Posts Tagged: "Alice v. CLS Bank"

It is one again time to take a moment to look back on the year that was, reflecting on the biggest, most impactful moments of the year. For us that means looking backward at the most impactful events in the world of intellectual property. Unlike in years past where we would get a variety of different perspectives from industry insiders, there…

Earlier this year the Supreme Court issued a ruling in Alice Corp. v CLS Bank Int’l, which applied the Mayo 2-part test to computer-implemented subject matter.[2] The 2-part test asks: (1) whether the claims at issue are directed to patent-ineligible concepts; and (2) if yes, is there something “significantly more” in the claim to ensure that the claim is not…

The judge made exception to §101 for laws of nature, natural phenomena, and abstract ideas exists because a patent on these would impede innovation more than promote it, contrary to the primary objective of patent law. As the Supreme Court emphasized, we must distinguish between claims to the building blocks of human ingenuity versus those that integrate the building blocks into something more. The former would risk pre-empting or disproportionately tying up the use of the underlying ideas – to the detriment of progress in the useful arts. Basically, the purpose of the Mayo test is to ensure that patent law not inhibit further discovery by preempting or improperly tying up the future use of building blocks of human ingenuity.

Since the Alice Corp. decision, rejections under 35 U.S.C. 101 have become substantially more common in business-method art units, and notices of allowance have become substantially more rare in these art units. Meanwhile, 101 rejections made even pre-Alice were amongst the poorest quality for business-method art units as compared to those from other computer-oriented art units. Thus, it appears as though the patent prospects for applications assigned to business-method art units are grim. Given that the United States has traditionally been a leader in software and that software applications are frequently assigned to business-method art units, it seems unfortunate that the patent office is so unwilling to grant protection to innovation in this area.

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?

The Supreme Court is simply not knowledgeable about patent law. And that’s not to say that the Justices couldn’t become knowledgeable, but even in this active state they’re only handling six or eight patent cases a year at most and so a lot of those deal with contracts and that sort of thing. So they’re not ever going to do enough patent cases to develop a specialty. They’re allergic to bright line rules despite the fact that in our space we have 10,000 front line decisions makers between the patent examiners, the Board, the district courts, and the Federal Circuit. You can’t have that many decisions makers without bright line rules, which should be self-evident to anybody including those that went to Ivy League schools and wear black robes. But apparently it’s not.

The environment for patent applicants and examiners that has resulted from such inconsistent treatment of Alice by the USPTO is one in which neither examiners nor applicants have clear guidance about how the USPTO is interpreting and intends to apply the Alice decision. This makes it difficult for examiners to know whether and how to issue Alice-based rejections, and for applicants to know how to respond to such rejections. In this environment, software patents are not dead; instead, they are, like Schrödinger’s cat, in an indeterminate state, simultaneously dead and alive until examined by an observer. In this case, the uncertainty over the impact of Alice on patent prosecution will only be dispelled when the USPTO analyzes the Alice opinion thoroughly and announces the Office’s interpretation of that opinion with a clear and unified voice. At that point, inventors, business owners, patent prosecutors, and patent examiners will be able to return to playing their respective roles within a rational patent system in which all parties involved seek to promote innovation according to fair, clear, and consistently-applied rules.

The consequences of SCOTUS decisions are really severe. The U.S. is no longer a favorable jurisdiction for many biotech patents, medical devices and software. What that’s going to mean is companies are going to move. We’ve known this throughout history. Companies locate where the laws are the best for them. If you’re an innovator you’re going to go where the patent laws are the strongest. And that’s why the U.S. has dominated in these industries. We’re number one in biotech is because of Chakrabarty, which has basically been overruled. Prior to Myriad you would have said the ruling of Chakrabarty was this: if there’s human intervention it’s patent eligible, but now you can’t say that because there was human intervention in Myriad, which they acknowledged, and still the claims were patent ineligible. We know companies will move to jurisdictions with more favorable laws…

While impairment analysis exists for reported intangible, there is no process whatsoever for writing off non-reported intangibles, which include all internally created patents as previously discussed. Since these assets are not on the balance sheet, there is nothing to write off in the first place and no basis against which to conduct an impairment test. From a pure accounting perspective – there is no place to record the loss, and no way to calculate the size of the loss. This does not mean that the markets will not factor that into the stock price, even without specific disclosure by the company. It may very well be that if companies start writing off acquired intangibles, stock analysts and investors could estimate the degree at which a similar write-off could be applied to non-reported patents, and adjust stock price expectations accordingly.

There are plenty of patents being issued to these giants of the banking industry which protect methods of processing transactions or performing other services through computer technologies. This year’s Supreme Court decision in Alice Corp. v. CLS Bank International has drawn a lot of attention to software patents, and particularly the type of financial service software patents that were protected by the Alice Corporation patent. The Supreme Court specifically cited that fact that the software was related to financial transactions as at least some reason to rule the patent claims invalid. Yet, there are a number of patents we noticed which were recently issued to these financial corporations involving software technologies for financial services.

LEMLEY: “I think Alice is a real sea change on the patentable subject matter issue. I’ve heard a lot of folks talk about how Alice doesn’t really use the word “software” so it doesn’t really change anything, but I honestly think that’s wishful thinking… I think a lot of patent lawyers had talked ourselves into thinking that the Court didn’t really mean it in Mayo when it talked about having to add a significant inventive component beyond the abstract idea or the natural process. But the court in Alice makes it clear that if your patent covers an implementation of an idea we want proof of an inventive concept beyond that idea before we’ll grant you a patent.

Modern software tools allow people to turn fairly abstract ideas into reality. That’s the beauty of software. You can start describing things in such a high level and yet output what I consider an innovative invention. And so how do we separate abstract ideas that are unpatentable from an actual software implementation is going to be really difficult. And I don’t think this ruling helps…. One of the reasons there’s an explosion in software patents is that it’s really easy to create a software patent without having written the code. And I’m not saying that’s a bad thing. But I do know, I have seen patents where there have been code snippets that don’t work. And I think that’s one thing to be careful of.