McRO gives hope to US patent owners, but Section 101 uncertainty remains

After two years of uncertainty and no little gloom, a recent Federal Circuit decision may just herald the long-awaited swing-back in the pendulum that software patent owners in the United States have been waiting for. Some, though, still believe that Congress must bite the bullet and take a look at Section 101

The Court of Appeals for the Federal Circuit (CAFC) has never been prone to rushing out its decisions; but even so, the nine months it took to hand down its judgment in McRO Inc, DBA Planet Blue v Bandai Namco Games America was an exceptionally long delay. And it mattered. For this was not any old patent case, but one – it was hoped – that would shed some much-needed light on the murky issue of eligibility under Section 101 of the US Patent Law.

The two patents that were the focus of the case related to lip synchronisation in computer-generated animation. They had been ruled invalid under Section 101 by a Californian district court in September 2014, just months after the Supreme Court issued its controversial judgment in Alice Corp v CLS Bank. That decision, of course, saw the justices elaborate on the two-stage test introduced in Mayo Collaborative Services v Prometheus Laboratories and focus specifically on when an abstract idea might be patentable. The Alice decision – and, more particularly, the way it has been interpreted by district courts – has had a significant downward effect on patent values, as well as the amount of software patent litigation being filed (see chart, page 6). Many in the US IP community were looking for the McRO decision to provide tools that may help to reverse both trends.

Positive reaction

If initial reactions are anything to go by, they have not been disappointed. Read alongside two other recent 101-related decisions that the CAFC has issued – Enfish v Microsoft and Bascom v AT&T Mobility – it seems as though the widely predicted, eagerly awaited pendulum swing back to patent owners in the United States may have begun. “I think that the CAFC’s recent 101 decisions show that those people proclaiming the death of software patents were overreacting to a handful of decisions,” comments Matt Levy, patent counsel at the Computer and Communications Industry Association. “It was like someone looking outside at 11:00pm and declaring that the world was being plunged into an age of darkness.”

Levy also claims that he can see a clear trajectory from the CAFC which, he predicts, will encourage better-quality patents: “I think that the court is following a fairly consistent line of reasoning: there needs to be a technical solution to a technical problem in order for software to be patent eligible. If the court continues to develop this approach, I do think that we’ll eventually see some improvement in patent quality, because it will require more specific claiming. We should see fewer ‘do it on a computer’ types of patents for sure.”

Microsoft’s head of IP, Erich Andersen, identifies three key takeaways from McRO: the CAFC’s insistence that specific requirements of patent claims be considered by courts; “that claims may be patent eligible if they represent a technological improvement”; and “that data processing claims may be eligible even if they produce information rather than a physical product or result”. Seen in the round, suggests Andersen, the decision is a “major ruling” that “will provide additional certainty to industries that generate more than $5 trillion in US economic activity and 40 million American jobs” 

Congress or SCOTUS must act

But despite McRO, and the Enfish and Bascom decisions that preceded it, not everyone is happy. Some prominent figures in the US patent firmament argue that the CAFC judgments have done little to relieve the inherent unpredictability that continues to exist when eligible subject matter is being assessed. “Enough judicial rulings at both levels have now been issued trying to make sense of the Mayo regime that it is time we all admitted it cannot be made fair, cannot be made predictable or objective, cannot be consistently applied by judges, examiners and Patent Trial and Appeal Board members, and cannot advance progress in science and useful arts,” insists former CAFC Chief Judge Paul Michel. “The time has come for the Congress or the Supreme Court itself to abandon the Mayo/Alice regime.”

Michel also offers a stark warning over the effect that continued uncertainty in Section 101 will likely have on investment in new technologies: “The impact is to diminish the value of most patents and decrease the incentive to invest in R&D and commercialisation, just when needed most to enhance global competitiveness and create new jobs and cures for diseases.”

IBM’s chief patent counsel, Manny Schecter, echoes Michel in calling for congressional action. “Though the McRO decision is another helpful stake in the ground for guiding the lower courts and the USPTO, we do not know whether the Supreme Court agrees with the outcome; and even if we did, we still have a long way to go to reach acceptable predictability in evaluating patent subject-matter eligibility,” he remarks. “I remain convinced that we must prepare a legislative solution to protect the vitality of our most innovative industries.”

