Alice in Blunderland: The Supreme Court’s Conflation of Abstractness and Obviousness

By Ron Laurie
December 11, 2014

Question: When does a oncuromputer-implemented or Internet-enabled “business method” constitute patent-eligible (aka statutory) subject matter under 35 USC 101?

Answer: Always, unless — (1) the prior art contains a manual (human-implemented, non- automated) counterpart or analog to the claimed method or system, and (2) the manual analog is merely implemented on a computer or via the Internet.

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In Alice v. CLS Bank, the Supreme Court reiterated its Mayo two-step analytical framework for testing a patent claim for subject matter eligibility:

Step One: Does the claim involve an “abstract idea”?

Step Two: Is the abstract idea “merely” implemented on a generic computer, i.e., without any additional inventive contribution?

If the answer to both inquiries is Yes, then the claim covers ineligible (non-statutory) subject matter under 101. On the other hand, if the answer to the first inquiry is No, then there is no need to go to the second step and the claimed subject matter is patent-eligible.

In addressing the first step of the Mayo framework, the Supreme Court in Alice implicitly instructed lower courts, and the USPTO, to examine the relevant prior art for what may be described as a “manual,” (i.e., human-implemented and/or non-automated) counterpart or analog to the claimed computer-implemented method, at least in terms of the problem to be solved, the proposed solution, and the result.

“It follows from our prior cases, and Bilski in particular, that the claims at issue are directed to an abstract idea. … 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. Like the risk hedging in Bilski, the concept of intermediated settlement is ‘a fundamental economic practice long prevalent in our system of commerce.’ ”

(quoting Bilski; emphasis added.)

At this point in the Alice opinion, the Supreme Court cites several prior art articles from the economics and banking literature discussing the problem (mitigation of settlement risk) and the solution (manual intermediated settlement).

According to Alice, if a manual analog can be found in the prior art, the first step of the Mayo analysis is satisfied, i.e., the presence of an abstract idea in the claim under examination, and the test in the second step is then applied, which involves asking whether the prior art manual analog is “merely” implemented on a computer (or via the Internet), without any additional inventive input.

The problem with this analytical approach lies not in the two-step Mayo “algorithm,” but rather in framing the analysis in terms of subject matter eligibility under Section 101 rather than patentability under 103. Section 101 is intended to deal with the eligibility of the claimed subject matter for patent protection as a class (i.e., genus or sub-genus) of inventions, rather than the contribution of the particular invention (i.e., species) defined by the claim vis-a-vis the prior art. So why did the Supreme Court frame the inquiry in terms of patent-eligible subject matter, rather than proceeding directly to the question of obviousness?

In this context, it is instructive to note that the USPTO’s current examination guidelines on “Formulating and Communicating Rejections Under 35 USC 103 for Applications Directed to Computer-Implemented Business Method inventions” (last modified in 2009) include four examples of proper obviousness rejections based on the “automation of a known process,” two of which (Examples 9 and 10) specifically reference, “automation of a known manual process on the Internet” and one of the exemplary rejections includes the following more generalized language, “It was known at the time of the invention that merely providing automatic means to replace a manual activity which accomplishes the same result is not sufficient to distinguish over the prior art.” (citing In re Venner, CCPA 1958).

Last week’s Federal Circuit’s decision in DDR Holdings v. Hotels.com et al. — and in particular the divergent perspectives on the existence of a prior art manual analog, as between the opinion of the court authored by Judge Chen and Judge Mayer’s dissent — brings this issue into sharp focus.

DDR Holdings involved two e-commerce patents, the ‘579 patent and the ‘399 patent. At trial, the jury found that the asserted claims of both patents were not invalid under Sections 101 or 112, and that the ‘579 patent was not invalid under Section102, and the district judge denied defendant’s JMOL motion. On appeal, the CAFC reversed the denial of the JMOL motion as to the ‘572 patent on the basis that it was anticipated by the prior art (developed by one of the defendants) as a matter of law. As a result, the court did not consider the validity of the ‘572 patent under either Sections 101 or 112. With regard to the ‘399 patent, the CAFC affirmed the district court’s denial of the JMOL motion, confirming the jury’s finding that the asserted claims were valid under both 101 and 112.

