prerogatives and the digressions section of the blog to welcome my first ever guest blogger, Robert Plotkin. Longtime readers may remember other references to Robert in patent related blog entries; Robert is a long time patent lawyer who specializes, in particular, in patent protection for computer technology, and was named a "Go-To Law Firm for Leading Technology Companies" by American Lawyer Media in 2008.

Stanford University Press has just published Robert’s new book, The Genie in the Machine: How Computer-Automated Inventing is Revolutionizing Law and Business, and the ideas behind it - the manner in which such automated inventing strays from and thus may impact the paradigms under which we understand patent prosecution and patent law - fascinate me. The Boston ERISA and Insurance Litigation blog, despite its massive advertising revenue (place tongue firmly in cheek while reading that line), lost the bidding for serialization rights for the book, so I asked Robert if he would write a series of blog posts detailing the issues covered by the book. Robert agreed, and I plan to run them every Friday for the next few weeks. Note that Robert’s blog on automated inventing, by the way, can be found here.

Here’s the first of the series:

Automatic Product Design and Its Impact on Patent Law

Inventors have long been using software to help them design new products. For example, computer-aided design (CAD) software enables engineers to draw three-dimensional models of the components of an automobile engine, and even to "connect" those components together to see how they will interact without needing to build physical prototypes.

Few people are aware that software now exists which can not only display product designs which have been drawn by a human engineer, but also create such designs itself. In addition, today's latest "artificial invention" software can simulate the operation of a new product -- such as an automobile engine -- evaluate its performance, and then refine the product design repeatedly to improve the end product. One example of such software -- Stephen Thaler's "Creativity Machine" -- has been called "Thomas Edison in a box." In my book, The Genie in the Machine, I describe the history of such technology and provide many real-world examples of the products it has been used to create -- everything from toothbrushes to antennas to the nosecone on the Japanese bullet train.

Artificial invention technology has the potential to enable us to create better products more quickly and inexpensively than ever before. Such software often produces designs that surprise expert human inventors, because software lacks the blindspots and prejudices that can stop human engineers from pursuing pathways that are fruitful but which contradict conventional wisdom. Businesses are already using invention automation software -- including evolutionary algorithms and artificial neural networks -- to slash their research and development costs.

Patent law has yet to grapple with the implications of computer-automated inventing. Yet it must do so if patent law is to continue promoting innovation. In my next blog entry, I will point out some of the challenges that artificial invention technology poses for patent law.

I couldn’t let this go by without noting it - he has a Nobel after all and I, well, I have a sixth man award from a high school basketball team. Paul Krugman on health care reform:

Without an effective public option, the Obama health care reform will be simply a national version of the health care reform in Massachusetts: a system that is a lot better than nothing but has done little to address the fundamental problem of a fragmented system, and as a result has done little to control rising health care costs.

I think I have read that description of the Massachusetts act before. No, wait, I think I wrote it.

My take? The decisions and quotes Randy highlights reflect a focus by the judge on the specific facts of the cases and on the details of specific insurance coverage doctrines, rather than a looser approach of relying on easy maxims that tend to add up to nothing more than the tie goes to the runner, which in this area means the insured, such as “ambiguous provisions must be construed against the insurance company.” When you focus on the facts of the cases and the details of this area of the law, you don’t end up with any sort of an insured oriented bias, and instead you often find that the insurer’s decision is upheld because the insurer used that same focus in the first instance in making its own decision with regard to coverage.

Kudos to Randy, for again using humor to shed some light into the dark corners of insurance coverage law, this time, whether intentionally or not, on the extent to which judicial approach affects the outcome of coverage cases.

Thanks to Point of Law for passing his piece along.

There is so much information and activity going on out there now in this area that it is always good to have other bloggers, the more knowledgeable the better, likewise chiming in on developments in this area, and few are more knowledgeable than long time ERISA blogger B. Janell Grenier, who has just launched a separate blog dedicated to developments concerning the law governing fiduciary status titled the ERISA Fiduciary Guidebook (A Work in Progress). Her new blog captured, for instance, a recent Massachusetts federal court decision that I didn’t cover, involving some of the issues raised by an employer who becomes delinquent in making plan contributions.