Proactive CAFC

While we will have to wait and see whether Congress acts on patent eligibility or the Supreme Court takes another Section 101 case, there is a growing sense among the US patent community that the CAFC might be realising that it is its responsibility to take the lead in defining the boundaries. Earlier this year, the Supreme Court declined to grant certiorari in Ariosa Diagnostics v Sequenom, a highly contentious 101 life sciences case that it was widely expected to take. The patents at issue related to a medical procedure that could test for foetal genetic conditions from a maternal blood sample – a breakthrough that to many appeared patentable.

However, the CAFC ruled in June 2015 that the patent was ineligible, claiming that the Mayo judgment left it with no other choice. That decision was seen by some as an attempt by the Federal Circuit to encourage the Supreme Court justices to take another 101 case to clarify their earlier decisions. When they declined to hear the appeal, some lawyers say, it served as a wake-up call to the lower court that it was now on its own on Section 101. Those lawyers point to both the McRO ruling and another opinion from July in Rapid Litigation Management Ltd v CellzDirect Inc as signs that the CAFC has got the message and is starting to act more boldly.

Figure 1. Software patent suits declined 36% since 2013

Of course, the likes of Michel would argue that the fundamental test that the court is trying to apply to determine whether something is patent eligible remains inherently flawed. But as the case law on Section 101 as it applies to software begins to mount from the Federal Circuit, members of the tech community can at least rest a little easier that question marks no longer hang so heavily over large parts of their patent portfolios. If nothing else, that is to be welcomed.

McRO – the view from Microsoft

As the owner of one of the world’s largest portfolios of software-related patents, Microsoft has been keeping a close eye on recent developments in the US courts. On September 13 – the day that the McRO decision was handed down by the Court of Appeals for the Federal Circuit – Erich Andersen, vice president and deputy general counsel of the company’s IP group, wrote a piece on it for the Microsoft on the Issues blog. It is reproduced, with permission, below:

The US Court of Appeals for the Federal Circuit issued an important decision today, strengthening the law related to software patent eligibility under Section 101 of the Patent Act. Software technologies are at the center of our economy and playing a role in helping to transform industries in so many fields, including manufacturing, retail and health care. Recently, the federal courts have been grappling with the issue of which software innovations are eligible for protection under U.S. patent laws in the wake of the Alice v. CLS Bank decision. Today, in McRO (d.b.a. Planet Blue) v. Bandai Namco Games, the court issued a significant decision that gives us useful guidance for determining which software innovations qualify for protection and helping provide greater stability to the U.S. patent system, a foundation for our digital economy.

In short, the ruling today offered guidance in three key ways. First the court made clear that patent claims need to be considered as a whole, offering “We have previously cautioned that courts ‘must be careful to avoid oversimplifying the claims’ by looking at them generally and failing to account for the specific requirements of the claims.”

Second, the court emphasized that claims may be patent eligible if they represent a technological improvement. Per the opinion, “we therefore look to whether the claims in these patents focus on a specific means or method that improves the relevant technology or are instead directed to a result or effect that itself is the abstract idea …”

Third, the court made clear that data processing claims may be eligible even if they produce information rather than a physical product or result. In other words, today’s decision confirmed that there is no requirement of “tangibility.” As stated by the court, “While the result may not be tangible, there is nothing that requires a method “be tied to a machine or transform an article” to be patentable…. The concern underlying the exceptions to § 101 is not tangibility, but preemption.”

Of course, eligibility is only one aspect of patent protection, and whether the invention in this case is actually valid and infringed remains to be determined by lower courts, where important safeguards in the patent law may apply.

Overall, today’s major ruling will provide additional certainty to industries that generate more than $5 trillion in U.S. economic activity and 40 million American jobs.


The front cover of the print edition of IAM issue 79 (September/October 2016) ran with an erroneous main cover-line in which Volvo Group was referred to as “one of Europe’s leading car companies”. Volvo Group is not a car manufacturer; instead, it produces trucks and buses. With this in mind, the main cover-line should have run as follows:

Volvo revolution

The inside story on how one of Europe’s leading auto companies transformed its IP strategy

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