Dissecting the Software Patent Amici in Support of CLS Bank
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: March 27, 2014 @ 12:13 pm
There are numerous briefs listed on the ABA’s brief publication webpage for Alice Corp. v. CLS Bank that are filed in support of the respondent, most of which make specious claims about software patents blocking innovation, or which make arguments that claims that specifically recite computers, data storage units, devices and more are somehow abstract and imaginary. These arguments should be easy enough to dispose of as ridiculous on their face, but who knows how the Supreme Court will respond. Still, one would hope that the Supreme Court would notice that neither patents generally or software patents specifically have done anything to block innovation in the smartphone industry.
Whereas the Alice supporters feel that the U.S. Patent and Trademark Office’s issuance of software patents are important for protecting and spurring innovation in many fields, the supporters of CLS Bank have largely responded that software patents hurt innovation. But that can’t be! One of the areas critics always say has been allegedly hamstrung by patents, the smartphones industry, is barely over 6 years old. Have patents stopped innovation of smartphones? Hardly. In fact, with every new version companies tout just how much more the phones do and how they are so far superior to the previous model. Thus, it is easy to see that those claiming that software patents block innovation simply ignore market reality and how the functionality of current devices (which is thanks to software) match up with previous generations of devices over the last 6 years. Corporate critics must also ignore their own marketing of new smartphones, which directly contradicts the ridiculous claim that software patents are preventing innovation. Still they make these and other specious arguments as if they are true.
Doing away with software patents is myopic and not in the long term best interests of even the companies that support killing software patents. Google, for example, is an aggressive user of the U.S. patent system, is second in the number of patents obtained only to IBM, and the ruling that they seek would destroy the value of their own patent portfolio. It would open themselves up to immediate competition that they could not stop because they would have no patents. It would also mean that the $12 billion spent to acquire the grossly overpriced Motorola patent portfolio would have been nearly completely wasted. Attorneys who represent shareholders in class action lawsuits get ready! If CLS Bank prevails you are going to have a rather easy lay-up opportunity to sue all those companies that advocated against their own interest.
What follows is a summary (and discussion) of the positions raised in some of the briefs supporting the CLS Bank position. We focus on what we call the “corporate briefs” and the brief filed by 26 professors.
Amicus Briefs Filed by Corporations in Support of Respondent
There are two major “corporate briefs” that we focused on that were filed on behalf of major corporations in software fields supporting CLS Bank. The more concise of these is certainly Brief of Amici Curiae Checkpoint Software, Inc., Collateral Analytics, LLC, Daily Motion, Inc., Github, Inc., Guidewire Software, Inc., Hipmunk, Inc., Jive Software, Inc., LinkedIn, Inc., Message Systems, Inc., Netflix, Inc., Newegg, Inc., Quantum Corporation, Rackspace, Inc., Ring Central, Inc., Trulia, Inc., Twitter, Inc., and Yelp Inc. in Support of Respondents.
The elongated title of this brief belies the amount of material that it contains. The amici of this brief describe themselves as “small and medium-sized companies that develop and sell software,” interested in encouraging innovation through the patent system. In the summary of arguments, the amici state quite bluntly that, “Software patents do not serve the Constitutional purpose of the patent system: to promote the progress of science and the useful arts.” Instead of obtaining software patents, these companies believe that “we create innovative software because of our desire to delight our customers.” While they don’t necessarily take a stand on the patentability of software, these companies are advising the U.S. Supreme Court that software patents aren’t necessary to promote software innovation.
These companies undoubtedly come to that opinion based on the mistaken belief that copying the work of others is somehow innovative. Of course, it is nearly laughable for anyone to say that these for-profit companies are simply doing it for the benefit of customers. As if they would be innovating and providing services for free out the goodness of their hearts if only the patent system would be destroyed.