I mention this because I am reminded of it by the current state of the law concerning fee and cost issues in 401(k) plans. To some, it may be a weird correlation, but not to me. I have written before about how the Seventh Circuit’s decision in Hecker provides a broad range of issues that warrant review and thought, some of which I have touched on in my posts and others of which I have not. I suspect there will come a time in which we will think of the law on this particular subject as being divided into two eras: before Hecker and after Hecker. And by that, I do not necessarily mean that the case law will start to follow Hecker and reform or solidify the landscape on this issue as a result. That might happen, but I am skeptical, at least in the longer or middle term. There are many issues in Hecker that were not played out fully in that decision or in the record underlying it in my view, and I suspect they will be in later cases, or by legislation or regulation, in ways that will change how we think about this type of issue, both from what existed before Hecker and from what Hecker itself suggests.

I am thinking in particular today of the court’s treatment of the amount and lack of transparency of the fees and costs in the plan before it as essentially not important, for all intents and purposes, either to participants, or, seemingly, to the court’s analysis of the plan’s obligations. A deeper look at the role of costs and fees, along with their impact, I suspect, might suggest an entirely different outcome to excessive fee cases such as Hecker, and it would not surprise me if at least some other courts in the future engage in such a closer examination and come to a different conclusion as a result. What has me thinking about this today? It is this excellent post by Ryan Alfred of BrightScope on the range of fees and costs in funds, a fiduciary’s obligations to understand all of them, and the lack of transparency as to exactly what plans are actually paying in fees and costs. Moreover, he points out the systemic differences among how different knowledgeable parties - experts may be a fair statement - calculate such fees and costs. This analysis suggests that fees and costs are nowhere near as simple to interpret and analyze as the Hecker court’s analysis assumes them to be, given that the court analyzed them on a motion to dismiss without detailed factual development of the evidence on the fees and costs in question. My educated guess, using Ryan’s analysis as a backdrop, is that a court may reach an entirely different understanding of fiduciary obligations in this regard if it first engages in a thorough factual development of the record on this issue before ruling, which the Hecker court did not.

As a result, I greatly enjoyed this piece out of the New York Times, which gives that same advice from a practical perspective for smaller businesses. The article, in particular, focuses on the need to carefully consider the trade off between how much of the company’s revenue to tie up in insurance costs versus the potential costs to the company of a particular type of claim if it is not insured against.

Second, and of particular note, the panel made clear that it was only dealing with the specific issue at play in Glenn, namely the impact of a structural conflict of interest. The court indicated that the rule may well be different in the presence of evidence showing that there was an actual conflict that motivated the outcome, and that a change in the standard of review might continue to be appropriate under that circumstance. In essence, while withholding judgment on what rule it might adopt in that circumstance after Glenn, the First Circuit is distinguishing between arguments that begin from the premise that there was a structural conflict of interest - the Glenn type scenario - and arguments based on the idea that the administrator was actually subjectively motivated by a conflict; the court made clear that only the former scenario is governed by its new decision applying the Glenn rubric.

Third, in an aspect of its decision that provoked the ire of one member of the Panel who wrote a concurring opinion specifically to challenge the opinion’s analysis of this issue, the case holds that the First Circuit’s prior rulings on discovery in denial of benefits cases - that little is to be allowed and it is disfavored - remain in effect and are consistent with Glenn. Of even more interest and practical concern going forward, though, is the court’s conclusion that, rather than engage in discovery into the possible impact of a structural conflict of interest on a decision, it is incumbent upon administrators to make the evidence of the cabining and lack of impact of such a conflict part of the administrative record compiled during the administrator’s handling of a claim. If there is a functional impact of the First Circuit’s ruling on plan administrators, it is this one - the need to evidence the lack of importance of the structural conflict in the administrative record itself.
 

This Court finds that these claims for contribution are barred under the ERISA preemption provision, 29 U.S.C. §1144(a), which supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ." 29 U.S.C. §1144(a). "State law" under ERISA is not limited to state statutes; it includes judicial decisions declaring the common law of the state. 29 U.S.C. §1144(c) ("State law" includes "all laws, decisions, rules, regulations or other State action having the effect of law, of any State"). . . . To determine whether State law, namely, the common law of misrepresentation, "relates to" an employee benefit plan and is thus preempted, we must look to Congress's intent. "The purpose of Congress is the ultimate touchstone." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990), quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, (1985). There can be no doubt that Congress intended that ERISA's preemption provision be broadly construed. See Ingersoll-Rand Co., supra, 498 U.S. at 138; Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46-47 (1987). The provision's "deliberately expansive" language was "designed to 'establish pension plan regulation as exclusively a federal concern.' " Pilot Life Ins. Co., supra at 46, quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-100 (1983). "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 96-97. "Under this 'broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be preempted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand Co., supra, 498 U.S. at 139, quoting Pilot Life Ins. Co., supra, 481 U.S. at 47.

