PTO Guidance Offers Keys to Patent Eligibility for Crucial Information Age Patents

The Patent Office’s 2014 Interim Guidance on Patent Subject Matter Eligibility released earlier this week represents the third significant hopeful note in a month that the U.S. patent system is beginning to emerge from the dark days of excessive use of an excessively abstract test to bar software and business-method patents as purportedly related to excessively abstract ideas. First read the masterful and reasoned synthesis of Senior District Judge Pfaelzer in The California Institute of Technology v. Hughes Communications (Case No. 2:13-cv-07245-MRP-JEM) (C.D. Cal. Nov. 3, 2014). Then came the Federal Circuit’s opinion finally (huzzah!) upholding a software patent post-Alice in DDR Holdings, LLC v., L.P. Now, the Guidelines.

Along with some district courts, the USPTO participated in the post-Alice paroxysm of disqualifying software and business-method patent claims. The Office withdrew a few hundred patents from allowance, cramped the business method units’ ability to allow patents they considered new and non-obvious, and triggered a tsunami of (often poorly reasoned and sometimes specious or based on form-paragraph “logic”) Section 101 rejections.

The general overreaction seemed based not on anything the Supreme Court actually said but rather on atmospherics: People took note of the Court’s unanimity, the Alice Court’s refusal to “labor” to define the “judicial exception” (but who else can do so?), and the braying of the anti-patent crowd.


Software and business-method patents are important

Let’s start by understanding the graveness of this issue. We live in the “Information Age.” It is no exaggeration to characterize the economy of the United States as largely dependent on two pillars: (1) the Service Economy, and (2) Innovation. One need only look around the Rust Belt to see that the third pillar, the generations-long leadership in manufacturing, seems long gone or at least well-dissipated. Recent economic growth has turned on inventions like social media, search, communication, encryption, Internet commerce, image processing, among many others, or in an earlier generation, on operating systems, microcode, compilers, and the like.

And what areas of patents protect the service and information economy? Why, precisely business-method and software patents!

If we fail to use the traditionally strong U.S. patent system to protect American innovation, especially in critical areas, we risk national economic hara-kiri. Not only do we allow others to reap the rewards of our inventions, worse, we give the next generation of American “garage tinkers” little incentive to form the companies that can grow into the next Apple, Google, Twitter, Facebook, and so forth.

Copyright and marketing can go only so far. As Microsoft’s statement said yesterday: “Innovative software technologies power our economy and the patent system protects billions of dollars in software R&D.” But it is not just large software companies like Microsoft who benefit from patent protection in the software or business methods fields. American economic growth is small-company-driven, yet without patent protection, a software start-up finds itself as a free test lab for a (probably foreign) competitor with little hope of finding venture investment capital.


How Does the Guidance Help Inventors?

With that background, consider the Alice part of the PTO’s new Guidance. The document seems to tell examiners to go back to doing their jobs, thoughtfully and in a balanced way, with less political considerations. The Guidance represents good news for patent applicants.

Microsoft’s statement commented that the “updated Alice guidelines sends an important message that software technology continues to be fully eligible for patent protection.” Of course, that was not in doubt, were one to read the Supreme Court decisions saying so, but the Patent Office results sometimes seemed at odds with the High Court’s pronouncements – in the dark days earlier this year, it seemed as though software patents were obtainable, and enforceable in the courts, but only in theory.

It remains to be seen how examiners react, but here is a list of ways in which the Guidance seem to help inventors and inventive companies protect inventions:

