Supreme Court’s Latest Patent Case and Software Patentability

Last month, I co-authored an article on IPWatchdog.com about the legal, technical and academic communities’ over-a-decade long debate about the boundaries, legality and wisdom of software patents. Now, on June 19, 2014, the U.S. Supreme Court has issued a decision in its review of the U.S. Court of Appeals for the Federal Circuit’s en banc May 10, 2013, decision in CLS Bank v. Alice. Unfortunately, the clarity that many had hope for has not come to fruition!

What we do know for sure — for at least a 150 years now — is that U.S. Patent Law recognizes four broad categories of inventions eligible for patent protection: processes; machines; article of manufacture; and compositions of matter. 35 U.S.C. Section 101. We also know for sure, despite the oft-quoted recognition that the patent laws were made to cover “anything under the sun that is made by man,” Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (quoting S. Rep. No. 1979, 82d Cong. 2d. Sess., 5 (1952)), the U.S. Supreme Court has long recognized that there are three exceptions to these four broad patent-eligibility categories: laws of nature; physical phenomena; and abstract ideas. Id. This is where the certainty ends.

The Supreme Court’s Alice decision has again left the IP bar without a clear, repeatable test to determine when exactly a software (or computer-implemented) claim is patentable versus being simply an abstract idea “free to all men and reserved exclusively to none,” Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948). This is perhaps not surprising as Alice is a case more about so-called “business method” patents than software patents! (In fact, three justices in a succinct, 116-word concurring opinion indicated that they would impose a per se ban on patenting business methods!) With respect to software patents, however, we still find ourselves with a myriad of USPTO Section 101 guidelines, flowcharts and presentation slides – the latest of which is a March 4, 2014, 19-pager which may very well get fatter after Alice!

In the unanimous Alice decision, the Supreme Court utilized the two-step framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289 (2012), for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts:

[1] First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, [2] we then ask, “[w]hat else is there in the claims before us?” To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. We have described step two of this analysis as a search for an “‘inventive concept’” – i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.”

Alice, slip op. at 7 (citations omitted). While this framework seems sounds, its application is somewhat intellectually disingenuous. Why? Because it applies considerations of novelty and obviousness under 35 U.S.C. Sections 102 and 103, respectively, in what should simply be a 35 U.S.C. Section 101 threshold test!

In Alice, while applying the first part of the Mayo framework – deciding whether the claims were directed to an abstract idea – the Court reasoned: “On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. … [T]he concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce.” Id. at 9 (citations omitted).

In applying the second part of the Mayo framework – deciding whether the claims contain any inventive concept – the Court reasoned: “Taking the claim elements separately, the function performed by the computer at each step of the process is “[p]urely conventional.” Id. at 15. “[T]he use of a computer to obtain data, adjust account balances and issue automated instructions; all of these computer functions are well-understood, routine, conventional activities previously known to the industry.” Id. (citations omitted).

Thus, does not the Court’s application of the Mayo two-step framework really amount to a prior art novelty and obviousness test!? Further adding to the ambiguity, the Court admits: “we need not labor to delimit the precise contours of the ‘abstract ideas’ category in this case. … distinction between the concept of risk hedging in Bilski [v. Kappos, 130 S.Ct. 3218 (2010)]and the concept of intermediated settlement at issue here. It is enough to recognize that … [it is] squarely within the realm of ‘abstract ideas’ as we have used that term” Id. at 10.

In my above-mentioned recent article, my co-author Christopher George and I proposed a software patentability test that centers on identifying the “intelligence” behind a software- or computer-implemented invention. By identifying that intelligence, one can determine whether the invention is merely abstract or covers a human-driven process – either not being patentable eligible – or involves some intelligent processing driven by the software that provides a new output – thus being eligible for patent protection. Phrased another way, a proposed test is:

Looking at the claim as a whole, does the potentially novel and non-obvious intelligence reside in the software (or the computer implementation) that is producing a tangible and concrete result, or does it simply reside with a human interacting with the software (or computer implementation)?

Examining “where’s the intelligence?” behind a claimed invention should put to rest concerns over claiming an abstract idea, as well as the often-criticized token addition of the phrase “computer-implemented” in method claims or “a processor” to system claims. Further, an invention involving a computer or process to provide intelligent processing of information should elevate that claimed method and/or system above one that merely couches an old idea in the context of a computer.

Such an analysis can be facilitated by looking at the software’s flow diagram that should be found in the patent’s specification. In looking at the flow diagram, a straight line flow without any decision points would seem to indicate a straightforward process which is not relied upon for any decision-making (e.g., the automation of a previously manual process). If the flow diagram has a decision point or a branch, however, this would suggests that some decision has to be made that affects the outcome of the process. That decision point can be evaluated to determine whether the decision is: (i) a mental one, made by a human; or (ii) a decision made by the software or processor itself. If the decision point is evaluated and a next path or branch in the claimed process flow is determined by the software process and/or system, this would be strong evidence that the “intelligence” is in the claimed invention and thus evidence of patent eligibility. The analysis should only then continue to a 102/103 prior art analysis!

The Alice decision will no doubt take some time to shake out in the lower courts and perhaps some certainty (i.e., one or more tests for each step in the Mayo framework) will develop. In the meantime, I note that according to the U.S. Dept. of Commerce, the U.S. software and IT services industry had revenue totaling US$606B in 2011, with overall research and development spending of US$126.3B, and a U.S. workforce of nearly two million people. Further, a PriceWaterhouseCoopers report pegs the cumulative value of technology-related M&A activity for 2013 at US$99.8B, with software representing 25% of this total value and 35% of the total deal volume. This is a substantial amount of U.S. commerce that deserves stable and predictable patent law protection! Until then, code (and patent) on!