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Patent Eligibility Post-Alice

Written by: Derek F. Dahlgren
Rothwell, Figg, Ernst & Manbeck
Posted: Aug 4, 2014 @ 10:00 am

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Alice with Lion and Unicorn from “Through the Looking Glass,” published 1871.

Last month, the Supreme Court issued its opinion in Alice Corp. v. CLS Bank International, _ U.S. _ (2013). In its opinion, the Court holds that Alice Corp.’s patent claims are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform the abstract idea into a patent-eligible invention. Since the opinion issued, the PTO has starting pulling allowed applications and issuing § 101 rejections. And lower courts are already applying Alice to hold claims ineligible. Taken together, all this signals that § 101 is going to remain at the forefront of patent law for the foreseeable future. In view of its importance, this article provides an overview of the opinion, attempts to glean lessons from Alice, and finally identifies some considerations for patent owners and challengers as they navigate the murky morass that is § 101 jurisprudence.

At the outset, the Supreme Court reiterates the principle that laws of nature, natural phenomena and abstract ideas are not patentable—noting that it has interpreted § 101 and its predecessor statutes this way for over 150 years. It observes that the concern driving these exceptions to patentability is pre-emption. That said, the Court recognizes that this exclusionary principle must be carefully construed because at some level all inventions embody laws of nature, natural phenomena or abstract ideas. It states “[t]hus, an invention is not rendered ineligible for patent simply because it involves an abstract concept” and “applications of such concepts to a new and useful end . . . remain eligible . . . .” Slip op. at 6 (internal quotations and citations omitted).

Citing to Mayo Collaborative Services v. Prometheus Laboratories, Inc., the Court then sets forth the framework for identifying ineligible claims:

First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask, what 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.

Slip op. at 7 (internal quotations and citations omitted). The Court observes in a footnote that its framework is consistent with the general rule that claims must be considered as a whole. Id. at 7 n.3.

The Court then proceeds to the claims at issue. Applying the first step of the above-framework, it concludes that the claims are drawn to the abstract idea of intermediated settlement. Id. As support, it quickly surveys its prior § 101 cases outlining ineligible subject matter directed to an algorithm (Benson), mathematical formula (Flook), and hedging risk (Bilski). The Court notes that “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce.” Id. at 9. It cites to an 1896 reference disclosing the use of clearing-houses as intermediaries to reduce settlement risk. The Court then rejects Alice Corp.’s assertion that intermediated settlement is not an abstract idea because it is not a preexisting, fundamental truth that exists in principle apart from any human action. The Court, however, does not define the contours of the abstract idea exception, and instead finds that Alice Corp.’s claims are sufficiently close to the risk hedging in Bilski. Id. at 10.

Proceeding to the second step in the above-framework, the Court states that it must examine the elements of the claim to determine whether it contains an inventive concept sufficient to transform the abstract idea into eligible subject matter. The Court observes that more is needed than simply stating the abstract idea and adding the words apply it. Citing to Benson and Flook, the Court notes that simply implementing a principle on a computer is not enough. The Court contrasts those decisions with Diehr, stating that Diehr involved a well-known mathematical equation used to solve a “technological problem in conventional industry practice.” Id. at 12 (internal quotations and citations omitted). It also observes that Diehr used a thermocouple to record constant temperature measurements inside the rubber mold—“something the industry had not been able to obtain.” Id. at 13 (internal quotations and citations omitted). “In other words, the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer.” Id.

The Court states that these cases—Benson, Flook, and Diehr—demonstrate that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” Id. That said, the Court admits that a computer is a tangible system and a “machine” for purposes of § 101, and that “many computer-implemented claims are formally addressed to patent-eligible subject matter.” However, it states the presence of a computer does not end the § 101 inquiry because that would let an applicant claim “any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Id. at 14.

Turning first to the method claims, the Court characterizes the second step of the inquiry as whether the claims do more than simply instruct one to implement the abstract idea on a computer. It finds that the claims do not. The Court notes that the use of a computer to “obtain data, adjust account balances, and issue automated instructions” are all well-understood, routine, conventional activities requiring no more than a generic computer. Id. at 15. Looking at the claims as an ordered combination of steps, the Court observes the claims still only recite the use of a generic computer. Id. (“The method claims do not, for example, purport to improve the functioning of a computer itself . . . Nor do they effect an improvement in any other technology or technical field.”). The Court concludes this was not enough to render the method claims eligible.

The Court then addresses the computer readable medium and system claims. For the former, it observes that Alice Corp. has conceded the medium claims rise or fall with the method claims. Then, turning to the system claims, the Court rejects Alice Corp.’s argument that its claims recite specific hardware configured to perform specific computerized functions:

But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit” . . . –is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims . . . As a result, none of the hardware recited by the system claims offers a meaningful limitation beyond generally linking the use of the method to a particular technological environment, that is, implementation via computers.

