Software Patents and Entrepreneurial Start-ups Post-Alice
The Alice Corp. Pty. Ltd. v. CLS Bank International decision caused pandemonium in patent law when it announced its test to determine whether a patent claims patent-eligible subject matter. Specifically, it created a question as to whether software is patentable and, if so, how? The Court of Appeals for the Federal Circuit (“Federal Circuit”) subsequently attempted to answer this question, but instead produced a messy doctrine that resulted in mass invalidation of high-tech patents. It is unclear what criteria the Federal Circuit considers when making the patentable subject matter decision.
The U.S. Constitution provides Congress with the power “[t]o promote the progress of science and useful arts, by securing for limited times… to inventors the exclusive right to their… discoveries.”[1] To implement this power, Congress founded the United States Patent and Trademark Office (“USPTO”), a federal agency.[2] A patent grants the inventor the right to exclude others from making, selling, using, offering for sale, or importing the invention into the U.S. for twenty years.[3]
The patent itself includes two important parts: the specification and the claims. “The specification is a written description of the invention and of the manner and process of making and using the invention that concludes with the claims to the invention….” The claims then “particularly point out and distinctly claim the subject matter that the inventor or inventors regard as the invention.”[4]
To obtain a patent, the inventor files an application with the USPTO, which then examines it to determine whether it satisfies the five requirements for a patentability – patentable subject matter, novelty, non-obviousness, utility, and adequate description.[5] Patentable subject matter, simply stated, asks whether the invention claimed in the patent falls within one of four enumerated categories – “process, machine, manufacture, or composition of matter” – and does not fall within a judicial exception – law of nature, natural phenomena, and abstract idea.[6]
The judiciary created the three judicial exceptions to protect against preempting the “basic tools of scientific and technological work” because it would “impede innovation more than it would tend to promote it, thereby thwarting the primary object of patent law.”[7] Because courts have primarily held high-tech patents invalid as abstract ideas, this post focuses on cases where the court considered whether a patent claimed that judicial exception.
The Supreme Court first confronted whether a patent claimed an abstract idea during the Information Age in the 1971 Gottschalk v. Benson decision.[8] There, the Court held that a patent claiming an algorithm[9] converting binary-coded decimal[10] numerals into pure binary numerals[11] claimed patent-ineligible subject matter.[12] The Court reasoned that the patent would preempt applications of the algorithm on computers or by hand and presently known or unknown uses, and would essentially patent the algorithm itself, thereby stifling further invention.[13] Therefore, the Court held the patent invalid as claiming an abstract idea.[14]
The Court next addressed whether a patent claiming an abstract idea with conventional additional steps claimed patent eligible subject matter, concluding that it did not. In Parker v. Flook the Court invalidated a patent claiming a process that adjusted alarm limits during a catalytic conversion process[15] to avoid false alarms during variable operations, such as starting up a motor vehicle.[16] The Court first compared Flook’s mathematical formulas to the algorithm in Gottschalk, finding them essentially the same and concluding that the mathematical formulas have the same preemption effect as the Gottschalk algorithm.[17] Turning to the additional steps, the Court held that the steps were merely conventional, obvious post-solution activity and therefore did not transform the claimed mathematical formula from an abstract idea into patent eligible subject matter.[18]
Three years later, the Supreme Court again tackled the same issue as in Flook, but this time held the patent valid.[19] In Diamond v. Diehr, the Court considered whether a patent claiming the Arrhenius equation[20] employed on a programmed computer claimed patent eligible subject matter. The Court compared the Arrhenius equation to the Gottschalk algorithm, finding the Arrhenius equation similar to the Gottschalk algorithm, but found the instant case distinguishable from Gottschalk and Flook because the claimed invention only preempted the equation’s application in rubber curing and the claim language placed meaningful limitations on its application.[21] The Court also noted that the claimed process satisfied the machine-or-transformation test.[22] Therefore, the Court concluded, the patent did not patent the formula itself, only a new and useful application of it, and therefore claimed patent-eligible subject matter.[23]
The Supreme Court was then silent on the patentable subject matter for nearly thirty years until the Bilski v. Kappos decision in 2010.[24] There, the Court decided whether a patent claiming the hedging process, a financial practice, claimed patent eligible subject matter.[25] The Court first compared the hedging process to its precedent and found it analogous to the abstract ideas in Gottschalk and Flook because the patent would monopolize the idea.[26] The Court then rejected Bilski’s argument that the patent owner limited application to the energy section and therefore the claimed invention did not preempt other applications, concluding that artificially limiting the application to a field was insufficient to convey patentable subject matter eligibility.[27] Thus, the Court held the patent invalid.[28]
Most recently, the Supreme Court announced how a two-step test to analyze whether a patent claims an abstract idea in Alice Corp. Pty. Ltd. v. CLS Bank International.[29] Step one asks whether the claimed invention is directed to patent-ineligible subject matter — in our case, an abstract idea.[30] If so, step two asks whether the claimed invention contains an inventive concept sufficient to transform the abstract idea into patent-eligible subject matter.[31]
Applying this test, the Court held that Alice’s claimed intermediated settlement process was patent-ineligible subject matter.[32] Under step one, the Court concluded that Alice’s process was essentially the same as hedging in Bilski, but distinguishable from Diehr, and therefore was directed to an abstract idea.[33] Turning to step two, the Court noted that the claimed steps and computer were conventional and routine.[34] Accordingly, the Court held the patent invalid.[35]
Some scholars predicted that Alice would kill software patents[36] while others argued that Alice was merely an incremental change in the law.[37] The reality is likely somewhere in the middle, but, needless to say, Alice has had a profound effect on patent law.
