The trend is clear in the US, says leading observer: software patent protection is diminishing – and fast

When Fenwick & West partner Robert Sachs circulated his latest post late last Friday afternoon to followers of the Bilski blog, he advised that they might want to be sitting down when they read it. “How about with a stiff drink?” one subscriber suggested.

A year since the Supreme Court issued its opinion in Alice Corp v CLS Bank, Sachs has put together perhaps the most comprehensive piece of research on the impact the case has had in the courts and at the USPTO. “The data is not pretty,” he warned.

As he points out, the justices’ opinion was relatively conservative, but in failing to offer clear guidance on what constitutes abstract subject matter and what is therefore not patentable, they have left the lower courts and the PTO to “liberally expand the contours of abstract ideas”. As you drill down into the data this means that the patent kill rates, specifically in business method technology areas, are dramatically on the rise and that the interpretation of section 101 of US patent law, which governs patent eligible subject matter, is a mess.

Although the justices did not specifically rule on the patentability of business methods or software, the debate over which types of computer implemented inventions are protectable has continued to rage in the months following the decision. Soon after it was handed down we asked the data research company ktMINE to crunch some numbers on which software-centric companies might be most at risk from Alice. It made for some alarming reading for some tech companies and drew a sharp rebuke from Bart Eppenauer, former chief patent counsel at Microsoft and now head of the Seattle office of the law firm Shook Hardy & Bacon. He insisted that it was too soon to determine how the patent environment would develop in the post-Alice world.

That may still be the case, but 12 months have given Sachs a significant chunk of data from the courts, the PTO and the Patent Trial and Appeal Board (PTAB) to analyse. According to his research, for instance, since Alice the Court of Appeals for the Federal Circuit has issued 13 decisions on section 101 grounds, holding the relevant patents invalid in 12 cases. Of those 13, 11 were in software or e-commerce.

In the concluding remarks of his blog post, Sachs offers his thoughts on software’s patentability. Change, he insists, will be incremental, but the direction of travel is clear:

If the present trends hold, and I see no reason to suggest that they will not, we will continue to see the zone of patent eligibility curtailed in software (not to mention in biotechnology after Mayo and Myriad). Indeed, the more advanced the software technology­­—the more it takes over the cognitive work once done exclusively by humans, the more seamless it becomes in the fabric of our daily lives—the less patent eligible it is deemed to be by the courts and the USPTO.

That said, it should be pointed out that not all of the data in this research means that it's all doom and gloom. In the USPTO’s 3600 Technology Center – the classification group that includes the three classes that cover e-commerce - the percentage of all actions with 101 rejections in May of this year stood at 84.4%, 76.9% and 87.5%. All of those represent huge humps since pre-Alice days, but in other technology areas such as computer architecture, networks, video and the tech centre that covers semiconductors/memory, circuits/measuring and testing, and optics/photocopying, 101 rejection rates have stayed broadly stable or even dipped since the decision was handed down.

With all of that in mind, and nothing more than a cup of tea in hand, the IAM blog caught up with Sachs to discuss his research in more detail, as well as what it means for the patent market overall. One of the first questions we asked was where he felt responsibility now lies for the uncertainty and confusion around patent eligibility. That, Sachs admitted, is a complex question, but ultimately he felt that it could be apportioned fairly broadly.

“It lies with the litigants who make the motions challenging things that five years ago no one would have challenged,” he commented. “It lies with the courts for granting the motions. As to the PTO, yes it lies inside the PTO, of course it’s their responsibility.”

He rejected the notion that the USPTO could be spared some criticism because, as some observers point out, there has been little guidance from the courts on how Alice should be applied.  “If the decision is unclear then the last thing to do in the zone of uncertainty is to shift – if it’s unclear what the court wants then you should be conservative in your response,” he asserted.

But, at the same time, Sachs insisted that the USPTO is ultimately best placed to determine what is patent-eligible. “Who knows more about what technology is - at least from an institutional standpoint – the patent office or the courts?” he asked. “The PTO has been evaluating technology for 200 years, it has 8,000 examiners with scientific and technical degrees. I think they know more about what tech is than the courts.”

But as the courts are stepping in more and more on 101 grounds, Sachs claimed, they are knocking out more than just flimsy business method patents. “Courts are not looking at Alice and saying it’s only limited to business method patents. Alice is being applied across the board to any and all types of software.” He then added: “How does Alice apply to computer animation of 3D facial movements and lip syncing? That’s about as far away from the Alice tech as you can get and yet a court in the Central District of California says that’s abstract based on Alice.”

So where does this leave the future value of software patents? Sachs not surprisingly took a dim view, pointing to recent comments at IPBC Global which suggested that it was very much a buyer’s market with values low because of the increased risk of rejection.

“Maybe you say that’s ok,” he reflected. “Maybe those that do get issued going forward will be stronger, they’ll hold up because they will have passed through the fire of Alice. I have a strong feeling that that hope will be sorely disrupted because what will happen is that patents that come out now are still going to be challenged and the courts are going to say, “we get to decide this all over again, the PTO got it wrong”.”

Reports of the death of software patents may have been exaggerated, but Sachs’ research and his comments strongly indicate that they are now subject to a far tougher judicial climate and so are a lot more vulnerable than was the case prior to the Alice decision. For many, that means even the finest Scottish single malt will be of very little help.