Blockchain Patenting Strategies in view of the Berkheimer Decision

By Thomas Isaacson
June 27, 2018

The Federal Circuit in Berkheimer v. HP, Inc. caused the Alice pendulum to swing dramatically in a new direction, or back to where it originally was.  This article is not directly about the Berkheimer decision, which addressed step 2B of an Alice analysis, as others have addressed the changes in the law.   We will summarize the Berkheimer decision and then apply its principles to business-related patents, and particularly blockchain technologies, and how Berkheimer might impact application of step 2A in an Alice analysis.

The Berkheimer decision addresses the issue of whether a combination of additional elements, beyond a general concept of what the claims are “directed to,” represents well-understood, routine, conventional activity under step 2B.  The Federal Circuit held that the question of whether the certain claim limitations represent well-understood, routine and conventional activity raises a factual issue which precludes summary judgment.  An April, 19, 2018 Memorandum to the Patent Office personnel outlined a higher bar than was previously implemented with respect to formulating rejections under step 2B.   An Examiner must now support a rejection that asserts that the additional element(s) are well-understood, routine, conventional activity with at least one of four different types of specific evidence, such as a document or prior court case showing the conventional nature of the specific additional elements, or the patent application or a prosecution history estoppel acknowledging that the additional elements are conventional.  The Examiner may also take Office Notice as well.

Typically, the Examiner under step 2A will generically define what the claim is “directed to” and leave the more narrow features of the claims to be considered under step 2B as “additional elements”.  However, often, the “additional elements” never specifically get identified or even mentioned in detail in the rejection.  Office Actions often, in our experience, gloss over the detailed specific limitations of the claim even under step 2B. This has the result of enabling the Patent Office to reject claims without a robust analysis.  We see the result of this in a major increase in rejections under Section 101 in art units like Technology Center 3600 (Business Methods).

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In practice, we believe that it will be difficult to implement the new guidelines for Examiners when narrow claim features are mentioned as “additional elements”.  Rarely will a patent attorney identify the detailed specific limitations of a claim and declare that they represent routine and conventional concepts in the relative industry. It will also be rare to find a court decision that specifically talks about similar or exact “additional elements” in the court case claims as in the claims currently being examined as being well-understood, routine and conventional.  We can see Examiners trying to take Official Notice, but that can also be challenged according to Patent Office procedures to force the Examiner to cite actual evidence, and if the actual limitations of the respective claim are identified, the subject matter will likely be too narrow and specific to be appropriate for the taking of Official Notice.  We would expect that practitioners will push the Patent Office to support conclusions that the additional element(s) are well-understood, routine and conventional by finding publications that demonstrate the same.  We also expect protections to urge the Examiners to include specific narrow claim features when describing what the “additional elements” are, otherwise the analysis will be meaningless.

The question is how does this procedure under Step 2B apply to an invention in the financial space that is rejected under an Alice type rejections in which Examiner asserts that the claims are directed to (under step 2A) a concept that is “a fundamental economic practice long prevalent in our system of commerce”? In Alice, the framework was applied in step 2A in determining whether the claims are directed to an abstract idea.   The court found that, like the risk hedging in Bilski, the concept of intermediated settlement is a “fundamental economic practice long prevalent in our system of commerce.”  There are several similarities to this characterization under step 2A to the analysis under step 2B in Berhkeimer.

The factual inquiry outlined in Berkheimer for step 2B is similar in nature to the inquiry of whether a claim is directed to an economic abstract idea under step 2A in Alice.  Simply citing a prior art reference or a document does not establish that an economic practice is “fundamental” or has been “long prevalent in our system of commerce.”  Like Berkheimer, whether a claim is directed to an abstract idea is a fact question.

In both cases, the “conventional” analysis under Step 2B and “economic practice” analysis under Step 2A, the concepts covered in the claims must be broadly applicable in actual practice to qualify for rejection.  In other words, the analysis differs from a prior art analysis.  Under a Section 102/103 prior art analysis, even if a patent or document discloses the concept, the Examiner can reject the claim as being obvious or anticipated by the reference.  However, just because a concept is disclosed in a document does not mean that the concept was ever sold or actually used in commerce or routinely applied.  Further, the concept (in both the “economic practice” step 2A analysis and the “conventional” step 2B analysis) can’t simply have been used in commerce or in public.  The terms used in both of these different analyses require expansive use or activity of that particular concept such that it becomes “routine”, “conventional” or ”long prevalent” and “fundamental”.  Selling ten widgets online or one small company implementing the concept should not qualify under either analysis.