The DDR decision is noteworthy for a number of reasons:

  1. It is the first post-Alice, post-Nautilus CAFC decision to consider the application of both recent Supreme Court decisions to the same claims;
  2. It is the first post-Alice CAFC decision to find that computer- implemented, Internet-enabled, business method claims defined patent-eligible subject matter under Section 101 (as contrasted with the holding in its recent Ultramercial decision).
  1. It is the first post-Nautilus CAFC decision to find that the asserted claims were not invalid as indefinite under Section 112 (as contrasted with the holding in its recent Interval Licensing decision).

For purposes of the present discussion, the focus will be on aspect no. 2 above. and specifically on the result of applying the first step of the Mayo/Alice analytical framework; namely whether the claims involve an abstract idea or not. The opinion of the court, authored by Judge Chen, joined by Judge Wallach, answered the question in the negative, thus ending the 101 invalidity inquiry. Judge Mayer in dissent disagreed, echoing his concurring opinion in Ultramercial, and in particular his belief that any business method, including those implemented on a computer or via the Internet, is in the “entrepreneurial” arts, rather than the technological (aka useful) arts as required by the U.S. Constitution.

The asserted claims in DDR describe the interaction, or lack thereof, of three independently operated websites: (1) a “computer store” website on which the products of one or more third party merchants are offered; (2) a third party “outsource provider” (fulfillment) website where a merchant’s products can be purchased and which mimics the look and feel of the computer store in terms of its “visually perceptible elements”; and (3) the merchant’s own website, which presumably does not. The objective of the claimed invention is often referred to as “stickiness,” which refers to the ability of a website operator to keep visitors on that site (or in this case what appears to be the same site). The technical mechanism used to achieve this objective in DDR was to provide a link associated with a particular product on the computer store site that, when clicked by a shopper, takes the shopper to the fulfillment website, which maintains the same look and feel as the computer store. (In the internet-related prior art, the product ordering link on the web-store site took the shopper to the merchant’s own web-site — from which he or she might not return to the computer store.)

Following the lead of the Supreme Court in Mayo and Alice, both the majority and dissenting opinions in DDR addressed the abstract-idea issue by asking whether the prior art included a manual (non-automated) counterpart/analog of the claimed Internet-enabled invention.

Judge Chen described the primary goal, and effect, of the claimed invention as providing visitors to the computer store website with the opportunity to purchase products from a third party merchant “without actually entering that merchant’s website.” As to the means for accomplishing that objective, he found no analogous manual prior art because by its very nature the claimed invention had value (utility) only in the context of the Internet due to the “ephemeral nature of an Internet location” and the “near-instantaneous transport” between locations via hyperlinks.

Judge Mayer, on the other hand, posited a prior art brick-and-mortar analog where a physical store contains one or more concessions or shops operated by independent merchants, and where an individual shop has the same décor as the larger store in which it resides. He characterized the object of the claimed invention as the use of visual similarities to “dupe” an online shopper into believing that the operator of the larger store and the operator of the fulfillment function were one and the same, which was not the case.

In responding to Judge Mayer’s “store within a store” hypothetical, Judge Chen observed:

“The dissent characterizes DDR’s patents as describing the entrepreneurial goal that ‘an online merchant’s sales can be increased if two web pages have the same look and feel.’ “

“But these claims . . . do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” (emphasis added).

“In this way, rather than instantly losing visitors to the third party’s website the host website can instead send its visitors to a website . . . that provides visitors with the opportunity to purchase products from a third party merchant, without actually entering that merchant’s website.”

So, let’s return to the question posed at the outset; namely, why did the Supreme Court in Alice (and Mayo) inject the prior art manual analog inquiry into the 101 patent-eligible subject matter analysis by conflating the concepts of abstractness and obviousness, rather than proceeding directly to the 103 analysis? And if the end result is the same, irrespective of the doctrinal labels, isn’t this a case of no harm–no foul?

One possible answer may be that 101 subject matter eligibility is generally regarded as a “course filter” and a “threshold question” to be answered before turning to what are typically more complex questions as to the patentability of a particular invention as claimed under Sections 102, 103 and 112 (see e.g., MPEP 2106).

The potential mischief produced by the Supreme Court’s conflation of abstractness and obviousness results from the following logical conundrum:

(a) if an examination of the prior art, and the technical significance of the differences between the prior art and the claim under review (as in DDR), is a necessary predicate, or even merely useful, for determining whether a claim to a computer- implemented or internet-enabled business method involves an abstract idea or not; and

(b) if patent eligibility under 101 is indeed a threshold question,

(c) then (as noted in my previous Rush to Judgment, can a case involving a software-implemented business method be dismissed at the outset in response to a Rule 12(b)(6) motion based on the intrinsic evidence alone (i.e., the patent and its prosecution history) without expert testimony and/or claims construction (as was done in Ultramercial)?

