More clarity emerges around software patent eligibility in the United States

US software patent eligibility may not be the nightmare that some claim, with recent Federal Circuit decisions fleshing out the Supreme Court’s pivotal ruling in Alice

The debate over which inventions are eligible for patenting has gone on for at least a century and a half and shows no sign of ending any time soon. The Supreme Court re-energised the arguments after a 20-year break with its decisions in Bilski v Kappos (130 S Ct 3218 (2010)), Mayo Collaborative Servs v Prometheus Labs (132 S Ct 1289 (2012)), Ass’n for Molecular Pathology v Myriad Genetics, Inc (133 S Ct 2107 (2013)) and Alice Corp Pty Ltd v CLS Bank Intern (134 S Ct 2347 (2014)). There has been much discussion on whether the court has made things better or worse, with some prominent voices arguing that it has made such a muddle of things that Section 101 of USC Title 35 should be repealed altogether.

I believe that the Supreme Court’s decisions on patent eligibility have put the lower courts on the right path, at least with respect to software. Some of the Federal Circuit’s recent Section 101 decisions have gone a long way towards fleshing out the opinions from Mayo and Alice by focusing on whether the claims are directed to a technical solution or improvement.

The Supreme Court said that simply adding conventional computer components to an otherwise conventional method or system is not sufficient to make it patent eligible. Intuitively, this makes sense: an ‘invention’ should require skill and ingenuity to create. More importantly, allowing so-called ‘do it on a computer’ patents has the potential to pre-empt many innovations that the patent applicant never contemplated. However, the court’s formulation is not necessarily helpful in locating where precisely this line falls.

Instead, differentiating between patent-eligible and patent-ineligible software inventions requires examining the Supreme Court’s words a little differently. Rather than looking at what the court said is not patent eligible, let us look more closely at what it said about what is patent eligible. Flipping the formulation around makes it clearer that claims are patent eligible where there is either an unconventional method or system, or an unconventional computer component. The first situation was the case in Diamond v Diehr, where the claim was directed to an otherwise patent-eligible method for curing rubber, meaning that the software was irrelevant when it came to eligibility. So what is an unconventional computer component?

Basically, it is a computer component – either software or hardware – that has been technically improved in an unconventional way. After all, if there were no technical improvement, it would just be a conventional computer component. In other words, if a claim is directed to a technical improvement of the performance of a computer (or a particular component(s)), then it is patent eligible.

This is the approach that the Federal Circuit appears to be adopting and it seems a good one. The court should continue to develop the focus on whether a claim provides a technical solution or improvement as the defining question for whether software claims are patent eligible.

Figure 1. Section 101 decisions by year of filing

Figure 2. Cases filed by year

After Bilski

Consider what the Supreme Court had to deal with in the Bilski to Alice tetralogy. The law of patent eligibility has faced completely new questions over the last few decades, including the patentability of software, business methods and medical diagnostics. The Federal Circuit and the US Patent and Trademark Office essentially chose to expand patent eligibility at nearly every opportunity and the Supreme Court reviewed none of those decisions.

By the time that Bilski was heard, software and business methods performed using conventional techniques on generic computer components had been routinely treated as patent eligible for nearly a decade. The judicial exceptions to Section 101 had shrunk to nearly nothing.

Even after the Supreme Court rejected the patent at issue in Bilski, the Federal Circuit’s momentum kept moving it in the direction of an expansive interpretation of Section 101. This is understandable, given that the appeals court had been largely left to its own devices on patent-eligible subject matter for its entire pre-Bilski history. About half the Federal Circuit tried to adapt, while the other half resisted. That resistance took the form of an almost ritualistic invocation of anything that could be interpreted as a physical component, no matter how it was specified, as supporting eligibility.

For example, in Ultramercial, Inc v Hulu, LLC (722 F 3d 1335 (Fed Cir 2013)), the panel relied on the use of computers on the Internet and “complex programming”, which was supposedly required and determined that a patent for little more than inserting advertising into a video stream was eligible subject matter. (Public Knowledge actually filed an amicus brief at the petition for certiorari stage where it provided an implementation of Ultramercial’s patent claim using only 16 lines of computer code.) For certain members of the Federal Circuit, little had changed.

Other members of the court understood that under Bilski, ‘on-a-computer’ claims could no longer survive. Compare Hulu with a decision from a different panel around the same time (Dealertrack, Inc v Huber (674 F 3d 1315 (Fed Cir 2012)). In Dealertrack, the Federal Circuit held that a claim covering what was essentially an online clearinghouse for car loan applications was not patent eligible. The Dealertrack panel distinguished its reasoning from that used in Hulu, stating that: “Unlike in Ultramercial, where this court found that the patent claimed a practical application with concrete steps requiring an extensive computer interface, the claims here recite only that the method is ‘computer aided’ without specifying any level of involvement or detail.”