  1. Footnote 2 of the Guidance detail ways in which the Guidance differ from previous pronouncements. Although most of the footnote deals with life-science inventions, there is this: “[T]he application of the overall analysis is based on claims directed to judicial exceptions (defined as claims reciting the exception, i.e., set forth or described), rather than claims merely ‘involving’ an exception.” This may seems like a fine point, or just a mysterious comment, but actually it is crucial: One of the main problems with the “abstract ideas” exception is its inherent tendency towards subjectivity – does the label “abstract” actually have meaning beyond “a claim we don’t like”? The courts have long recognized, after all, that all inventions “involve” an abstract idea to some extent. So, when the Guidance tells examiners to consider whether a claim is “directed to” an abstract idea, and elaborates that examiners must consider whether the abstract idea is “set forth or described” in the claim, the Office thereby demands examination of the actual claim language rather than relying on some overbroad “gist” or caricature abstracting the claim. The effect should be that more claims will pass Alice’s “Step One,” as not being “directed” to any abstract idea.
  2. The Guidance further states that “claims…may recite a judicial exception, but are directed to inventions that clearly do not seek to tie up the judicial exception.” Statements like that one follow the Alice and other court guidance teaching that the “judicial exception” is rooted in “preemption” of abstract ideas. Although we can easily question whether the Supreme Court has confused, or fused, Section 101 and Section 102 (or 103), the Guidance’s statement clearly stands on solid textual footing. The “directed to” analysis therefore must involve consideration of whether and how the invention improves over the prior art (or perhaps only long-standing, “routine” prior art). In this statement, among others, the Guidance seems to instruct examiners not to go farther than what the court cases actually had to say. Again, the effect should be that more claims will pass muster.
  3. The Guidance instructs: “It is important to consider the claim as whole. Individual elements viewed on their own may not appear to add significantly more to the claim, but when combined may amount to significantly more than the exception.” This should put the kibosh on the plethora of rejections saying that each claim feature aside from the “abstract idea” represents nothing more than a conventional computer operation, as though that tautological observation were sufficient to demand a rejection. All computer-implemented steps are implemented on a computer, right? Yet we know that all computer-implemented inventions are not per se unpatentable. The effect should be that more claims will pass Alice’s “Step Two,” on the grounds that they have “significantly more” than just an abstract idea.
  4. In similar vein, the Guidance instructs that claims do not violate Section 101 when “[a]dding a specific limitation other than what is well-understood, routine and conventional in the field, or adding unconventional steps that confine the claim to a particular useful application.” Again, the effect should be that more claims will pass “Step Two.”
  5. The Guidance clarifies that a limitation may be enough to qualify as “significantly more” where the abstract idea is implemented “with, or by use of, a particular machine,” and further refer to the machine prong of the machine-or-transformation test. Again, the Guidance remains on solid Supreme Court ground, because Bilski instructs that the “machine-or-transformation test” remains a “useful clue” to deciding whether a claim is abstract. The effect allows applicants another way to pass “Step Two.”
  6. The Guidelines contain “a streamlined eligibility analysis [that] can be used for a claim that may or may not [be abstract] but, when viewed as a whole, clearly does not seek to tie up any [abstract idea] such that others cannot practice it. Such claims do not need to proceed through the full analysis herein as their eligibility will be self-evident.” This offers a bypass of “Step Two.”


What’s the Prognosis?

Despite the improvements that could reopen the door for important patents in important fields, the Guidelines seem far from perfect. But how could they be, given that they seek to harmonize the mushy judicial activism underlying Section 101 in the first place? Few federal statutes have spawned “judicially crafted exceptions” to flat Congressional instructions like the one in Section 101: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

For example, the Guidelines do not but should demand that examiners bear the burden of setting forth a prima facie case by (1) stating a specific abstract idea, (2) offering articulated reasoning why the proposed claim is “directed to” the abstract idea (without mere say-so or form paragraphs), and (3) providing evidence to support any assertions of “conventionality” or “routineness.” But the Office gives time and process to submit further comments.

USPTO Commissioner for Patents Peggy Focarino blogged, “We crafted this guidance to be a more straightforward eligibility analysis, one that promotes examination efficiency and consistency while conforming with the principles in the Supreme Court decisions.” Hear, hear! If followed honestly and thoughtfully, the Guidance indeed should improve consistency, although removing all subjectivity in the evaluation of whether a given invention passes Alice’s “Two Step” test is probably a futile goal.

Whether the trend will continue remains a mystery. Certainly November’s Ultramercial decision (invalidating a patent that the Federal Circuit had twice before upheld) represents the nadir of the dark days, and it too is fairly recent. I’d like to think that examiners, PTO managers, commentators, corporate opinion-influencers, and yes the courts will realize the dangers of a path that offers too many obstacles to patents seeking to protect inventions that drive the Information Age and the Service Economy. But this month, at least we can say that it is not impossible to get a software or business-method patent that can survive a Section 101 challenge.


