In the United States, attorneys, judges and others have struggled for decades to determine when, if ever, computer programs or software should be eligible for patent protection. In the 1960’s the U.S. Patent Office declared that software could not be patented. Since then, a series of court decisions have rejected that view and established that one may definitely patent software in the U.S., although the exact requirements remain unclear and critics increasingly demand that it should not be patentable.
As a starting point, 35 U.S.C. §101 provides that any new and useful process, machine, manufacture, or composition of matter, or new and useful improvement thereof, is eligible for patent protection, subject to other requirements of the Patent Act (that is, §101 is just the threshold test for patentability). Congress has never stated any limitations to the patentable categories of §101 and case law has only recognized three categories of exceptions – subject matter that may not be patented: laws of nature, physical phenomena and abstract ideas. Computer software is often found to be ineligible on the ground that it comprises abstract ideas, but courts have struggled to provide a precise formula or definition for abstract ideas.
Before I finally waded through the 135-page monstrosity called the en banc decision in CLS Bank International v. Alice Corp. (seven opinions, one a brief per curiam opinion, and six full opinions, including Chief Judge Rader at the end “waxing lyrically” about the “good old days” when he first joined the Federal Circuit), out came last Friday the remand decision in Ultramercial, LLC v. Hulu, LLC (Ultramercial II). I’ve already observed that Rader had “thrown down the gauntlet” at his Federal Circuit colleagues in Ultramercial I by stating that “breadth and lack of specificity does not render the claimed subject matter impermissibly abstract.” See Throwing Down the Gauntlet: Rader Rules in Utramercial that Breadth and Lack Specificity Does Not Make Claimed Method Impermissibly Abstract*. In Ultramercial II, Rader (again joined by Judge O’Malley but not completely by Judge Lourie) has squarely “thrown down the gauntlet” again, now before the Supreme Court to either clarify their “fuzzy” Bilski ruling, or “get out of the way” and let the Federal Circuit do the job it was created by Congress to do in 1982, namely be the primary arbiter of patent law jurisprudence, including patent eligibility under 35 U.S.C. § 101.
In Ultramercial I and II, the patentee (Ultramercial) asserted that U.S. Pat. No. 7,346,545 (the ‘545 patent) was infringed by Hulu, LLC (“Hulu”), YouTube, LLC (“YouTube”), and WildTangent, Inc. (“WildTangent”). The ‘545 patent relates to a method for distributing copyrighted products (e.g., songs, movies, books, etc.) over the Internet for free in exchange for viewing an advertisement with the advertiser paying for the copyrighted content. WildTangent’s motion to dismiss for failure to state a claim was granted by the district court based on the claimed method being patent-ineligible under 35 U.S.C. § 101. (Hulu and YouTube were dismissed from the case apparently for other reasons.)
Three weeks ago Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit authored an op-ed article in the New York Times titled Make Patent Trolls Pay in Court. He co-authored this article with Law Professors Colleen Chien (Santa Clara) and David Hricik (Mercer). The premise of the article is simple: there are bad actors who abuse the patent litigation system by buying up and then seeking to enforce dubious patents with vague allegations of infringement that don’t seem to pass muster.
But exactly how do these bad actors abuse the litigation system? Chief Judge Rader explained the business model as follows: “[T]rolls… make money by threatening companies with expensive lawsuits and then using that cudgel, rather than the merits of a case, to extract a financial settlement.” Indeed, these patent trolls rely on the inefficiencies of the litigation process and bring lawsuits solely for the purpose of settling the case for nuisance value before the lack of merit in the case is exposed.
While it may be difficult for some to believe that this type of activity happens, those within the industry with first hand knowledge know it to be true. The problem is real, the damage it causes is significant and the frequency with which it occurs is astonishing. Rader, Chien and Hricik are absolutely correct!
After the Federal Circuit issued its en banc decision on May 10, 2013 in CLS Bank v. Alice Corp, the patent owner Alice Corp must be feeling like Alice in Alice in Wonderland, bewildered and frightened by the fantastical situation in which they find themselves:
(1) “bewildered” because an equally divided Federal Circuit affirmed the district court’s holding that Alice’s claimed system to tangible machine components including a first party device, a data storage unit, a second party device, a computer, and a communications controller, programmed with specialized functions consistent with detailed algorithms disclosed in the patent, constitutes a patent ineligible “abstract idea;”
(2) “frightened” because, as Judge Moore puts it, “this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents” (Moore Op. at 2); and
In what can only fairly be characterized as utterly ridiculous, 5 of the 10 judges on the Federal Circuit to hear CLS Bank v. Alice Corporationen banc would find that claims that satisfy the machine-or-transformation test are not patentable. While I think it is inappropriate to find the systems claims patent ineligible that isn’t what makes the decision utterly ridiculous. The decision is an embarrassment because 5 other judges would have found the systems claims patent eligible. Thus, we have an even split of opinion at the Federal Circuit.
The Federal Circuit decision in CLS Bank v. Alice Corp. is now being horribly mischaracterized in the media, which will now only further complicate the matter in the court of public opinion. This decision offers no precedent whatsoever regarding systems claims because it was a tie. Alice Corporation loses the systems claims not because that is the law of the land announced by the Federal Circuit, but rather because a single district court judge determined that the systems claims were patent ineligible. Had that same district court judge found the systems claims patent eligible then Alice would have prevailed.
In other words, the Federal Circuit is essentially abdicating its authority relative to whether systems claims are patentable to the district courts and presumably also to the Patent Trial and Appeals Board at the United States Patent and Trademark Office. Whatever the district court or PTAB does is just fine. Well, not quite.
Well, the United States Court of Appeals for the Federal Circuit sort of decided CLS Bank v. Alice Corporation earlier today. Truthfully, all the important questions that we thought might be answered remain completely and totally unanswered because there were only 10 judges who sat on the en banc tribunal and no more than 5 judges signed on to any one opinion.
The only thing we know is this — the Federal Circuit issued an extraordinarily brief per curiam decision, which stated:
Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.
Thus, all of the asserted claims are not patent eligible. At the moment I am completely flabbergasted and don’t know what to say.
As readers of IP Watchdog are aware, Federal Circuit Chief Judge Rader recently delivered an important and noteworthy defense of the U.S. patent system at the recent annual meeting of the Association of University Technology Managers (AUTM). I did not attend the event, but others have recounted that Chief Judge Rader’s remarks reminded attendees that the patent system is intended to promote innovation and asserted that patent litigation abuse is the main problem of our patent system.
According to Chief Judge Rader, patent litigation abuse (which he referred to as “litigation blackmail”) occurs when a plaintiff patent owner attributes a high value to an asserted patent with the intention of extracting a small settlement from an alleged infringer defendant. He went on to outline a four step approach to curb patent litigation abuse, summarized simply as:
How to Write a Patent Application is a must own for patent attorneys, patent agents and law students alike. A crucial hands-on resource that walks you through every aspect of preparing and filing a patent application, from working with an inventor to patent searches, preparing the patent application, drafting claims and more.
Without hesitation I recommend One Simple Idea and think it should be required reading for any motivated inventor. There is so much to like about the book and so much that I think author Stephen Key nails dead on accurate. The book is educational, information and inspirational. For the $14 cover price it is essential reading.
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