However, there is no significant difference between the level of detail in the claims of the two cases. The claim in Ultramercial had 11 fairly generic steps, while that in Dealertrack had only eight. The supposedly “extensive computer interface” in Ultramercial took only 16 lines of code to implement – hardly a high level of difficulty.

There is simply no way to reconcile these decisions. And there are a number of other examples from the period after Bilski and leading up to the en banc decision in Alice.

CLS Bank Intern v Alice Corp Pty Ltd (717 F 3d 1269 (Fed Cir 2013)) (en banc) completely exposed the split within the Federal Circuit. The en banc appeals court could not produce a clear majority; it ended up providing a cursory per curiam opinion, plus six conflicting opinions from various combinations of judges.

The Supreme Court had to step in again. In its Alice opinion, the court made clear that simply adding generic computer components is insufficient to qualify as an inventive concept. Looking at Alice Corp’s patent, the court found that it was nothing more than an attempt to patent the concept of using a third party to intermediate the settlement of a transaction.

Since Alice, district courts and the Federal Circuit have been much more open to arguments that a patent is directed to ineligible subject matter. Most of the Section 101 decisions from district courts and the Patent Trial and Appeal Board have invalidated the claims at issue. Out of 20 post-Alice appeals to the Federal Circuit, 17 of those invalidity decisions were affirmed (see this chart maintained by Fenwick & West:

I believe that this invalidation rate is the real core of the argument being made against Alice. A substantial number of people believe that all software and business methods should be patent eligible, regardless of whether they involve inventive technology. However, many ridiculous patents amount to nothing more than ‘do it on a computer’ or ‘do it on the Internet’, making this position difficult to defend. The invalidation rate is primarily an indication that there are lots of these patents which should have never issued in the first place. That is the real problem.

The hard part, as in all areas of law, is with the closer calls.

Are many more patents being invalidated as patent ineligible?

It is certainly true that since Mayo and Alice, the number of patents being found patent ineligible has increased. In cases filed between 2012 and 2015, there were findings of patent ineligibility in 143 of them (that may include invalidations of more than one patent in some cases). In the previous four-year period, 2008 to 2011, there were such findings in only 30 of them. That is almost quadruple, even though the number of patent cases filed just about doubled. So invalidations under Section 101 appear to be increasing faster than the rate of patent litigation filings. That said, findings of invalidity are still quite uncommon; fewer than 1% of all patent cases filed from 2012 to 2015 have a finding of patent ineligibility. So yes, the number is increasing, but it is still quite small relative to the number of patent litigations being filed.

Applying Mayo

In the two-plus years since Alice, the Federal Circuit has gradually found its way towards focusing on the presence (or absence) of a technical solution to a technical problem.

The court’s decision in DDR Holdings, LLC v LP (773 F 3d 1245 (Fed Cir 2014)) was an early attempt to apply Mayo/Alice and was arguably less than successful. There, the panel held that embedding an ad into a webpage using conventional computers and the Internet was patent eligible. There was no new technology of any kind, but the court found that the claims “recite a specific way to automate the creation of a composite web page by an ‘outsource provider’ that incorporates elements from multiple sources in order to solve a problem faced by websites on the Internet. As a result, the ’399 patent’s claims include ‘additional features’ that ensure the claims are ‘more than a drafting effort designed to monopolize the [abstract idea]’”.

DDR is arguably a throwback to the ‘complex programming confers patent eligibility’ approach from Ultramercial, which the Supreme Court rejected. Still, there was a suggestion of the ‘technical solution to a technical problem’ approach: “To be sure, the ’399 patent’s claims do not recite an invention as technologically complex as an improved, particularized method of digital data compression. But nor do they recite a commonplace business method aimed at processing business information, applying a known business process to the particular technological environment of the Internet, or creating or altering contractual relations using generic computer functions and conventional network operations.”

This language is at least beginning to get at the idea that there needs to be something more technical in a claim in order to be patent eligible.

This year, the court finally made the ‘technical solution’ approach explicit:

We do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two. Indeed, some improvements in computer-related technology when appropriately claimed are undoubtedly not abstract, such as a chip architecture, an LED display, and the like. Nor do we think that claims directed to software, as opposed to hardware, are inherently abstract and therefore only properly analyzed at the second step of the Alice analysis. Software can make non-abstract improvements to computer technology just as hardware improvements can, and sometimes the improvements can be accomplished through either route. We thus see no reason to conclude that all claims directed to improvements in computer-related technology, including those directed to software, are abstract and necessarily analyzed at the second step of Alice, nor do we believe that Alice so directs. Therefore, we find it relevant to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea, even at the first step of the Alice analysis.