Id at 16 (internal quotations and citations omitted). The Court finds that the system claims are no different than the method claims in substance, stating that a different outcome would make eligibility depend simply on the draftsman’s art. Id.

Justice Sotomayor wrote a short concurrence, joined by Justices Ginsburg and Breyer, stating that, in her view, any claim that describes a method of doing business is not a patentable process under § 101.

 

Lessons from Alice

Alice offers a number of lessons regarding patent-eligibility under § 101.

First, the Court expressly lays out a framework for addressing § 101 that tracks its decision in Mayo, and Judge Lourie’s plurality opinion in the Federal Circuit’s en banc decision, which it cites favorably a number of times. Under this framework, you first determine whether the claims are directed to one of the judicially-recognized exceptions. If so, you then consider the elements of each claim both individually and in ordered combination to determine if there is an inventive concept present in the claim that adds “enough” to transform an abstract idea into a patentable invention.

Second, the Court provides important, although incomplete, guidance on what constitutes an abstract idea. Surveying its prior precedent, the Court states that ideas, algorithms, mathematical formulas and fundamental economic practices such as hedging risk and using intermediated settlements are not patent-eligible. Notably, it also rejects the argument that abstract ideas are limited to pre-existing truths existing apart from any human action. However, it ultimately declines to define the contours of this exception to eligibility. Drawing on the perceived similarities to the abstract idea in Bilksi, the Court concludes that is enough to find Alice Corp.’s claims are directed to an abstract idea. Consequently, defining the boundaries of the abstract idea exception is left to future cases.

Third, while the Court does not expressly articulate a technological requirement, it suggests this is an important guidepost for eligibility. Specifically, its characterization of Diehr as a technological improvement solving an industry problem (id. at 13), and statement that the method claims do not purport to improve computer functionality or any other technology (id. at 15), suggest a technological improvement is an important, if not dispositive, criterion for eligibility.

Finally, it is also noteworthy that the majority of the Court appears unwilling to hold business methods per se ineligible, at least expressly. Additionally, the Court appears to concede that software patents are not per se ineligible when it states that many computer-implemented claims are formally addressed to eligible subject matter.

 

Potential Considerations Going Forward

In view of Alice, parties should take a close look at their offensive and defensive patent strategies.

From a patent owner perspective, Alice requires a thorough assessment of one’s patent portfolio and a reevaluation of drafting techniques. In the application stage, one may want to consider framing the invention as a technological improvement and stating how the invention solves existing technical or industry problems and improves performance—whether it be data processing, security, scalability, etc. Indeed, one may want to go so far as to include statements regarding the invention’s technological improvement in the preamble of the claims. Additionally, for appropriate pending applications, one may want to file a continuation with additional written description about the technological advance of the invention. One can include a declaration from an expert stating that the technological advancement was inherent in the earlier disclosure in order to try to retain the original priority date, similar to the result in Kennecott Corp. v. Kyocera International, Inc.,835 F.2d 1419 (Fed. Cir. 1987). However, the use of these drafting techniques has to be weighed against other considerations, such as the possibility that statements may be used against you as prior art admissions.

Additionally, if one is considering asserting an issued patent, it may be advisable to first institute an ex parte reexamination or reissue proceeding to provide a vehicle for amending claims and adding new claims that frame the claimed subject matter as a technological improvement. Notably, in an ex parte reexamination, the PTO has taken the position that it cannot reject claims under § 101. Thus reexamination may provide a useful vehicle for amendments while the PTO figures out how it is going to apply § 101. However, on the other hand, in a reissue proceeding one can amend the specification to discuss inherent subject matter present in the original disclosure. Cf. Kennecott,835 F.2d 1419. Therefore, as noted above, it may be possible to add a discussion of the technological improvement associated with the invention if that is inherently disclosed in the original disclosure. Before using this strategy, one should weigh the risk of intervening rights, and if litigation has already commenced and proceeded to judgment, the risk of claim preclusion. See Senju Pharm. Co., Ltd. v. Apotex Inc., 746 F.3d 1344 (Fed. Cir. 2014); Cardpool Inc. v. Plastic Jungle, Inc., No. 12-04183, 2014 U.S. Dist. LEXIS 74221 (N.D. Cal. May 30, 2014).

If a patent owner finds themselves defending against a § 101 challenge, one strategy may be to generate as many factual disputes as possible to maximize the benefit provided by the presumption of validity. As noted previously, the presumption of validity creates a heightened evidentiary burden for findings of fact. Thus, for example, in view of the apparent overlap with §§ 102 and 103, a patent owner may consider offering evidence of commercial success to demonstrate that the claims are directed to a useful, non-obvious application rather than an abstract idea. Additionally, in articulating claim constructions, the patent owner should argue that the claims require more than generic software or computer elements. An expert declaration may be advisable in view of the pending Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. case at the Supreme Court.