A number of companies that cannot describe themselves as small or medium-sized are involved with another corporate amicus brief, Brief of Google Inc., Amazon.com Inc., American Association of Advertising Agencies, Dell Inc., Facebook Inc., Intuit Inc., LinkedIn Corp., Netflix Inc., Rackspace Hosting, Inc., Verizon Communications Inc., and Zynga Inc. as Amicus Curiae in Support of Respondents. The companies filing this brief develop high-technology products and services used by everyday citizens, Fortune 500 companies and the United States government. The companies listed include a few that we cover in our Companies We Follow series here at IPWatchdog, and the interests of the amici section even mentions that these corporations have engaged heavily in obtaining patent protections for their software, which of course they have. But more than that, Google, for example, has offensively used its patent portfolio to attack and has been adjudicated as a patent troll for refusing to license patents under fair and reasonable terms despite being required to do so. So these companies are not strangers to software patents, nor are they strangers to infringing software patents and suing for infringement of their own patents. Indeed, many of these companies have real vested financial interests in the outcome of this case. Corporations who enforce their software patents against other companies can sometimes command huge settlements. Twitter, listed above as an amicus, paid $36 million to IBM in December 2013 to settle a patent infringement suit by buying 900 patents.
Again, these companies come right out at the top of their summary of arguments with their stance on software patents: “Patents that merely claim abstract ideas implemented on computers or over the Internet are invalid under 35 U.S.C. § 101. Such patents add nothing meaningful to the abstract idea.” That statement is, of course, correct. The problem is that the claims in the Alice patents are not drawn to abstract ideas.
Be that as it may, the amici companies focus their attention on several major points. They don’t believe that Alice’s patent claims limits itself to a specific way of implementing the idea on a computer, creating abstract protections that the companies argue have given some companies the right to protect high-profile ideas, “blocking others from undertaking the truly innovative task of developing specific applications.” This argument is contradicted by the Solicitor General, however, who acknowledges that the claims do not preempt ideas, but confusingly tries to say they are still nonetheless abstract. But let’s take a look at one of the so-called abstract claims, which is Claim 1 of U.S. Patent No. 7,725,375 recites (with emphasis added):
A data processing system to enable the exchange of an obligation between parties, the system comprising:
a first party device,
a data storage unit having stored therein
(a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and
(b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution;
and a computer, coupled to said data storage unit, that is configured to
(a) receive a transaction from said first party device;
(b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and
(c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.
Patents by their very nature block to some extent since they provide the patent owner with exclusive rights. The problem is when patents block by protecting ideas, which is clearly not the case with the above claim in the ’375 patent. Indeed, a good deal of tangible and identifiable structure is specifically recited in that allegedly abstract claim. How computers, storage units, devices and institutions are abstract or imaginary is a mystery to me, particularly if you concern yourself with the actual definition of “abstract,” which is: “relating to or involving general ideas or qualities rather than specific people, objects, or actions.”
Furthermore, while the Supreme Court did away with the “useful, concrete and tangible result” test from State Street Bank v. Signature Financial, in Bilski v. Kappos, 8 out of 9 Justices (i.e., everyone except Justice Scalia) signed onto an opinion that recognized that the patent claims in State Street displayed patent eligible subject matter. Indeed, the dissenters in Bilski specifically acknowledged that the claims at issue in State Street did not deal with processes, but dealt with machines. See Footnote 40 of the Steven’s dissent.
So let’s take a look at claim 1 of U.S. Patent No. 5,193,056, which was at issue in State Street, and which even the dissenters in Bilski recognized as patentable because it recited a machine. Claim 1 covers:
A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising:
(a) computer processor means for processing data;
(b) storage means for storing data on a storage medium;
(c) first means for initializing the storage medium;
(d) second means for processing data regarding assets in the portfolio and each of the funds from a previous day and data regarding increases or decreases in each of the funds, assets and for allocating the percentage share that each fund holds in the portfolio;
(e) third means for processing data regarding daily incremental income, expenses, and net realized gain or loss for the portfolio and for allocating such data among each fund;
(f) fourth means for processing data regarding daily net unrealized gain or loss for the portfolio and for allocating such data among each fund; and
(g) fifth means for processing data regarding aggregate year-end income, expenses, and capital gain or loss for the portfolio and each of the funds.
