UPDATE 2: June 19, 2014 at 6:44 pm ET.
On Thursday, June 19, 2014, the United States Supreme Court issued its much anticipated decision in Alice v. CLS Bank. In a unanimous decision authored by Justice Thomas the Supreme Court held that because the claims are drawn to a patent-ineligible abstract idea, they are not eligible for a patent under Section 101.
In what can only be described as an intellectually bankrupt opinion, the Supreme Court never once used the word “software” in its decision. This is breathtaking given that the Supreme Court decision in Alice will render many hundreds of thousands of software patents completely useless. While the Supreme Court obviously didn’t want to make this decision about software, the holding does make it about software because each of the ways software has been claimed were ruled to result in patent ineligible claims. On first read I don’t see how any software patent claims written as method or systems claims can survive challenge. For example, these claims to IBM’s Watson computer, which is really akin to the first generation omnipotent Star Trek computer, seem to be quite clearly patent ineligible. See Is IBM’s Watson Still Patent Eligible. It is impossible to see how the Watson claims remain patent eligible in light of this ruling and how the Alice claims were written. The only potential solace for IBM and others would be if the Federal Circuit narrowly interprets this decision noticing that the Supreme Court seemed almost preoccupied by the fact that the patent claims covered a financial process. Still, the structure of the claims are nearly identical, with Alice’s claims actually having more recited structure, if anything.
More difficult to understand is how the Court could issue a decision that doesn’t even use the word software. Software is clearly patent eligible if you read the patent statute. Software is mentioned throughout the statute. It was specifically mentioned in the America Invents Act in 2011. Tax strategies are not patent eligible in and of themselves, but the AIA says that software is not patent ineligible just because it incorporates a tax strategy. This is the type of analysis the Supreme Court engaged in the Bilski decision finding that business methods are patentable.
So, at the end of the day today there is a tremendous irony. Software claims as they have typically been writing now seems to result in patent ineligible claims, although the Supreme Court didn’t specifically say that software itself is patent ineligible. Yet, at the same time, business methods are patentable. To call this bizarre and inconsistent doesn’t begin to scratch the surface.
What this means is that companies like Apple, IBM, Microsoft, Google and others have had the value of their patent portfolios nearly completely erased today. If they wish to remain compliant with Sarbanes Oxley and other laws and regulations of the Securities and Exchange Commission they will need to level with their shareholders and tell them that their patent portfolios have been decimated.
This doesn’t mean that moving forward software won’t be patentable, it just means that getting a software patent will be much more difficult than it ever has been. Software can be described by reference to a series of physical actions operating through gates. This type of micro level description of what happens is going to be required, which means getting a patent for software has just become much more expensive and time consuming. It can be done, but a 50 page patent application will now become a 75 to 100 page patent application; a 100 page patent application will now need to become a 150 to 200 page patent application. That will raise costs substantially. It will also drive innovation underground because a patent will be unaffordable to many. That means we won’t get disclosures, information will be held as trade secrets, and those who follow will not be able to stand on the shoulders of those who come before them. Whenever that happens, whether it is in Myriad or Alice, it is bad for science, bad for innovation and bad for society.
In response to the Supreme Court opinion in Alice, AIPLA Executive Director Q. Todd Dickinson stated, “While affirming the CAFC broadly, it is disappointing that the Supreme Court did not take the hoped-for opportunity to provide greater clarity on how to distinguish patent-eligible process claims from ineligible abstract ideas. It also appears they are still confusing subject matter eligibility with the patent statute’s separate and more definitive requirements that an invention be novel and non-obvious.”
To the Court’s Decision
While the Court did acknowledge that an overly expansive view of patent ineligibility would swallow the entirety of patent law rendering everything patent ineligible, the Alice claims were still, nevertheless ruled patent ineligible. Thomas explained:
“[W]e tread carefully in construing this exclusionary principle lest it swallow all of patent law. At some level, all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas. Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept.”
The Supreme Court, then explained that a court must distinguish patents that claim the building blocks of human ingenuity, which are ineligible for patent protection, from those that integrate the building blocks into something more thereby transforming them into a patent-eligible invention, citing Mayo Collaborative Services v. Prometheus Laboratories. Thomas explained that the former inventions, those that block human ingenuity, would present preemption problems, while the latter category of invention that integrate building blocks do not present a preemption issue.
From a purely logical standpoint Justice Thomas is correct. If human ingenuity would be completely blocked that would create a preemption problem and a patent should not issue. Where he and the rest of the Supreme Court are dead wrong is to claim that the claims at issue in this case would preempt human ingenuity. The claims are narrowly drawn, have numerous tangible limitations specifically within the claim, and it is simply factually and legally inaccurate for the Supreme Court to say that the claims would preempt an entire field, let along all human ingenuity.
In any event, the Supreme Court, using what they call the Mayo framework, which is ironic given how the Court so famously misapplied patent law in the Mayo case, said that there are two considerations that must be taken into account. The first Mayo step is to determine whether the claims at issue are directed to one of those patent-ineligible concepts. The second Mayo step is to examine the elements of the claim to determine whether it contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.
The representative method claim in this case recites the following steps: (1) “creating” shadow records for each counterparty to a transaction; (2) “obtaining” start-of-day balances based on the parties’ real-world accounts at exchange institutions; (3) “adjusting” the shadow records as transactions are entered, allowing only those transac- tions for which the parties have sufficient resources; and (4) issuing irrevocable end-of-day instructions to the ex- change institutions to carry out the permitted transac- tions. See n.2, supra. Petitioner principally contends that the claims are patent eligible because these steps “require a substantial and meaningful role for the computer.” Brief for Petitioner 48. As stipulated, the claimed method requires the use of a computer to create electronic records, track multiple transactions, and issue simultaneous in- structions; in other words, “[t]he computer is itself the intermediary.” Ibid. (emphasis deleted).
In light of the foregoing, see supra, at 11–14, the rele- vant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. They do not.
The systems claims at issue in the case faired no better. The Supreme Court explained:
[T]he system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.
In years to come this decision will be ridiculed for many legitimate reasons. In the meantime patent attorneys and clients will need to figure out how to proceed with pending patent applications and with applications that have not yet been filed. Most already issued software patents will not be able to be saved. The disclosures issued patents contain will be inadequate unless Congress steps in and overrules this asinine decision. Pending patent applications could potentially be saved depending upon disclosure, what has become prior art since filing and whether a continuation-in-part application is feasible. Applications that have yet to be filed can still be created to satisfy even this exceptionally naive ruling, but software will need to be described as it is a machine on a granular level, describing gates, switches and relays. Boy are those going to be fun to write, read, prosecute and litigate!