From a patent challenger’s perspective, Alice further reinforces the need to evaluate whether an early dispositive motion under § 101 can end the litigation. In crafting such motions, it is important to clearly define the abstract idea and to demonstrate how it is merely well-understood, routine, conventional activity. Additionally, it may be helpful to articulate how the claims do not recite any technological improvement. Another strategy is to petition the PTO to institute a covered business method (CBM) patent review. A CBM proceeding may be preferred as the evidentiary burden is lower compared to district court litigation. Currently, the PTO has taken the position that § 101 is an available basis for challenging claims in a CBM proceeding. However, please note that the availability of §101 is being challenged at the Federal Circuit. To the extent claim construction is involved in any challenge, a challenger should assert that the claims merely require generic software or computer elements. Again, an expert declaration to this effect probably is advisable.

 

Conclusion

Alice signals that § 101 will continue to be a significant factor in patentability and validity determinations. In its opinion, the Court provides some clarification to the murky morass of § 101 jurisprudence, but at the same time it leaves many questions unanswered. Perhaps none of those questions is more important than the contours of the abstract idea exception. That said, parties should carefully study the opinion and incorporate its teachings into their overall patent strategies. The opinion provides important lessons for both patent owners and challengers.

 

About the Author

Derek Dahlgren is an attorney at Rothwell, Figg, Ernst & Manbeck, P.C. Mr. Dahlgren’s practice encompasses all aspects of patent law including patent litigation, prosecution, opinions and counseling.

DISCLAIMER: The opinions expressed are those of the author and do not necessarily reflect the views of Rothwell, Figg, Ernst & Manbeck, P.C. or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


6 comments
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  1. I have an open question to all those who care:: The USPTO is issuing all sorts of 101’s now (I just got some today) on stuff that was previously statutory.These application are not business methods (but they are software) and Alice does not render software as a class non-statutory (Alice was intentionally vague on this point). But in certain art units, the USPTO seems to be issuing 101’s in all cases. I have clients that have spent a lot of money on their software patent portfolio. I’m not convinced their issued patents are worthless because I think the USPTO is misinterpreting Alice. But for pending cases where the USPTO is taking an agressive stance, is there any legal recourse against the USPTO? Does the USPTO think it’s OK to have people spend a lot of money on patents only to refuse to give them fair consideration? We can all debate the meaning of Alice but it is clear to me that Alice does not render these claims nonstatutory. That’s like someone spending a lot of money to purchase and fix up a rental property, and then when it is finally ready to rent it out the US gov’t steps in and takes it away. Yes, we can appeal to the PTAB but I doubt the ALJs want to lose their jobs and rule against what the Office is doing. Appealing to the Federal Circuit is too costly for all but the largest companies.

    There is something rotten in the state of Denmark. Is there any legal recourse?

  2. Call your Congressman.

    Also, listen to the Congressional Judiciary Committee chat with Miss Lee – about three fourth’s of the way through, there was one Congressman in particular that tried (unsuccessfully) to pin Miss Lee down on the very topic of outright ban on software innovation. You may want to forward your concerns to him as well, even if he is not your representative.

    See http://judiciary.house.gov/index.cfm/hearings?ID=5EC97276-AA17-4A2F-82FF-9C842C2C2AFF

  3. ” is there any legal recourse against the USPTO?”

    Abuse of power occurred in the Australian patent office several years ago but no one did anything about it. No, you can’t sue them. Even if you could, you wont be able to win.

  4. However, it states the presence of a computer does not end the § 101 inquiry because that would let an applicant claim “any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Id. at 14.

    That makes no sense whatsoever. It would certainly pass the 101 test. But no, it would not “let an applicant claim any principle…” because that claim would subsequently be in question as to whether it would pass the 102 or 103 tests.

    This is sheer madness.

  5. Yes, it seems odd to find that a claim directed to a computer is nonetheless directed to an ineligible abstract idea and fails 101. Ultimately, I think there’s a lot left to figure out regarding 101. And I believe courts, practitioners and businesses will struggle in the meantime, e.g., with figuring out what constitutes an abstract idea and what is “enough.” The situation reminds me of Justice Stewart’s I-know-it-when-I-see-it test for obscenity to a certain degree. That may work for judges, but it does little to help others make informed decisions. Still, Alice provides some insights that should help us navigate SCOTUS’ current take on 101.

  6. Can someone please direct me to the Direction Determining Office (DDO) at the USPTO?
    I’d like to see it for myself except that the directions on their website are not concise and direct.
    I’ve heard amazing and wonderful things about the Direction Determining Technologies (DDTs) they use over there. Apparently you drop a claim into the top hopper. Bells, whistles , mirrors and colorful lights ring, whistle, spin and flash as the machine that is a machine processes the deposited claim, separating the significant from the not quite so. Then a giant door slides open and a compass with needle emerges. Its suspended disbelief needle twirls, reverses, slows and finally stops with its North end pointing in direction marked on the face of the compass as either “totally abstract”, “mildly abstract” or “abstract beyond all hope”. It is a wondrous thing to behold. And best of all, I hear it works using zero point energy. Free of charge. What will “they” think of next?

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