Unfortunately, in the examination guidance given following the Alice decision, the requirements of citing a publication or support for the assertion that a claim at issue is directed to a fundamental economic practice long prevalent in our system of commerce was removed or downplayed.  The Supreme Court in Alice cited three documents, including a paper from 1896, to support its conclusion that the intermediate settlement concept was fundamental and long prevalent in our system of commerce.  The July 2015 Update: Subject Matter Eligibility, page 3, the Patent Office stated that “when identifying abstract ideas, the Examiner should keep in mind that judicial exceptions need not be old or long-prevalent, and that even newly discovered judicial exceptions are still exceptions, despite their novelty.”  This characterization instructs Examiners that judicial exceptions need not be long prevalent.  Section A of the Update broadens the scope of concepts that can be found to be abstract ideas:  “The phrase ‘fundamental economic practices’ is used to describe concepts relating to the economy and commerce, such as agreements between people in the form of contracts, legal obligations, and business relations.  The term ‘fundamental’ it is used in the sense of being foundational or basic, and not in the sense of necessarily being ‘old’ or ‘well-known’”.

There is no other discussion in the Update of how to treat the other language from the Alice decision with respect to economic practices that are “long prevalent in our system of commerce.”  Only the term “fundamental” is further defined.  By seeking to establish that a fundamental practice does not have to be old or well-known, the Patent Office essentially removed the requirement for an economically related abstract idea to be “long prevalent in our system of commerce.”  Being “prevalent” in our system of commerce could be characterized as being “well-known.”  If some financial invention is not well-known in the system of commerce, one could argue that it is simply not that prevalent.  The concept of intermediated settlement was around since the 1800s.  The Update focused on a definition of the term “fundamental” but ignored the other part of the phrase from the Alice decision.  While it could be true that the term “fundamental” does not necessarily mean old or well-known, that only addresses part of the phrasing in the Supreme Court decision.  The part that is not addressed in the Update is that latter part of the phrase in which the fundamental economic practice must be “long prevalent in our system of commerce.”

Examiners then determine whether a claim is directed to an abstract idea, particularly in Technology Center 3600, only considering whether a claim is a foundational or basic concept.  There is no evidentiary requirement that that concept has been long prevalent in our system of commerce.

The same factual analysis required in Berkheimer under step 2B should apply to fundamental economic practice analysis of claims under step 2A.  The questions have similar factual underpinnings in both steps.  Applicants, when faced with economic based claims and particularly blockchain-based claims, should argue that whether a claim is directed to a fundamental economic practice is a fact question that has three parts.  (1) The claims should be directed to a “fundamental” economic practice; (2) The claims should be directed to practice it has been “long” practiced in the system of commerce; and (3) The claim should be directed to a “prevalent” practice in our system of commerce.    Each of these fact questions requires supporting evidence which should fall in the same four categories outlined in the April 19, 2018 Memorandum.

Typically blockchain-based claims will be directed to a financial invention that is implemented on the blockchain.  Given the recent introduction of blockchain technologies, a claimed blockchain-based financial concept is not likely to be a fundamental economic practice long prevalent in our system of commerce.  Although bitcoin and other crypocurrencies have grown in market cap dramatically over the last year and a half, none of the cryptocurrencies, tokens, or other blockchain-based technology could be characterized as a fundamental economic practice long prevalent in our system of commerce in the same pattern as was outlined in Alice.  Any blockchain-based document could not precede the bitcoin white paper, published in 2008.  While crypocurrencies are expanding in their use and application, they are certainly not prevalent in our system of commerce at least in the near future.

We believe that the principles of Berkheimer therefore should be applied to the analysis related to fundamental economic practices under Alice and Bilski.  We believe that the pendulum is slow in swinging back into a more robust analysis.  We applaud director Andrei Iancu for his attention to this important matter and for making appropriate corrections.  We note, importantly, that the corrections that have been made, and that can still be made as outlined above, merely align the Patent Office procedures to existing case law and will make the procedures more robust and probing.  Our experience over the past several years has been that all too often what should be a low hurdle to overcome to determine whether a particular claim is patent eligible under Section 101 has turned into a high insurmountable hurdle.  By requiring a more substantive rejection, and by applying a more robust analysis under step 2A, we believe that the Berkheimer decision brings the law more in alignment with the analysis within the Alice decision by requiring evidentiary support for a conclusion that the claims are directed to an abstract idea that represents a fundamental economic practice long prevalent in our system of commerce.