In Alice, the Court specifically avoided defining the metes and bounds of an abstract idea, which created confusion as to how to determine whether a claimed invention was directed to one. [38] The Court also did not precisely define what inventive concept was, only that it is something more than the abstract idea and that the lower courts should look to the Court’s precedent for guidance.[39] Both of these questions have created great uncertainty in patent law.
For example, patent litigation filings dropped 40% year-over-year in the September after the decision according to Lex Machina,[40] evidencing companies’ fears to assert a patent and have the court invalidate it. Their fears were founded because the courts saw a significant uptick in successful invalidity defenses after Alice. In the two years since Alice, the federal district courts and Federal Circuit each decided approximately four times as many invalidity defenses than in the four years prior to Alice.[41] Even more troubling is that in the two years since Alice, 70% of motions in federal courts claiming patent invalidity were granted.[42] For companies, that’s a 70% probability that the court will invalidate their patent, which was likely a significant temporal and financial investment. Therefore, it’s imperative attorneys and clients, especially entrepreneurs, understand patentable subject matter eligibility. To do so, one must review the Federal Circuit’s implementation of the Alice test, which is discussed in the next Section.
The Federal Circuit has only upheld five patents that were challenged as claiming patent ineligible subject matter.[43] The first, a patent claiming a process that created a composite webpage displaying the product information from a third-party merchant while retaining the original webpage’s look and feel, was found eligible in DDR Holdings, LLC v. Hotels.com, L.P.[44] Under Alice step one, the court concluded that DRR’s claimed invention “[did] not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead, the claimed solution [was] necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” In other words, the claimed invention did not simply take a conventional process, such as Bilski’s hedging or Alice’s intermediated settlement processes, and implement it on the computer, but instead, addressed a new problem in a new way.[45] However, the court deferred to Alice step two.[46] Under step two, the court concluded that the steps were unconventional because the routine process was to transfer the visitor to another’s webpage via a hyperlink whereas the claimed invention retained the visitor on the original webpage.[47] Furthermore, the claimed invention did not preempt every application of making two webpages look the same to increase sales, rather it claimed a specific way to solve a problem unique to the internet.[48]
The Federal Circuit did not uphold another high-tech patent until Enfish, LLC v. Microsoft Corp.[49] In Enfish, the Federal Circuit upheld a self-referential database under Alice step one and therefore did not reach the second inquiry.[50] The court concluded that the claimed self-referential database was directed to improving the computer’s functioning because it improved the computer’s speed, and therefore upheld the patent.[51]
A few weeks later in BASCOM Global Internet Services v. AT&T Mobility LLC, the court upheld a patent as containing an inventive concept in its claimed steps as an ordered combination under Alice step two.[52] Under step one, the court concluded that the claimed idea of filtering content on the internet was analogous to precedent it had held directed to an abstract idea.[53] More importantly, under step two, the court first noted that when searching for an inventive concept, the court must look at the steps both individually and as an ordered combination.[54] Next, the court concluded that the individual steps claimed were generic and therefore did not contain an inventive concept.[55] However, the court continued its search for an inventive concept and ultimately held that the claimed invention contained an inventive concept because “an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.”[56] The conventional process was to filter at each individual’s computer whereas BASCOM’s invention allowed for filtering at a location remote from individuals’ computers with individualized content filtering controls.[57] Thus, the court upheld the patent.[58]
These cases provide useful tools to understanding patentable subject matter. However, entrepreneurs and attorneys who represent entrepreneurs can also learn from the patents the Federal Circuit invalidated as claiming patent-ineligible subject matter.
The Federal Circuit has found patents claims direct to an abstract idea under step one for various reasons. For example, in Content Extraction & Transmission LLC v. Wells Fargo Bank, National Association, the Federal Circuit asked whether the claimed invention was a long-prevalent practiced and held the claimed scanning process invalid because humans have long visually scanned documents for certain information.[59] Along those same lines, the court has asked whether an claimed invention implemented on a computer could be performed by a person without a computer instead.[60] For instance, in Intellectual Ventures I LLC v. Symantec Corp. the court recognized that screening mail was a mental process humans performed and the invention merely implemented it on a computer.[61]
The court has also examined the patent claim’s language, looking for whether it described the steps, including the components such as computers, in generic, functional terms or specific terms.[62] For example, in Versata Development Group, Inc. v. SAP America, Inc., the Federal Circuit held the claimed invention was directed to an abstract idea because the claimed price setting process described the process in functional terms, which would preempt every way of performing the step, and therefore held the patent invalid.[63]
Moving to step two, there are likewise various reasons the Federal Circuit not found an inventive concept. Primarily, the Federal Circuit has found the claimed steps conventional or constituting generic post-solution activity.[64] In its search for an inventive concept, the court examines the steps individually and together in order.[65] For example, in Versata, the Federal Circuit found that the claimed steps in a pricing process were conventional both individually and as an ordered combination.[66] In addition to considering the steps’ and components’ conventionality or genericness, the court also considers claimed invention’s preemption potential.[67] For instance, in Affinity Laboratories of Texas v. DirecTV, LLC, the Federal Circuit held that a patent claiming cellphone broadcasting system claimed patent-ineligible subject matter because, inter alia, the patent would preempt the idea itself, not an application of it.[68] Along that same vein, the Federal Circuit and the Supreme Court have made it clear that the patent owner artificially limiting an invention to a technical environment does not convey patentability.[69]
With the Supreme Court’s jurisprudence and the Federal Circuit’s application of Alice in mind, we now contemplate practical advice for entrepreneurs and the patent attorneys representing them regarding how to approach software patents post-Alice.