Louis J. Hoffman is a patent lawyer based in Arizona. He is the lead counsel for DDR Holdings, in which capacity he obtained the Federal Circuit’s affirmance of a jury verdict for infringement of a patent claim that he wrote. He is also the Board Chair of the National Association of Patent Practitioners, a trade association of patent-prosecution specialists ( Mr. Hoffman’s practice involves commercialization of patents through patent sales and enforcement, as well as patent prosecution. He has an undergraduate degree in public policy and econometrics from Princeton University and a J.D. from Harvard Law School. Comments in this post do not necessarily represent the views of DDR Holdings or any of Mr. Hoffman’s other clients.


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Join the Discussion

4 comments so far.

  • [Avatar for Easwaran]
    December 23, 2014 10:36 am

    I mostly agree with this, but unfortunately I think you’re wrong regarding the effect of the Interim Eligibility Guidance on Examiner application of Step 1. The guidance says that “[a] claim is directed to a judicial exception when a law of nature, a natural phenomenon, or an abstract idea is recited (i.e., set forth or described) in the claim.” As an initial matter, the guidance is simply incorrect to provide this instruction, because the Supreme Court was using the term “directed to” as a way to determine what constitutes the focus of a claim, and the Interim Eligibility Guidance uses it simply to cast a wide net cast for any judicial exception located anywhere (even the preamble) in the claim.

    To illustrate why it will be harder to persuade Examiners to withdraw rejections under Step 1 now, consider the following example.

    A claim recites the feature “receiving a signal from a remote device.” This is a very common step in many telecommunications and software inventions. Now imagine your examiner says that “the claim is directed to receiving information, which is an abstract idea.” The primary Step 1 argument should be that the claim is not “directed to” receiving information (consider that in this circumstance you’ll likely fail if you argue that receiving information is not an abstract idea). However, emboldened by this new guidance, the examiner might simply say “well, you recite receiving information in your claim. Look at the guidance. QED.”

    Of course, all is not lost, because in most cases, you will be able to put together a strong Step 2 argument, but Step 2 is the more subjective prong, and you’ll be forced to spend time and money arguing something that is likely painfully evident. And the Examiner may not buy it anyway! The Interim Eligibility Guidance provides the “Streamlined Eligibility Analysis” (which is, in essence, a preemption gut-check) to address these situations, and while this sounds great in theory, if the rejection is already given, it is only a subset of Examiners that would revisit a “thorough” Step 2 argument to replace it with a quick-and-dirty streamlined analysis.

    Ultimately, I think that the Step 1 instruction that “directed to” means “recited (i.e., set forth or described)” is going to cause a LOT of issues.

    All that said, I think you hit nicely on the silver lining that the “abstract idea” must actually be found somewhere in the claims (suggesting that moving to a very high level of abstraction to identify a “concept” should not be possible given a requirement that the claims “recite (i.e., set forth or describe)” the concept). It remains to be seen whether examiners stretch the meaning of “describe” to essentially cover a “gist” anyway, though.

    On another note, some other good language in the Interim Eligibility Guidance does make clear that the examiner at least must specifically identify where the judicial exception is in the claims, and why it is considered an exception. See Interim Eligibility Guidance, page 74624, column 3, lines 41-46, directing examiners to, “[i]n the rejection, identify the exception by referring to where it is recited (i.e., set forth or described) in the claim and explain why it is considered an exception.”

  • [Avatar for Robert Plotkin]
    Robert Plotkin
    December 23, 2014 08:57 am

    Great article summarizing recent developments clearly and succinctly. I think that a quick read of the recent Guidelines may not make clear just how big of a shift they represent in the USPTO’s approach to abstract ideas. Thanks for laying all of this out, and so quickly after the release of the guidelines.

  • [Avatar for federally circuitous]
    federally circuitous
    December 21, 2014 09:08 pm

    If you find your examiner is relying on the “guidance” rather than the “law” I think you should simply file an action under the APA. And this guidance doesn’t change anything about the “law” at all.

  • [Avatar for Fish Sticks]
    Fish Sticks
    December 21, 2014 03:43 pm

    Louis, what is going to happen next with the DDR case?