In spite of its undeniable breadth, ERISA's preemption provision does not apply to every State action that affects an employee benefit plan. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, supra, 463 U.S. at 100 n. 21. . . .Here, the alleged claim under the common law of negligence would directly relate to an ERISA plan because it would require a state court to determine the duty owed by these fiduciaries to an ERISA plan with respect to their investment of Plan monies. See Zipperer v. Raytheon Co., Inc., 493 F.3d 50, 53-54 (1st Cir. 2007) (finding that a negligence claim was preempted because it was based on the defendant's record-keeping responsibilities under an ERISA plan); Donavan v. Robbins, 752 F.2d 1170, 1180 (7th Cir. 1985) (declaring it "extremely unlikely that Congress would have wanted ERISA fiduciaries to be subject to the vagaries of state contribution law"). Even if the Massachusetts common law of negligence were to mirror precisely the fiduciary duty owed under federal ERISA law governing the investment of ERISA funds, the mere possibility that it would differ and be in conflict with ERISA's objectives is sufficient to require this state court to forbear from touching the contribution claim.

The case is Edward Marram as Trustee of the Geo-Centers, Inc. Profit Sharing Plan & Trust v. Kobrick Offshore Fund, Ltd. et al., out of Suffolk Superior Court, and you can find it at 2009 Mass. Super. LEXIS 85.

The second is Edward Zelinsky’s detailed analysis of the Ninth Circuit’s decision on the San Francisco health insurance ordinance, in which he lays out, in formal, analytical fashion, what many of us already concluded on a gut level - that the statute is a preempted invasion of rights controlled only by ERISA, no matter the false distinctions created by the Ninth Circuit in an attempt to avoid that conclusion. Writes Professor Zelinsky (courtesy of the Workplace Prof blog):

An exploration of the most recent decision of the U.S. Court of Appeals for the Ninth Circuit in Golden Gate Restaurant Association v. City and County of San Francisco (Golden Gate III) indicates that ERISA Section 514(a) preempts the San Francisco Health Care Security Ordinance. Two premises guide this exploration of Golden Gate III. First, employers’ ongoing payments to health care administrators, such as insurance companies, constitute employee benefit “plans” for ERISA purposes. Second, employers’ contributions are central features of their employee plans.

This first premise indicates that a San Francisco employer which regularly contributes to San Francisco pursuant to that City’s health ordinance thereby creates a “plan” for ERISA purposes. The ERISA status of this plan purchasing municipally-administered medical services is the same as the ERISA status of an analogous employer-financed plan paying a private administrator for comparable health care: As to all of these plans, ERISA Section 514(a) preempts state and local regulation.

Moreover, it is not persuasive for purposes of ERISA Section 514 to say (as does the Ninth Circuit) that San Francisco, by its health care ordinance, regulates employers’ health care contributions, but not employers’ health care plans. Contributions are central features of employers’ health care plans for their employees. By regulating employers’ contributions, San Francisco regulates employers’ plans.

Frankly, I thought the Supreme Court made clear in an offhand comment in Kennedy v. Dupont that the San Francisco statute, were it to come before it, would be found preempted, when the Court, in a gratuitous aside completely unnecessary to decide the issue before it, commented that a state law is preempted when it would “undermine the congressional goal of ‘minimiz[ing] the administrative and financial burden[s]’ on plan administrators.” Can you think of a better description of what the Rube Goldberg contraption that is the San Francisco ordinance does than that? And the same, by the way, holds true for the equally Rube Goldbergesque Massachusetts health care reform act as well.

Look, once again, many people may want these types of health insurance expanding statutes to exist, and the political consensus in Massachusetts means that such a statute is operating without court challenge, but that doesn’t mean they are not, in fact, preempted. They are, absent an actual change in the scope of preemption by the Supreme Court.