And if so, might this not provide cover to a district judge, if he or she is so inclined, for clearing their docket of those pesky business method cases?

The Author

Ron Laurie

Ron Laurie Ron has worked in Silicon Valley since before it had that name, initially as a software and systems engineer, and later as an intellectual property lawyer and patent strategist. In 2004, he co-founded the first IP investment bank, Inflexion Point Strategy, LLC, which provides patent brokerage and IP-driven M&A advisory services to technology companies and institutional investors around the world. Ron is the co-founder and President of Syndicated Patent Acquisitions Corporation ("SynPat"), which acquires and monetizes high-impact patent portfolios using an innovative licensee-syndication model. He is a founding partner of Percipience, LLC, a board-level advisory firm specializing in IP management and competitive intelligence, focused innovation, and patent valuation. Ron is on the advisory boards of the Certified Patent Valuation Analyst (CPVA) accreditation program and IP Management and Valuation magazine. He is a registered patent attorney.

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Discuss this

There are currently 10 Comments comments.

  1. Anon December 11, 2014 9:41 am

    The mischief is only ever the more highlighted when one considers the evolution of law and how section 103 was carved out of the pre-1952 general paragraph that became the various sections (101/102/103/112).

    The Court has thumbed its nose at Congress – and Congress remains blithely unaware.

  2. EG December 11, 2014 9:52 am

    Ron,

    You’re definitely speaking to the choir: the two-step test of Alice is utterly broken and completely conflates what should be 103 issues with 101.

  3. Paul Cole December 11, 2014 9:54 am

    I am far more familiar with the Myriad case than with Alice and its successors, and have much catch-up reading to do over the Christmas holiday.

    However, I recall that Justice Stevens in Bilski proposed a categorical exclusion for business-method patents, but that the majority of the Court voted otherwise. Again in Alice the possibility of a categorical exclusion was considered and voted down.

    These decisions are binding authority on the Federal Circuit which is an inferior court. Insofar as Justice Meyer proposes a categorical exclusion for business methods, he is going against two concurrent Supreme Court decisions which are binding on him. It is strongly arguable that it is improper for a judge to issue a contrary judgment in these circumstances, even in a dissenting opinion because it cannot create a precedent and merely confuses the law.

  4. Paul Cole December 11, 2014 9:56 am

    I should have said Judge Meyer. Mea culpa.

  5. Anon December 11, 2014 10:30 am

    The voice of reason and measured application of the Supreme Court decisions goes unheeded, does it not, Mr. Cole?

  6. Paul Morinville December 11, 2014 2:34 pm

    Doesn’t this just continue to show that a patent is only valid if you draw the right three judges are at the CAFC and that it really has little to do with statute or case law? Isn’t it just a multi-million dollar crap shoot?

  7. Paul Cole December 11, 2014 5:28 pm

    @ Anon

    We are supposed to be lawyers operating within the common law, and reason and measured application is THE WHOLE BASIS OF OUR WORK. A judge may not like Bilski and Alice, but he or she is bound by their holdings and to pretend otherwise makes a mess of the system.

  8. Anon December 11, 2014 6:22 pm

    Paul,

    The only measure I would adjust with your reply is to recognize the difference between common law and statutory law, and to press that here in the States, our patent law was expressly made to be statutory law per our constitution.

    Such does drive an important limitation that many, including many attorneys fail to recognize.

  9. Bruce Johnson December 14, 2014 10:20 pm

    I think the Court deliberately decided Alice on 101 grounds because they wanted to provide a tool to invalidate patents directed to general ideas that contain only generic implementations. By deciding on 101 grounds, they have signaled that Alice is not to be limited to the facts in the Alice case, but applies to a broad category of patents.

    Had they decided the case on 103 grounds, they would have had to perform a Graham v Deere analysis, and it would have been very easy to limit the case to the particular facts in Alice.

  10. Magnus Holmgren December 16, 2014 7:02 am

    That a method was commonplace before the computer era is one way of concluding that it’s an abstract idea. Where’s the problem with that? It would be bad if it were the *only* way, and I find it unfortunate that the Court couldn’t come up with a good definition this time either (one that clearly excludes all pure software from patentability).

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