(emphasis added to draw attention to the “tangible” elements of the claim).
Difficult to in any intellectually honest way distinguish the claim structure of claim 1 in the ’056 patent with claim 1 in the ’375 patent. So unless the Supreme Court is going to turn their back on their own previous statements of just several years ago it is difficult to see how the systems claims will be determined to be abstract.
Twenty-six professors and scholars of law, business and economics filed this brief independently and not on behalf of the educational institutions where they teach or engage in research. A summary of affiliations does disclose that these amici include professors from Duke University, Columbia Law School, Harvard Business School, Stanford Law School and George Mason University, among others.
This brief concludes by saying urging the Supreme Court to: “affirm the invalidity of the patent claims at issue here and further hold that abstract ideas in the form of software are unpatentable and the mere computer implementation of those ideas does not create patentability.”
Astonishingly, despite advocating that the patent claims at issue here are invalid, these learned, intellectual masters never once cited, quoted or actually referred to the claims at issue. Instead, they wax poetically throughout the brief about how ideas cannot be patented, yet they never do the hard work of explaining exactly how or why the claims actually before the Supreme Court represent ideas alone. That is, of course, because the claims do not relate to ideas. Still, such a glaring deficiency in a brief boggles the mind. Sorry professors, in a patent case about the invalidity of claims you really need to analyze the claims. If this were a student assignment the failure to address the claims would mean that the brief could be graded no better than a “C.” Professors failing to address the only issue in the case except in rhetorical and inaccurate terms is inexcusable.
But let’s return to the beginning. This brief starts out by explaining that the Federal Circuit expanded patentable subject matter for software in the 1990s, and since then an explosion in the number of U.S. software patents has been experienced, “many of which contain abstract ideas merely tethered to a computer.” In contrast, the professors believe there was much stronger software innovation during previous years. As a result they believe the current state of software patents promotes an increase in patent litigation and the acquisition of patents for reasons other than innovating. Again, there is no mention of the phenomenal rate of innovation relating to smartphones and data services, but readers are supposed to take their word for it that software gets in the way of innovation.
A high degree of abstractness in software-related patent claims is the major issue cited by this brief that renders software unpatentable in the eyes of the amici. Presumably, the fact that some software patents have been issued when they shouldn’t have been issued means that forever more software should not be patent eligible. The problem with this argument is that there is nowhere to draw the line. The brief seems to indict the industry rather than address these particular claims in these particular patents.
The abstractness of software patent claims, the brief explains, “can be construed to cover any of the particularized processes that result in the same outcome, including those never envisioned by the inventor.” First, this once again fails to realize the overwhelming reality that the claims at issue are specifically tethered to multiple tangible structures and incorporate specific limitations. Second, from a conceptual level after developed technology can easily infringe electrical and mechanical patents too. So should we eliminate all patents period because after developed technology that the original inventor didn’t invent is infringing if the after developed technology incorporates everything included and taught in the patent claim? Seriously! It sounds like they are against patent rights that are fundamental and foundational. If someone builds on your invention that should be proof that the patent should have been issued?
This professor’s amici brief further explains that the Supreme Court should not only find Alice’s patent claims invalid, but should decide the case in a way that extends patent ineligibility to all software patents, stating that “mere computer implementation of those ideas does not create patentability.” In other words, nothing related to software would be patentable. Presumably this would extend to automobiles, robots, GPS, missile guidance and defense systems, and the multitude of other devices that simply cannot operate without software. Astonishing that a group of allegedly highly educated professors would recommend destroying the economy like that.- - - - - - - - - -
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About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.