For that reason, the first step in the Alice inquiry in this case asks whether the focus of the claims is on the specific asserted improvement in computer capabilities (i.e., the self-referential table for a computer database) or, instead, on a process that qualifies as an “abstract idea” for which computers are invoked merely as a tool. (Enfish, LLC v Microsoft Corporation, No 2015-1244 (Fed Cir, May 12 2016)

Analysing the claims at a high level, the court determined that they were directed at improving the way that a computer operates. Because the claims were intended to make table look-ups more efficient, they were not simply an abstract idea implemented on a generic computer. The court explained that “the claims are directed to a specific implementation of a solution to a problem in the software arts”, and therefore were patent eligible.

Enfish applied step one of Mayo/Alice and found the claim at issue to be patent eligible. But what about step two? The two steps of the Mayo/Alice test can be thought of as a broad inquiry followed by a more detailed inquiry (if necessary): “[W]e have described the first-stage inquiry as looking at the ‘focus’ of the claims, their ‘character as a whole,’ and the second-stage inquiry (where reached) as looking more precisely at what the claim elements add—specifically, whether, in the Supreme Court’s terms, they identify an ‘inventive concept’ in the application of the ineligible matter to which (by assumption at stage two) the claim is directed” (Electric Power Group, LLC v Alstom, SA, No 2015-1778, at 6 (Fed Cir, August 1 2016) (slip op)).

In other words, the court can look for new technology or new technical improvements in either or both steps. Electric Power made clear that with regard to software, step two is simply a more searching inquiry of the same questions asked in step one. In Electric Power Group, the claims were directed to: “A method of detecting events on an interconnected electric power grid in real time over a wide area and automatically analyzing the events on the interconnected electric power grid.” The court observed that simply collecting and analysing information using pre-existing components did not involve new technology. The court then moved on to step two of the Mayo/Alice analysis: “Inquiry therefore must turn to any requirements for how the desired result is achieved. But in this case the claims’ invocation of computers, networks, and displays does not transform the claimed subject matter into patent-eligible applications. The claims at issue do not require any non-conventional computer, network, or display components, or even a ‘non-conventional and non-generic arrangement of known, conventional pieces,’ but merely call for performance of the claimed information collection, analysis, and display functions ‘on a set of generic computer components’ and display devices.”

Because the claims required no new technical solutions, they did not have the inventive concept that step two requires. Accordingly, the claims were not patent eligible.

This emphasis on how the claim achieves its results is key to evaluating software patents. If a claim does not recite a technical solution to a technical problem, there is nothing left in the claim except an abstract idea for solving a problem. That is, according to Alice, the “something more” needs to come from new technology.

Despite the Federal Circuit’s promising movement towards focusing on technology, there is room for debate in the application of the test. For example, in BASCOM Global Internet Servs, Inc v AT&T Mobility LLC (No 2015-1763, Fed Cir, June 27 2016), the court found that a system that allowed users to choose a pre-existing content filter for their internet traffic was directed towards a technical improvement and was therefore patent eligible. The court described the claims as reciting “a technology-based solution” and explained that “the claimed invention represents a software-based invention that improves the performance of the computer system itself”. I would disagree with this particular interpretation. I do not think there was any new technology in BASCOM: the claims at issue used the Internet and conventional computers. Regardless, the focus on a technical solution was the right one.

As I mentioned at the start of this article, while the Federal Circuit has been rebuilding its Section 101 jurisprudence, critics have proclaimed the death of software patents. However, the recent decision in McRO, Inc v Bandai Namco Games America (Fed Cir, September 13 2016) showed clearly that the technical solution approach is not inherently hostile to software patents. The claim at issue in McRO was a fairly technical method for automatically syncing the lips of a three-dimensional animated face with speech. The district court found the claim patent ineligible. However, the Federal Circuit – interpreting the claim language narrowly – reversed, finding that: “[C]laim 1 is directed to a patentable, technological improvement over the existing, manual 3-D animation techniques. The claim uses the limited rules in a process specifically designed to achieve an improved technological result in conventional industry practice” (emphases added).

Overall, the Federal Circuit seems to be moving in the right direction. It should continue to develop this approach of looking for technological improvements.

Action plan

While the Supreme Court’s Alice decision changed the software patent landscape in the United States, the following points still hold true:

  • The law of patent-eligible subject matter is still developing, although the Federal Circuit seems to have settled on a clear direction – it is important to continue to monitor Section 101 cases.
  • Going forward, it may be a good idea to draft applications in order to emphasise the improvement to performance of a computer or other hardware.
  • In litigation, focus Section 101 arguments on the presence or absence of technical improvements.

Matt Levy is patent counsel to the Computer & Communications Industry Association, Washington DC, United States

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