First and foremost, an entrepreneur should engage with patent counsel as soon as he or she has an idea to protect his or her intellectual property early on. Working with experienced, knowledgeable patent counsel early will save the entrepreneur hassle and expense down the road. For example, if the entrepreneur wrote the patent application himself to preserve financial resources, the application would likely not be successful, especially if it claims software. Even if the application is approved, it likely does not provide as much protection as one prosecuted by a patent attorney. Indeed, besides the patenting process, patent counsel may be able to help the entrepreneur avoid many other pitfalls and may even be able to assist in finding funding or employees because the patent counsel has likely advised similar clients previously.
Next, the entrepreneur should provide as much information as possible to the attorney to reduce costs without providing unnecessary information. If the patent attorney conducts research to fill information gaps or searches through unrelated document, application costs increase. Specifically, the entrepreneur should communicate what problem the invention solved; how the invention differs and is better from the industry standard and the competition; if the components used, such as computers, are unique; and any other information about invention’s unconventionality. A prudent entrepreneur should also introduce the patent attorney to the scientists or engineers responsible for the invention because they may better convey the invention’s this information. If the entrepreneur follows these instructions, the USPTO will more likely approve the patent and the resulting patent will more likely withstand a validity challenge.
The patent attorney must draft the specification and claims carefully to avoid pitfalls during prosecution and strengthen the resulting patent against validity challenges. Only two Federal Circuit cases have found that the claimed invention was not directed to an abstract idea: Enfish[70] and McRO, Inc. v. Bandai Namco Games America, Inc.[71] In both cases, the invention permitted computers to do something they could not before. In Enfish, the computer operated faster,[72] and in McRO, the computer could create more realistic lip synchronization and expressions on animated characters.[73] Therefore, if possible, the patent application should emphasize the invention’s improvement to a computer’s functioning.
The specification should also explain why this invention could not be done by a human without a computer and describe the components implemented in detail. Further, it should discuss how the problem the invention solves is new due to the advent of computers. Providing this information combats the notion that the claimed invention patents an idea, rather than a specific application of an idea, and preemptively addresses the policy argument that the patent would hinder scientific progress.
In step two, the overall idea is to show that the claimed invention discounting the abstract idea still contains an invention. To satisfy the inquiry, the attorney primarily must show that the claimed process is not conventional and the components involved are not generic. For example, in Diehr, the Federal Circuit noted the claimed invention’s ability to continuously measure the temperature inside a rubber-curing mold, which was unconventional.[74] Similarly, the Federal Circuit noted the unconventionality of DDR’s claimed process, concluding that the normal process would be to link the person to the third-party’s webpage whereas the invention kept the visitor on the original page.[75] The court will also look at the claimed steps as an ordered combination. Therefore, the patent attorney should emphasis how the claimed steps’ order is different from the abstract idea. For example, in BASCOM the invention’s filtered the internet at a central location whereas the abstract idea filtered the internet at the users’ locations. [76] However, providing great specificity inherently narrows the claims. Therefore, including this information should be a balanced against obtaining the broadest protection possible.
Moreover, to provide more protection, the attorney can write claims of varying specificity and include dependent claims[77] such that if one independent claim[78] is found invalid, others will still stand. Alternatively, the attorney could prosecute a system claim including the process, which will result in a stronger claim because it more like the traditional mechanical invention.
Understanding the patentable subject matter area of law is very challenging, but following the above advice will increase the likelihood of securing a patent and that the resulting patent will withstand a patentable subject matter eligibility challenge.
The precise contours of abstract ideas and the definitive meaning of an inventive concept post-Alice are far from clear. It is unlikely that they will ever become clear. Therefore, the only option society has is to define trends within the existing, although limited, post-Alice case law.
The entrepreneur should be heavily involved in the process and provide information demonstrating that the invention is different from industry practice and competitors. To strengthen the patent’s subject matter eligibility, the patent attorney should differentiate the invention from what everyone past and present has done and provide specifics in the claims about the process and components. If the entrepreneur and patent attorney follow this advice, the USPTO is more likely approve the patent application and the resulting patent is more likely to survive a patentable subject matter eligibility challenge.
Footnotes
