Ten years ago if you said that patent eligibility would become one of the most important, hotly debated issues in the patent field most in the industry probably would have thought you simply didn’t know what you were talking about. Five years ago some saw the issues percolating, but still many in the trenches with their day-to-day practice life would likely still have raise a cautious eyebrow and questioned why you thought even the Supreme Court might turn its back on a solid generation of well established patent law. The tone was perhaps cautious, but most couldn’t imagine that the Supreme Court and the Federal Circuit would cease their expansive view of patent eligibility.
Oh how times change!
Today, after several years of substantial turmoil, patent eligibility in a variety of economically significant technologies is extremely uncertain, including software, natural products, medical diagnostics and personalized medicine. It is with great irony that one of the few things we know with any degree of certainty is that business methods are patent eligible. We likewise know that at least some cDNA is patent eligible, except that man-made cDNA that happens to be identical to what occurs in nature. Of course, that raises more questions than it answers.
Not surprisingly, the decision of the latest Federal Circuit case on software patent eligibility – Accenture Global Services, GMBH v. Guidewire Software, Inc. – could be predicted from the makeup of the CAFC panel. Judge Lourie, joined by Judge Reyna, issued the majority opinion that the system claims were invalid. The Court followed the analysis for determining patent eligibility from CLS Bank,, 717 F.3d 1269 (Fed. Cir. 2013) and affirmed the district court’s finding that the system claims of U.S. Patent No. 7,013,284 (“the ‘284 patent”) were ineligible. Judge Rader dissented.
Accenture appealed the district court’s holding that system claims 1-7 and method claims 8-22 were invalid as not directed to patentable subject matter. Interestingly, Accenture only appealed the ruling on the system claims, thus waiving its appeal on the method claims.
Everyone in the industry knows that over the past several years there have been numerous patent eligible subject matter issues raised and decided (to some extent) in the United States Supreme Court, the Federal Circuit and in the Patent Trial and Appeals Board at the USPTO. None of these cases are what I am referring to here in this section. In perhaps lesser known fashion Congress made two significant, but limited, statutory changes to what is considered patent eligible subject matter.
1. Tax strategy patents
The first of two noteworthy changes relates to tax strategy patents, which became effective on September 16, 2011.
In a bizarre circumstance Congress chose not to render tax strategy patents patent ineligible under 35 U.S.C. 101. Rather they chose a far more convoluted route. Tax strategy patents are still patent eligible subject matter pursuant to Section 101, but for purposes of evaluating an invention under section 102 or 103 of title 35, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, is deemed insufficient to differentiate a claimed invention from the prior art.
The deeming of tax strategies, known or unknown, as being within the prior art does not does not apply to that part of an invention that (1) is a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing; or (2) is a method, apparatus, technology, computer program product, or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor. Thus, you can still patent technologies, including software related innovations, that relate to the preparation of tax filings and the like.
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.
The law as it relates to software has been in flux over the last 10 years. Many older patent applications simply do not have enough detail to satisfy the current requirements to obtain a patent, although when drafted they would have been sufficient to satisfy the requirements then in place. Describing software as a pure method claim has not worked for a long time despite the fact that in reality software is really a method. Much more than a cursory description of software as a series of steps is required in order to have hope of obtaining patent protection for software.
Indeed, ever since the Federal Circuit en banc decision in Bilski, claims have been required to be tethered to tangible components, such as data storage devices, processors, databases, controllers, servers and the like. Unfortunately, however, the Patent Trial and Appeals Board at the United States Patent and Trademark Office now has taken the position that they will ignore the tangible components within a computer implemented method claim and then look to see what remains before determining whether the claim is patent eligible. See PTAB Kills Software.
Of course, after you remove or ignore the tangible components what remains is a naked process, which is patent ineligible. Thus, deciding to ignore tangible components leads to the inescapable conclusion that no software is patent eligible. Such disingenuous reasoning has the effect of punishing applicants for writing claims as the Patent Office has mandated ever since the machine-or-transformation test was first announced by the Federal Circuit in Bilski. The test announced in SAP/Versata, which was the first covered business method review decision announced by the PTAB, cannot be the correct test, and ultimately the decision (or at least the rationale) will be reversed. Any test that has the net effect of rendering all software patent ineligible, like the SAP/Versata test, is simply not correct as I will explain more clearly below.
There are a great many people inside the patent industry that are working hard to convince themselves that the Supreme Court decision in Association of Molecular Pathology v. Myriad Genetics is not so bad. The argument goes that the Supreme Court explicitly stated that cDNA is patent eligible and that Chakrabarty remains good law. The trouble with both rationales is that they are incorrect.
It seems to me that anyone who tries to convince themselves that Myriad is anything other than a disaster is just fooling themselves. It does no good to put our heads in the sand and ignore what the Supreme Court said as if by doing so it will make a difference. Anyone who is honest with themselves knows how the district courts will interpret Myriad, and it will not be in a patentee friendly manner.
But before going to far, let me conclusively demonstrate with the Supreme Court’s own explicit language why those who are trying to convince themselves, and others, that the decision is workable are wrong.
The recent Supreme Court decision in the Myriad case, like past decisions, did not announce a clear rule that can be extrapolated from the decision and applied in other technology areas. Consequently, the determination of what subject matter is patent-eligible continues to be unclear. Patent law specifically identifies four broad categories of subject matter—process, machine, manufacture, or composition of matter—that are patent-eligible. Although very few things fall outside these categories, the Supreme Court has engrafted some exceptions and limitations onto these statutory categories. Patentable-eligible subject matter that is otherwise within these categories is deemed ineligible for patent protection if it is a “law of nature,” a “physical phenomenon,” or an “abstract idea.” The precise meaning or scope of these exceptions and limitations are difficult to enunciate despite the numerous courts that have grappled with this issue. These exceptions and limitations can be viewed as labels that are attached after a judicial balance has been made between competing or conflicting underlying concepts. Justice Thomas recognized that balance in Myriad when he wrote, relying on both Mayo, and Chakrabarty, that “patent protection strikes a delicate balance between creating ‘incentives that lead to creation, invention, and discovery’ and ‘impeding the flow of information that might permit, indeed spur, invention.’”
This balance provides the underlying justification for viewing some discoveries as being so basic or fundamental that everyone should be free to utilize them. Nevertheless, it is imperative that a clear rule or test, based on this justification, is enunciated by the Supreme Court. Any resulting rule will be imperfect because it will potentially be over or under inclusive. Additionally, it will have disproportionate effects on different industries. But the importance of a uniform and predictable rule outweighs these deficiencies because it allows a business enterprise and courts to more easily make decisions. Recent Supreme Court patent decisions have generally rejected bright line tests in favor of a more-opened ended or flexible approach. Unfortunately, this provides limited guidance to lower courts and consequently the issue remains unsettled.
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