Death of the Software Patent? It Doesn’t Have to Be

Posted on May 7, 2014 in Articles

This article originally appeared in The Legal Intelligencer on May 7, 2014.

The eligibility of software for patent protection is in the spotlight once again, but this time it is the U.S. Supreme Court that might be making the decision. Oral argument has already taken place in Alice v. CLS Bank, No. 13-298. Although the Supreme Court will not render its decision for several months, the case has already attracted significant attention.

Perhaps the court will articulate clear guidelines for determining whether a software-related invention is patentable. Or, maybe the court will simply articulate a holding that is fact-specific to the case before it. It is impossible to predict how the court will decide. That, however, has not stopped thousands of reporters, commentators and scholars from weighing in on the issue. Some writers have expressed hope that this decision will lead to an improved understanding of when software-related inventions are eligible for patents. Yet others are looking at this case with the fear (or perhaps the hope) that software patents will become invalid. To say that the intellectual property community is interested in the outcome of this case is an understatement, for the decision has the potential to have a widespread impact.

The story began to unfold in 2007. Alice Corp., the owner of four patents relating to financial trading systems, was sued in the U.S. District Court for the District of Columbia. Through a declaratory judgment action, CLS Bank sought to have Alice’s patents declared invalid and unenforceable. Alice, in turn, countersued CLS Bank for patent infringement. The district court ruled that Alice’s patent claims were invalid because the claims were directed to abstract ideas.

An appeal at the U.S. Court of Appeals for the Federal Circuit reversed the lower court decision, and Alice’s patents were declared to be valid. The court held that under the statute, claims directed to computer-implemented inventions are patentable unless it is “manifestly evident” that they are directed to an abstract idea. After a rehearing en banc, Alice’s claims were again found to be not patent-eligible, but the decision created an uproar in the intellectual property bar because it was so highly fractured. The 10-judge panel issued seven different opinions, and no single opinion was supported by a majority. One dissenting judge remarked that upholding the decision of the case “is the death of hundreds of thousands of business method, financial system and software patents.”

On writ of certiorari, the U.S. Supreme Court agreed to hear the case. The question to be decided was written as follows: “Whether claims to computer-implemented inventions—including claims to systems and machines, processes and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 U.S.C. [Section] 101 as interpreted by this court.”

35 U.S.C. Section 101 reads as follows: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

Over the years, the courts have made numerous attempts to interpret the law and rule regarding the patentability of software-related inventions. In the 2010Bilski v. Kappos, 561 U.S. ___ (2010), decision, the U.S. Supreme Court determined that a patent with claims relating to hedging losses was too abstract to be patent-eligible. The court also ruled that there was more than one test for determining patent eligibility. Bilski came after what is known as the patent-eligibility trilogy—Gottschalk v. Benson, 409 U.S. 63 (1972), Parker v. Flook, 437 U.S. 584 (1978), and Diamond v. Diehr, 450 U.S. 175 (1981)—which provided the basis for the machine or transformation test (a patent claim is eligible subject matter if it is a process implemented on a particular machine or the process transforms an article from one state to another).

Oral argument for Alice took place at the end of March and the justices’ questions and comments were very interesting. Several justices focused on the abstract nature of the patented invention. Justice Ruth Bader Ginsburg referred to the abstract hedging method in Bilski and asked, “So how is [your invention] … less abstract than hedging?” Justice Stephen Breyer remarked, “Imagine King Tut sitting in front of the pyramid where all his gold is stored, and he has the habit of giving [the gold] away. And he hires a man with an abacus, and when the abacus [counts that] he’s given away more gold than he [has] in storage, he says, ‘Stop.'” Why, the justice asked, is it not an abstract idea to tell a computer to “stop”? The justices thus questioned whether the claims of the patent in suit were directed to an abstract idea.

Although the focus in Alice seems to be on the “abstract idea” concept, perhaps there is another way to evaluate claims for patent eligibility.

35 U.S.C. Section 101 is one of several statutes that describes the requirements of patentability. Section 101 provides (in effect) “the list” of what is patentable, but other statutes must be satisfied as well. Those statutes include:

• 35 U.S.C. Section 102: “Novelty,” namely, an invention already in the public realm is not patentable.
• 35 U.S.C. Section 103: “Obviousness,” namely, an invention is not patentable if it is obvious from what is in the public realm.
• 35 U.S.C. Section 112: The patent application must include: (a) enough information so that a person of ordinary skill in the relevant technology can practice the invention; and (b) at least one claim that distinctly claims the subject matter of the invention.

Note that these are extreme generalizations—always consult a licensed patent practitioner on issues of patent protection.

The case law of the patent eligibility of software-implemented inventions has always centered on Section 101. But, perhaps the courts are trying too hard to interpret Section 101. Is there another way to determine when software inventions are patent-eligible? A small number of patent practitioners have a very different idea. Interestingly, this alternative idea briefly appeared in theAlice oral argument.

Instead of basing the patent-eligibility question on Section 101, why not use all four of the above statutes to help make the decision? When Breyer was using his King Tut analogy, he was trying to interpret Section 101. Why not also use the King Tut analogy with Sections 102 and 103? Breyer remarked that counting on the abacus was abstract. But, why didn’t he also say that the abacus is already in the public realm (i.e., “novelty”)? Or, why didn’t he also say that it is obvious from the public realm to use an abacus (i.e., “obviousness”)?

As the case law of software-implemented invention patentability has evolved over the years, some practitioners have wondered if the line between Section 101 (what types of innovations should be considered for a patent) and Sections 102 and 103 (is the invention patentable in view of what is publicly known) has been blurred. In the oral argument for Alice, this “blur” appears to have been noticed. Later in the oral argument, Justice Antonin Scalia started to talk about “novelty.” Ginsburg picked up on those comments, saying that in Mayo Collaborative Services v. Prometheus Laboratories, 566 U.S. ___ (2012), Breyer specifically asked whether “novelty can be relevant to … patent eligibility.” He remarked that “there’s an overlap.”

Perhaps with Alice before them, the justices of the U.S. Supreme Court will reframe the issues of when software-implemented inventions are patentable. Perhaps the focus needs to be less on trying to define a bright-line test for the “abstract idea” and more on whether the software-implemented invention is novel (or obvious) over the prior art. Certainly an abacus, or a published abstract idea, can be prior art. In the Alice oral argument, two of the justices seem to be picking up on this issue. While this is a very cutting-edge concept, maybe the concept can be expanded, and the task of determining patent eligibility can become less arduous.

There are thousands of software patents, and their monetary value is huge. Many of those patents reflect great amounts of effort and ingenuity to create commercially valuable products. Software patents can have tremendous value. Hopefully, the U.S. Supreme Court will help to clarify which computer-implemented inventions are able to be patented.

– by Lawrence Ashery