An Examiner should be required to support a conclusion that a claim under analysis is directed to a fundamental economic practice with evidence based on one or more of (1) a citation to an express statement in the specification or during prosecution in which the applicant stated or argued that the claims at issue were directed to a fundamental economic practice long prevalent in our system of commerce; (2) a citation to one or more of the court decisions, such as Alice or Bilski, in which the claims at issue are similar enough to the claims in those cases to establish this fact (i.e., if you are prosecuting claims directed to hedging or protecting against risk (Bilski) or claims directed to intermediated settlement generically (Alice), otherwise, these court cases would provide no evidence that the current claims are directed to fundamental economic practices long prevalent in our system of commerce); (3) a citation to a publication such as in Alice to (old) documents which establish that the concept is a fundamental economic practice long prevalent in our system of commerce; and (4) a statement that the Examiner is taking Official Notice that the claims are directed to a fundamental economic practice long prevalent in our system of commerce.  However, we note in the blockchain context, that claims directed to intermediated settlement or hedging risk utilizing blockchain-based technology would not be fundamental economic practices long prevalent in our system of commerce given the newness of blockchain technologies into the marketplace and their application to financial-related inventions.  Applicants should expressly state in their applications that the claims in that case, if financially related and blockchain-based, that the blockchain technology is a basic part of the innovation and therefore part of what the claims are “directed to.”

In sum, applying the Berkheimer step 2B analysis in a consistent manner with the Alice step 2A analysis would result in the following with respect to economic based inventions: the Examiner be would be required to provide supporting evidence regarding a factual conclusion that the claims are, under Step 2A, directed to a fundamental economic practice long prevalent in our system of commerce[1].  Where no such evidence could be found, or where the evidence only represents, for example, disclosure of the concept in a prior art patent, such evidence would not be sufficient to establish the long prevalent nature of the concept as being practiced in our system of commerce, or the routine and conventional nature of the concept.  In theory, the evidence should be even harder to gather than could be used in the section 102/103 rejection.  Absent such evidence, the Examiner should not be able to maintain eligibility rejection under Alice that lacks any support.

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[1] The Examiner, under step 2B and according to Berkheimer, must only conclude that the additional elements within the claims represent well-known routine and conventional concepts with supporting evidence.

The Author

Thomas Isaacson

Thomas Isaacson is a shareholder at Am Law 100 firm Polsinelli. With technological experience in standards-based patent analysis, cloud computing, wireless technologies and protocols, speech processing, and mechanical arts, he understands the intricacies associated with new technologies and uses that knowledge to provide clients with effective patent management and protection. Tom focuses on patent and trademark prosecution and litigation, and serves a range of clients, including Fortune 100 companies. He has technological experience in standards-based patent analysis, cloud computing, blockchain technologies, wireless technologies and protocols, speech processing and mechanical arts.

For more information or to contact Tom, please visit his Firm Profile Page.

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Discuss this

There are currently 1 Comment comments.

  1. anony June 27, 2018 10:39 am

    In a nutshell, strategy presented is to shoehorn the Step 2B (Alice part 2) requirements for evidence from the most recent guidance into the Step 2A (Alice part 1) analysis. An issue with this strategy is that the guidance does not require evidence for the Step 2A (Alice part 1) analysis. Without explicit instructions to do so, examiners will likely not bother with providing evidence for the Step 2A (Alice part 1) analysis.

    An alternative strategy is to argue that the claim as a whole (i.e., all steps) under the Step 2B (Alice part 2) analysis is not “well-understood, routine, and conventional”. Diamond v. Diehr requires analyzing the claim as a whole under Section 101 and even Alice in its part 2 discussion analyzes the claim as a whole, or rather, as an “ordered combination”. Doing so under the new guidance should require the examiner to provide evidence that all of the steps considered as a whole are “well-understood, routine, and conventional”.

    A distinction between these strategies is that the first strategy asks for a favor (requesting that the examiner provide evidence where the examiner has not been instructed to do so in Step 2A) and the alternative strategy demands that the examiner follow their instructions (to provide evidence where the examiner has been explicitly instructed to do so in Step 2B).

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